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What are some of the major differences in accounting for a non-profit vs a profit company?


Tim Kane
Title: Principal
Company: Tim Kane, CPA
(Principal, Tim Kane, CPA) |

Speaking in broad generalities.

A for profit company focuses on monetary results.

A not for profit focuses on their social results.

However, a not for profit that ignores their monetary results will fail. A for profit that ignores their social results will suffer, but not necessarily fail.

If you are interested in the nuts and bolts accounting try googling "fund accounting".

Tim Kane
TimKaneatmncpapro [dot] com

Sonya Graywolf
Title: Owner
Company: Sonya Graywolf, CPA
(Owner, Sonya Graywolf, CPA) |

In nonprofit accounting the organization is interested in what monies come in for what purpose. These different purposes are set up as funds to track the contributions and expenses against those purposes. Every time contributions are received and payables are entered staff have to determine what fund account to use. These funds are shown as balances on the balance sheet. The nonprofit has some of the same responsibilities as a for profit such as payroll and the associated returns. Property tax returns could be the same or different. A nonprofit has the additional requirement of providing statements to donors. If the nonprofit is a church they may need to deal with housing allowances, etc. for clergy.

Sonya Graywolf
sonyaatballdynamics [dot] com

Neil Erickson
Title: Shareholder
Company: Burr Pilger Mayer, Inc.
(Shareholder, Burr Pilger Mayer, Inc.) |

The major financial accounting difference for a non-profit company is how to record and report donor resources. For profit companies typically do not receive "gifts". Non-profit companies generally receive "gifts". Such gifts can come with or without donor restrictions. Accordingly, financial statements of non-profits report net assets (equity) and its activities (revenue and expenses) by donor-restrcited categories referred to as "unrestricted", "temporarily restricted" or "permanently restricted". Neil S Erickson, nericksonatbpmcpa [dot] com

Jeff Fisher
Title: Audit Manager
Company: Windes & MCClaughry
(Audit Manager, Windes & MCClaughry) |

To add-on to the major differences related to equity, nonprofits don't receive traditional financing from investors; therefore, there is no ownership.

Nonprofits (some of which have this as a financial statement reporting requirement) report a statement of functional expenses, which breaks-down expenses by program, administrative and fundraising costs. This is a very popular number for measuing a nonprofit's results of operations. You will frequently hear statements such as "for every dollar we receive, __ goes to our programs." This statement's genesis is with the functional expense statement and allocating costs between these categories. This information is also reported on Form 990.

Debra Thompson
Title: Contract Consultant for Small to Medium ..
Company: Debra L Thompson, CPA, LLC,
(Contract Consultant for Small to Medium size organizations, Debra L Thompson, CPA, LLC, ) |

In a for profit entity tracking costs are very straight forward. In non-profit tracking costs can be very difficult because the funding source determine which budget the cost may go into. Let’s take a cell phone as an example. In for profit a cell phone is an overhead cost. In a non-profit it could be overhead if it is for an executive, if this cell phone is for a program manager it is a program cost. If it is a program cost then is it funded by a specific source. One grant funder may allow the cell phone cost to be allocated to its grant since it is a direct cost of that program manager. Another funder may say no but will allow it to be part of the organizations matching funds. Also most non-profit are starting for profit entities which means they are consolidating a for profit into a non-profit. The organization now must follow all sets of rules. Again when you receive your cell phone bill all phone must be tracked to their specific area and the minutes must be allocated. Office space has the same issue. All office space is not considered overhead. The next trick is that must funding sources will pay for a % of program costs or a % of a person. This means that other funds must be found for that additional % of it come from general fundraising. Very few people or funding sources will give money for overhead. A non-profit cannot operate without overhead costs therefore finding funding for this is very difficult. I have worked in both for profit and non-profit. I will take for profit any day. Lets add onto the fact that the pay is half what you would get paid in a for profit. With a for profit cash flows are important but some organizations do not have tight cash flows. With a non-profit cash flow is critical. It is also extremely hard to get capital. Banks do not want to lend to a non-profit, too much risk if they have to foreclose. Most non-profits do not have receivable or any other asset that they can use as collateral. I worked for a nonprofit that owned a $3M building we could not get a working line of credit for $300,000. In a for profit you typically report on a monthly basis. In a non-profit you report on a monthly basis to management, and then you have reports do to funders. A nonprofit must have good controls that are audited since they receive public funds. This may or may not be the case for a for profit. This would depend on the structure of a for profit. Yes there is an ownership of a non-profit, in reality it is the public. Since a nonprofit receive public funds they must be good stewards over these funds and do what they say they are going to do. In a for profit if management decides to go a different direction they just shift. There are actually many more example but i probably could write a book about the differences.

Mark Gervase
Title: Sr. Marketing Manager
Company: Intacct
(Sr. Marketing Manager, Intacct) |

There are a number of good answers here already. The main differences in accounting for a nonprofit vs. a for-profit organization are around:
1) reporting and compliance (different regulatory requirements for nonprofits),
2) grant, fund, and donor accounting for restrictions and allocations

The specific differences can vary depending on whether your organization is an association, foundation, charity, school, or religious congregation. Regardless of the type of nonprofit organization, it is critical to ensure strong financial management controls exist and to demonstrate proper stewardship of funds.

Many nonprofits are moving their accounting to the cloud in order to give their employees, volunteers, donors, and board members anytime, anywhere access to performance metrics via dashboards and reports. These are all factors to consider when accounting for nonprofits and identifying the right accounting system for your organization.

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