PLEASE RESPOND TO BOTH DISCUSSION 100 WORDS EACH!!!!!!!!!!!!!!!!!!!!!
It makes sense that non-for-profit organizations such as government, educational institutions, and community have different types of accounting. A prime example of a not-for-profit organization is governmental organizations. Governmental organizations use the governmental accounting standards board (GASB) instead of using financial accounting (FASB) as private businesses usually use. Even though private businesses such as Walmart, Apple, and Googles have a profit motive concept, non-for-profit organizations usually have a different purpose and aspects of view. Private businesses have concentrated on economic resource measurements that specifically try to measure the economic flow and adjust the monetary transactions based on those differences. However, non-for-profit organizations have management focused on the current financial resources that eliminate consideration of long-term resources and transactions such as long-term debt, investment, and assets. Non-for-profit organizations mainly consider current monetary transactions.
Non-profit organizations primarily focus on establishing the financial statement to make political and social decisions for following finical years based on current fiscal years of actual and budget compliance. That being said, non-profit organizations have to follow the principle of inter-period equity concept that shows whether current budgeted expenditures are covered by actual expenditures. When their budgeted compliances are not followed accordingly and cannot accomplish the current projects with the defined estimated funds, it causes problems that non-profit organizations have to consider review the budgeted funds with actual funds from their reported financial statement by compared with previous statements. According to Joseph (2019), non-profit organizations have to use the funds from current taxpayers that lead to spending for them in a finical year and cannot leave the expenditures to future taxpayers (budget on them). Thus, the accurate allocation of funds is very important for not-for-profit organizations. On the other hand, private businesses only focus on profit from their sales. Those are the huge differences that conclude non-profit organizations should use different accounting types to clarify what funds are expenses from different views.
Joseph, D. (2019). The Difference in Accounting Practices Between GASB & FASB. Accounting and Booking. Retrieved from:
discussion 2 Eri
Not-for-profit organizations are not your typical business in the sense that they are not built to make a profit. Instead their main focus is to serve the people without expecting anything in return. Nonprofit organizations drive under the mission of serving the needs of society. Nor-for-profit organizations don’t have an owner(s) or stockholders that they need to report too or demonstrate that they can turn a profit in the next quarter. Instead they rely on income from fundraising events, contributions, public and private grants, program revenues, membership dues, and investment income. Since they serve different purposes, then their accounting needs will be different and NFP will lean towards fund accounting, with a focus on accountability rather than profitability. Fund accounting will allow NFP organizations to separate their resources into different accounts in order to identify where they need to spend the income and identify the use for it. Their reporting process and requirements will change. For instance, a NFP organization can be exempt from income taxes if they are approved by the IRS while a typical entity is required to pay yearly taxes or risk having the government step in and charge them on tax evasion.
Not-for-profit organizations doesn’t have stockholders that they need to maintain and keep happy. In that sense, they don’t report to anyone and are not required to have a balance sheet, statement of stockholder’s equity, income statement, or statement of operations. These would be document’s an investor/stockholder would need to determine if the organization is profitable and a reasonable investment. A NFP doesn’t have to demonstrate to stockholders how their money is being spent and invested, instead they provide a statement of activities that will keep track of their assets and liabilities to give you an ending net asset total. To keep track of their assets, a NFP will separate them into three categories: unrestricted, temporarily restricted, and permanently restricted. This will allow them to allocate funds for particular projects without risking the funds being used elsewhere. A profit entity would use one general ledger to keep track of all accounts while a NFP will have separate ledger accounts for each one of its different bank accounts/major programs.
Averkamp, H. 2020. Accounting Coach, LLC: Nonprofit Accounting. Retrieved from: https://www.accountingcoach.com/nonprofit-accounting/explanation
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