Here Is A Better Way To Understand Nonprofit Organization Accounting

Non-trading institutions deserve to have their very own accounting system for they have specific needs different from profit making companies

. Instead of focusing on the balance sheet and income statement, the accounting system for nonprofit organizations are more concerned on receipts and payment account. In a day to day basis, this type of organization needs cash book for the record keeping of receipts and payments and a ledger for transaction classifications.

The receipts and payments account is considered as the summary of the cash book. The receipts are on the credit side while the payments are on the debit side, much like the usual balance statement. However, note that this way of accounting does not really show gain or loss of the organization since it records all receipts disregarding the period or the date. It also disregards the nature of the receipt, like whether it is a revenue or capital.

The income and expenditure account is prepared so that the nonprofit organization can determine whether or not they made more profit more than their annual expenditure. In commercial accounting, this is given the name profit and loss account. However, since the institution concerned here is nonprofit, they prefer the term income and expenditure account.

Note that in accounting for non profit organization, receipts and payments account is different from that of income and expenditure account. The former is a real account while the latter is nominal in nature. Receipts and payment is more like a cash book, its closing balance is carried to the next period and it ignores outstanding items, credit sales and purchases. Meanwhile, income expenditure is like a profit and loss account; its closing balance is merged to the capital fund and it records outstanding items, credit sales and purchases.

A closer look at accounting for non profit organizations will reveal that it is more complex than the usual accounting for profit making businesses. This is why nonprofit accounting software is necessary. It makes the process a lot easier with minimal to zero error.

One name that stands out in terms of accounting for non profit organizations is Sage. It has various offerings for different types of organizations for it does not believe in one-size-fits all system. Try it out now and experience the benefits it can give any organization.

by: JohnRichards

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