The Basics of Nonprofit Accounting |
Posted: October 3, 2017 |
While some people are familiar with accountants and the bare basics of what purpose they serve, a vast majority don't know exactly what accountants do - it's more than just adding and subtracting, that's for sure. More or less, accounting involves recording pertinent financial information from economic occurrences and transactions. Equally important is categorizing the nuances, ins and outs, and characteristics of such transactions. While accounting is difficult enough in the first place, fund accounting for nonprofit organizations is even more demanding, challenging, and mentally strenuous. Accounting is an integral part of every business and organization, especially in not-for-profit entities that must demonstrate they've adhered to rules and guidelines for government grants, spent donors' bequests and donations as they so specified, and have enough supporting documentation to back up their assertions in the unavoidable event of facing an audit. Fortunately for you, this article details the most integral parts of nonprofit accounting that every owner, bookkeeper, student, employee, and aspiring accountant needs to know to properly keep the books of any nonprofit entity based in the United States of America. Let's get started. What Exactly is a 501(c)(3) Nonprofit Entity? Entities fitting the bill as a 501(c)(3) nonprofit are often called charitable organizations, unlike their for-profit counterparts. 501(c)(3) organizations can't be operated in seeking to benefit private interests of owners, directors, employees, or any person or group related to them. Also, they aren't required to report the names, addresses, or other information about their donors - anonymous donor reporting is a major characteristic of charitable organizations. The Formal Classification of Nonprofit Organizations Is Titled as As virtually everybody with a half a brain in the United States of America knows what the Internal Revenue Service is. For those who don't, the IRS - short for Internal Revenue Service - collects taxes to keep the nation running smoothly. The government agency also has quite a bit of power to force persons and entities to pay their taxes. Section 501(c)(3) of the Internal Revenue Code, the guidelines by which the IRS operates, details characteristics of nonprofits here in the United States. Here are just a few of these guidelines that make 501(c)(3) nonprofits. Variances Between the Structure of For-Profit and Not-For-Profit Entities
What Financial Statements do Nonprofits Utilize? Businesses with goals to turn profits from operations release four types of financial statements-documents that provide investors, creditors, stakeholders, and interested parties with financial information about a company's current financial situation or that over a recent period of time. Rather than releasing a balance sheet, in which the total tallies of assets, liabilities, and owner's' equity are summed at a specific, discrete period of time, nonprofits release the statement of financial position, which identifies liabilities and assets that are roughly categorized on when they will become available to the NFP with respect to assets, and shows when liabilities are expected to be realized with outflows of cash. Further, while "regular" businesses publish the income statement, nonprofits release the statement of activities, which reports changes in net assets, classified by three different classes of assets: unrestricted, temporarily restricted, and permanently restricted.
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