What are the major accounting differences between nonprofits and for-profit organizations?

For-profit accounting generally has one “equity” section, with capital and retained earnings; nonprofit accounting must separate this section into “net assets” and must report each category as unrestricted, temporarily restricted and permanently restricted net assets. This means having to maintain a careful tracking of any donor-imposed restrictions, which is unique to nonprofits.

Nonprofit accounting must generally separate its expenses into administrative, fundraising and programs. There is no requirement that for-profit organizations must do this.

Income taxes and tax planning is generally either non-existent or minimal in nonprofits; taxes can be very important in for-profits.

The financial statement titles and presentation are very different for nonprofit and for-profit organizations:

a)    A for-profit Balance Sheet is called a Statement of Financial Position for a nonprofit.

b)    The Income Statement of a for-profit is called a Statement of Activities in a nonprofit.

c)    The for-profit Statement of Changes in Owners’ Equity is called the Statement of Changes in Net Assets for a nonprofit, and has a column for each of the categories of net assets.

d)    Most nonprofits are required to present a Statement of Functional Expenses, for which there is no comparable statement on for-profits.

The following information is suggested by Howard Levine, CPA (www.hjlcpa.com).

For a list of basic financial reports that a nonprofit must prepare, click here.

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