Differences Between Nonprofit Accounting and For Profit Accounting ...

Do you know the differences between non profit accounting and for profit accounting? Here is some more information on the topic.?

When doing accounting, chances are that you would be dealing with various types of entities, each with their unique needs. The vast majority of accounting is done for businesses which are for profit entities. They can be individuals, partnerships or corporations, but their main goal is to carry out business activities that would generate a profit. The stakeholders who would be interested in knowing about the finances of a business are numerous. They can include shareholders, members of the management team, investors, creditors and government agencies. In the case of a publicly traded company, the general public might also have an interest in the finances of a certain company. This is often the case with people who invest in stocks, so that they can make a decision whether they would want to invest in a certain publicly traded corporation or not.

What sets nonprofit accounting apart is the type of organization that it serves. A not-for-profit organization can have different purposes. What defines a non profit will vary depending on jurisdiction, but generally these organizations have goals that could be charitable, religious, social or educational. But the main element is that the leaders of the organization, as well as those who contribute to it, would not expect to receive any financial benefit as the result of actions of the organization.

In a business, the stakeholders main concern would be the profitability of the enterprise. The more revenue that a business is able to generate, the better it is for them. But a non profit entity, by definition, would have a different goal. Its stakeholders do not actually want the organization to amass large amounts of fund. Rather, they are focused on maximizing the amount of contributions made to the organization as well as watching how these contributions are spent, to ensure that they benefit the cause that the organization is about.

In nonprofit accounting there are also different terms used in business accounting. An income statement is called a statement of operations; a balance sheet is a statement of financial position; a statement of retained earnings becomes a statement of changes in net assets; net income is excess of revenue over expenditures.?

Therefore, there are certain differences between doing accounting for a business and for a not-for-profit organization. This is why non profits often hire accountants that are experienced in working for not-for-profit organizations, as well as use specially made accounting software that is better adapted to their reality.

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