The Set-up Of Accounting For Non-profit Organizations
The difference between business companies and non-profit organization is that the
focus of the latter is the quantity and quality of community service they can afford to conduct from their profit and not the amount of profit itself. The income of non-profit organizations is given back to the community. The usual sources of funding for this type of organization are membership fees, donations and grants from state authorities.
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Given the nature of this type of set-up, the accounting system for non-profit organizations are a bit different from those of normal businesses. The accounting system here aims to show the interested groups where the money went throughout the year. This is to make sure that the money went to the right social services and not just on the pocket of a few people.
The main point for accounting in non-profit organizations is accountability. The amount of money gathered during a certain year should translate to beneficial activities to benefit a certain group. This type of accounting system is unique so for financial reporting, the funds accounting procedures are used.
In the funds accounting nonprofit procedure, the money of the organization is then divided into specific funds. Various funds will take care of various activities and events of the organization. The events and activities are designed to meet the goals and objectives of the non-profit organization.
It should be understood that the term fund in the normal sense is different from that when used in accounting for nonprofit organizations. Fund is usually defined as the money accumulated in order to serve a specific purpose. Fund accounting, on the other hand, involves self-balancing fund units that are used in accordance with the limitations set with the use of funds. This will prevent the use of one fund into an event or activity that is not for its purpose.
Funds accounting nonprofit can be divided into two basic categories, revenue funds and self-sustaining funds. Revenue funds include the source of funds and where it goes; this is typical for nonprofit organizations. Meanwhile, self-sustaining funds are just what the name suggests. Once a significant amount is added to the fund, it can then be self-sufficient.