subject: Accounting For Nonprofit Organizations [print this page] For accounting in nonprofit organizations, the nature for this type of venture connotes that any increase in assets arising from the undertakings of the organization must be applied to improve the community services turned in by the specific nonprofit organization. The organizations increase in assets doesnt fall to the individuals working and supporting the organization.
Depending on the type of the venture, equity is usually provisioned by grants from the state, membership fees, and donations. These contributions arent always in accordance to the same rights as contributions to the equity a company awards to shareholders. Different accounting practices always apply to different organizations.
With the typical traits of a nonprofit organization, the question is which specific requirements of accounting systems and reporting procedures apply to a specific type of organization. The financial accounting system should be able to offer interested parties with an in-depth review of what the organization achieved during a period of time or at the end of an accounting year. The accounting system developed for the organization should be consistent and logical and should be related to the organizations goals.
For nonprofit organizations, the main aim of accounting reporting should be able to offer control over sources through accounting responsibility. The administration function is basic to nonprofit organizations and since the responsibility for profit is not recognized for this venture; nonprofit organizations use the nonprofit fund accounting procedures for financial reporting.
Nonprofit fund accounting requires that the financial sources of an organization get divided into different funds. In this case, a fund can be defined as a sum of money set aside for an activity designed to meet goals and is regarded as a separate accounting entity.
Since the idea of funds in a nonprofit organization recognizes it as a separate accounting entity, the accounting for nonprofit organization system will provide for a number of self-balancing so-called fund units to be used conforming to the restrictions put on the use of the funds. This procedure ensures that the funds arent used for any other purpose than what they were meant for. There are generally two types of funds accounting, namely revenue and self-sustaining funds. In revenue funds, the use of accounting records is to show the source of the fund and the manner it was used. In self-sustaining funds, these are funds that are intended to be self-sufficient once an initial contribution was made to them.
