NONPROFIT VERSUS FOR-PROFIT ORGANIZATION ACCOUNTING

By Richard Sammons

You have been working in public account for 3 years following college, and have learned all about audits, tax returns and how to make money in the corporate world.

Now, you have accepted a job with a large nonprofit organization. You walk in on the first day, and they ask you to complete the monthly financials for the organization.

What do you do?

You look at their financial reports from last month to get an idea. What do you see?

  1. What are these funds? – restricted, operational, endowment? And why does each have a total line separate from the others, and there isn’t an ending Net Income or Loss Number?
  2. And the revenue lines? They don’t look like the product and services you are used to – Donations, Grants, In-Kind?
  3. And Ownership? Looks like no one owns the business.

According to Terry Masters, from the article “The Major Accounting Differences Between Profit & Non Profit Organizations” on smallbusiness.chron.com

“Failing to maintain the nonprofit’s books according to the special state and federal laws that
govern nonprofits can jeopardize the organization’s tax-exempt status and can lead to legal liability
for board members, officers, and staff.”

So, you start by looking at the company with a new set of eyes, and realize that the nonprofit world of accounting has a different set of standards than the for profit world, and trying to make your books look like a company that is pursuing profit is both inappropriate for your business model, and may get you in trouble with both legal and tax issues. So make sure you approach the reporting, and tracking of expenses and incomes with that in mind.

Richard W. Sammons, CMA CPA (inactive)

RightPath Business Advisors

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