All business entities, whether non profit or for-profit, need accounting for administrative and financial organization. Even non profit organizations (NPOs) have to account for the funds they receive and spend; this act of establishing financial accountability is the essence of accounting. More often than not, these business entities rely on the expertise of in-house accounting teams comprised of certified public accountants, bookkeepers, and clerks.
The accounting processes needed for NPOs and profit-oriented businesses essentially remain the same. This is especially true with regards to keeping track of the entity's revenue and expenses. However, the nature of an NPO makes non profit accounting a little more complicated than for-profit accounting. Non profit accounting usually requires accounting teams to keep track of some additional financial information and generate more specific reports.
Accounting departments of non profit organizations typically have to create reports for the accounting of contributions. Contributions may come from membership dues, pledges, in-kind donations, and events such as fundraisers. The funding received through these means have to be duly recorded by NPOs and must be included in the organization's financial statements. This applies especially to NPOs that hold a tax-exempt status.
Non profit organizations that are exempt from tax may also be required to make annual reports on the organization's functional expenses. Functional expenses, in accounting for non profit organizations, refer to the expenses incurred during activities such as program services and fundraising activities. Operational expenses may also be included in these reports. The US Internal Revenue Service requires tax-exempt NPOs to submit yearly financial statements of these functional expenses.
In addition, an NPO's accounting department also has to perform tasks related to fund accounting. Through non profit fund accounting, an NPO can efficiently keep track of expenses and revenue related to the organization's funds. An NPO can have many different types of funds, and some of these financial resources may be restricted to a particular type of expense.
For instance, through fund accounting reports, NPO shareholders and controlling boards can determine if the organization's land, building, and equipment fund was used to acquire assets falling under these categories. Non profit fund accounting ensures that all the organization's funds are used appropriately, helping the NPO's financial statements keep up with financial accounting standards.
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The accounting processes needed for NPOs and profit-oriented businesses essentially remain the same. This is especially true with regards to keeping track of the entity's revenue and expenses. However, the nature of an NPO makes non profit accounting a little more complicated than for-profit accounting. Non profit accounting usually requires accounting teams to keep track of some additional financial information and generate more specific reports.
Accounting departments of non profit organizations typically have to create reports for the accounting of contributions. Contributions may come from membership dues, pledges, in-kind donations, and events such as fundraisers. The funding received through these means have to be duly recorded by NPOs and must be included in the organization's financial statements. This applies especially to NPOs that hold a tax-exempt status.
Non profit organizations that are exempt from tax may also be required to make annual reports on the organization's functional expenses. Functional expenses, in accounting for non profit organizations, refer to the expenses incurred during activities such as program services and fundraising activities. Operational expenses may also be included in these reports. The US Internal Revenue Service requires tax-exempt NPOs to submit yearly financial statements of these functional expenses.
In addition, an NPO's accounting department also has to perform tasks related to fund accounting. Through non profit fund accounting, an NPO can efficiently keep track of expenses and revenue related to the organization's funds. An NPO can have many different types of funds, and some of these financial resources may be restricted to a particular type of expense.
For instance, through fund accounting reports, NPO shareholders and controlling boards can determine if the organization's land, building, and equipment fund was used to acquire assets falling under these categories. Non profit fund accounting ensures that all the organization's funds are used appropriately, helping the NPO's financial statements keep up with financial accounting standards.
Article Source: http://EzineArticles.com/?expert=Verna_Derosier
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