Question – “How does accounting for a nongovernmental not-for-profit organization differ from accounting for a for-profit corporation? Choose a not-for-profit, review its financial statements, and explain the items that you find that are different from what you would see in the financial statements of a for-profit corporation.”
Response
How Accounting Differs In Not-For-Profit versus For-Profit
A nongovernmental not-for-profit organization is motivated towards serving the community first then a profit could follow afterward (Jeter & Chaney, 2019). On the contrary, a for-profit corporation is motivated towards earning profits. Accounting in both the corporation and nongovernmental not-for-profit organizations differ due to how they handle profits as well as based on their different scope. Both have financial statements they record but the difference in such records is based on the title and motivation. The motive of the nongovernmental not-for-profit organization is never to have income distributed among the organization's members while for the for-profit corporation, members or owners can be handed income gained. The nongovernmental not-for-profit organization aims at increasing the organization's programs and therefore not profit-inclined as the for-profit corporation which aims at increasing shareholder wealth. The nongovernmental not-for-profit organization is exempted from tax payments whereas for-profit corporations have to settle net income revenue tax payments.
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The Items That Differ In Both
In reviewing the financial statements of not-for-profit and for-profit corporations, for-profit has a balance sheet that captures the company's liabilities and assets. The balance sheet shows the owner's equity that is also the shareholders' equity. When liabilities are subtracted from the assets, what is left is considered as the shareholders' equity. For the not-for-profit, it has a statement of financial position which is similar to the balance sheet that captures the organization's liabilities and assets. When liabilities are subtracted from the assets, what is left is considered as the net assets in the case of not-for-profit. The other difference is that the for-profit corporation has an income statement that captures the revenue the corporation has had throughout the given duration, that is, quarterly in most cases. The income statement is how the business measures its profitability (Jeter & Chaney, 2019). For the not-for-profit, it has a statement of activities that is similar to the income statement of the for-profit corporation. The statement of activities reports any alterations to the net assets (permanently restricted, temporarily restricted, and unrestricted) to the expenses and income for the current financial year.
References
Jeter, D. C., & Chaney, P. K. (2019). Advanced accounting. John Wiley & Sons.
https://ercpa.com/wp-content/uploads/2015/05/1391117560_Sample_Financial_Statements.pdf
https://corporatefinanceinstitute.com/resources/knowledge/accounting/financial-statements-example-amazon-case-study/
References
Jeter, D. C., & Chaney, P. K. (2019). Advanced accounting. John Wiley & Sons.
