subject: When Money Does Not Count [print this page] Surely keeping tabs on your finances when you are a church organization or a library is not that hard. After all, these are organizations that were established with a nary a thought about making money. Theirs is more of a social objective than a financial one and, thus, might, at best, require only a spreadsheet for debit and credit.
Not!
Unfortunately, even in organizations where money is not a primary objective, proper accounting is still needed. In truth, these organizations tend to have a more complicated accounting process than their commercial counterparts. These organizations usually include museums, libraries, unions and trade associations. By definition, state and local government agencies do not form part of this group.
What makes proper accounting even more important for NFP (Not-For-Profit) organizations is the fact that their performance is based on more than just keeping within the annual budget. People involved in the management of these types of organizations, oftentimes, make use of a balanced scorecard in order to look into the performance. This allows them to focus on flexibility of resource usage rather than on the profit that is being made.
Aside from the difference in the way performance is measured and management objectives are met, non profit fund accounting also takes in to consideration three main types of funds unrestricted, temporarily restricted, and permanently restricted. In laymans terms, this could be seen as funds available right now, funds that can be used later and funds that you are not allowed to touch.
It is because of the complexity of the system that nonprofit fund accounting software applications have found their way in the market. These software applications are usually based on the three different GAAP methods of accounting that rule the preparation of financial statements for NFP organizations business accrual, modified accrual and nonprofit SOP (Statement of Position) accrual.
Although nonprofit fund accounting has been under fire for a long time now, it is the unique nature by which NFP organizations operate that justifies its existence. Taken in the commercial context, it may not sound practical and useful but within the walls of an NFP organization, it definitely makes a lot of sense.
