Non-Profit CAFR Nonprofit accounting is based on the fund accounting, making it very complicated and different from for profit accounting. Fund accounting financial statements are divided into government wide, proprietary, and fiduciary statements. Nonprofit actually has three sets of financial statements compared to one set of financial statements for a for profit entity. Government wide statements basically cover the operations of the government in general. The government wide statements are the ones that are basically the same as for profit financial statements, except they are done differently. Proprietary statements cover funds that are restricted for certain items, such as capital infractures. Fiduciary statements are funds the government is responsible for that are for held other entities, such as the hospital district.

Differences in Missions

There are key differences between non-profit and for profit accounting. (Nonprofit (Not-for-Profit) Accounting) The primary mission of nonprofit is to provide needed services to the community, where for profit is to earn profits for shareholders. The secondary mission is to ensure revenues are greater than expenses in order for services to be maintained or expanded, where for profit is to provide services and sell goods to make profits. The tax status of nonprofit is tax exempt if approved by IRS compared to for profit is subject to tax for the business and the shareholders.

Financial Statements

The Statement of Financial Position for a nonprofit is the Balance Sheet for a for profit business. The Statement of Activities for a nonprofit is the Income Statement or Statement of Operations. The Statement of Functional Expenses for some nonprofits is the Statement of Cash Flows in for profit. The Statement of Cash Flows for nonprofit is the Statement of Stockholder's Equity. Both nonprofit and for profit have the notes to the financial statements. The nonprofit expense is reported by function as program, management and general, and fundraising. Nonprofit and for profit obtain sources of money other than revenue from borrowing from lenders, but for profit corporations issue shares of stock as an additional source of money and nonprofit government issues bonds. Where for profit...

The accounting equation for profit is Assets = Liabilities + Owner's Equity, but for the nonprofit the equation changes to Assets = Liabilities + Net Assets.
The Net Asset section of the Statement of Financial Position reports the totals in classifications of unrestricted, temporarily restricted, and permanently restricted. These are based on contributions from contributors. Contributors often place restrictions on donated money. For example, if a contributor donated $100,000 for the youth center and stated a restriction of the money being put in investments for two years, this would be temporarily restricted funds. After the two-year period, it would transfer to the unrestricted funds for the youth center. The general ledger accounts for the Statement of Financial Position are assets, liabilities, and net assets.

The Statement of Activities has four columns across the top for unrestricted funds, temporarily restricted funds, permanently restricted funds, and a total column for the totals. The formula for the statement is revenues -- expenses = change in net assets + beginning net assets = ending net assets. Revenues often include a reclassification of net assets at the time they are released from restriction. The revenues of the statement include contributions, membership fees, program fees, fundraising, grants, investment income, gain on sale of investments, and reclassification of net assets. The expense portion is figured by program expenses + supporting services expenses -- management and general -- fundraising. Under the accrual accounting method, expenses are not recorded in the period to best match revenues. They are counted as an expense in the current period or when they are used up. It is also important to note that deferred tax revenues are listed as a liability in nonprofit statements. These are actually accounts receivable for a for profit business on the Balance Sheet. For profit accounting matches expenses with revenues in the current period, nonprofit does not. For the Statement of Activities, the general ledger accounts are revenues, gains, expenses, and losses. The Statement of Cash Flows is basically the same, except for tax,…