Differences between Profit and Nonprofit Accounting

Differences between Profit and Nonprofit Accounting in Financial statement analysis :

Financial statement analysis Differences between for-profit and non-profit organizations Organizational differences • Different orientation toward the bottom line. • Although both must comply with GAAP and FASB, SEC monitors for-profit organization accounting. IRS and state regulator monitor non-for profit. Governmental accounting has a separate set of rules. Other differences in stakeholders • Investors versus donors or government agencies • IRS: need to comply with 501( c) 3 (and other) requirements • Need to maintain credibility and respect of community Resulting differences • Fund accounting – restricted, temporarily restricted, permanently restricted accounts – endowment, agency, enterprise funds Other differences • Separation of expenses into functional categories – Program – Administrative – Fundraising Other differences • Closer links between IRS Form 990 requirements and financial statements Similarities • Need to look at one organization across time – need consistent accounting procedures – need to understand the footnotes Need for information from different perspectives • Balance sheet--snap shot • Cash flow statement--solvency • Activities (income statement)--Matching Ratio analysis • Same basic ratios for solvency, liquidity, profitability (less important) with some additional issues.