Making the leap from a for-profit business to a nonprofit can bring on a world of change. The way you handle your accounting is no different. From properly handling your tax status to managing your assets to ensuring that your current position is in line with your organization’s goals. At Beyond Accounting & Tax, we can help you run the financial side of your organization with nonprofit accounting services. If you’re not sure exactly how this is different from accounting for a for-profit business, read our short guide below.
As is the case with any industry, there is terminology in the accounting world that’s different for nonprofit organizations. While the concept of what you’re doing on paper is essentially the same as it would be with a for-profit company, the phrasing that’s used is different because there’s enough of a difference in the function that it requires a different name. For example, a for-profit company fills out an income statement that shows the money that’s come in as a direct result of sales or contracts as well as losses from expenditures.
Additionally, retained earnings is a term that’s used for all net income that’s left after the business has paid out to all its liabilities. This provides a statement of all profits that were brought into the company. In contrast, a nonprofit will create a statement that declares net assets. Your net assets are your total assets minus your total liabilities. This can include any money that the organization holds onto as well as property and physical items. Liabilities are payments made to employees of the organization as well as fulfillment of invoices or bills to those who have provided services.
Accountability vs. profitability
One of the keys to nonprofit accounting services is the necessity of accountability versus profitability. For-profit businesses are trying to cut a profit and evaluate their profitability. Accounting practices are done to ensure that the business is doing everything it can to maximize profits, minimize liabilities, and continue to grow.
Nonprofit organizations are just that, organizations that don’t turn a profit. It’s not a business that’s out to make money to grow. Instead, a nonprofit is doing its best to maximize its ability to do good in society. Does this mean that they’re going to turn down money that comes into the organization? No. In fact, it’s welcomed. However, rather than put more money in the pockets of employees, the nonprofit will use it to improve its reach.
Financial statements must be prepared by both a nonprofit and a for-profit. While the concept of each is the same, what’s really being displayed is quite different. A for-profit business is going to put together a financial statement in the form of a balance sheet each quarter that displays equity, assets, and liabilities. Ultimately, this statement shows how much money the company made in the last quarter. A nonprofit organization will create a financial statement called a statement of financial position that’s meant to display its net assets.
Schedule a consultation for more
If you run a nonprofit organization and need help with your accounting, get in touch with us at Beyond Accounting & Tax. We’re experts in nonprofit accounting and can assist you with every aspect of running the financial side of your organization. Whether you need to complete your statement of financial position or log your net assets, we’re here to make sure it gets done right. Reach out by giving us a call at 571-410-0158 or send a message via our contact form to schedule your consultation. We look forward to hearing from you and helping with your finances.