Key Differences between Not-for-Profit and Profit Organizations (2)
Posted by admin in General on Feb 26th, 2010 | 0 commentsThe nature of most not-for-profit organizations’ operations are that they receive most of their revenues from contributions (rather than receiving fees for services). This means of receiving revenues gives a not-for-profit organization an important fiduciary responsibility for the funds that it receives. This responsibility is why donors to a not-for-profit organization
are significant users of the financial statements of not-for-profit organizations.
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For example, if a customer goes into a hardware store and buys a gallon of paint for $20, the customer really isn’t concerned with what the hardware store does with the $20 or how it controls and accounts for the money. On the other hand, when a donor puts a $5 bill in a cash collection canister for the local children’s soccer league, the donor is very interested in knowing that the $5 actually gets to the soccer league, that most of the $5 is spent on soccer programs instead of administrative costs, and that the $5 is spent conservatively and appropriately (i.e., not on elaborate dinners served at the league’s board meetings). Many of the financial reporting principles and practices that are described throughout this book are aimed at meeting some of these very basic, but very important, needs of donors to not-for-profit organizations. |
Not-for-profit organizations also usually have a responsibility to account for the use of specific funds that they have received. This responsibility includes accounting for certain specific funds that have been given for use in a particular project, for a particular constituency or for a specified period of time. Emphasis must also be placed on accountability and stewardship of these specific resources in addition to the general fiduciary aspects discussed above.
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Many times, not-for-profit organizations receive from donors gifts that are restricted for a specific purpose. This would sometimes require segregation of these funds in separate accounts and special financial reporting procedures. |
Taken From : Wiley Not-for-Profit Accounting Field Guide 2003
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