Accounting in Non-Profit

The nature of this type of business implies that any increase in equity resulting from the activities of the company must be applied to improve the services rendered by the specific community organization. The increase in net assets of the entity does not belong to people who support the organization (eg, members).

Depending on the type of business, equity is usually provided by state grants or organizations, donations or membership fees. These contributions to equity does not confer the same rights as contributions to capital of a limited liability company to give shareholders and, therefore, different accounting practices applicable to those companies.

Taking into account the specific features of a non-profit organization, the question arises as to the particular needs of accounting systems and financial reporting procedures apply to this particular type of organization. The financial records must provide financially interested groups with a comprehensive overview of what the particular organization reached a specified period or the end of its financial year. The records and accounting system developed for an economic entity must be logical and consistent and must be related to the objectives of the institution, as well as the circumstances in which it operates.

Because of the characteristics of nonprofit organizations, the primary objective of financial reporting should be to provide a control on the source by means of responsibility accounting. Seeing that the function of management is crucial for this type of organization and because the responsibility for profit is not associated with this type of entity, the majority of associations and nonprofit organizations to use funds that represent the so-called reporting procedures Financial.

Fund accounting requires that sources of funding for an organization to be divided into several funds. A fund can be defined as a sum of money or other source that are set aside for specific activities designed to achieve specific objectives and is considered to be separate accounting entities.

The difference between this definition of a fund and its usual meaning is clear: the fund concept implies a sum of money for some other source that is intended for a specific purpose. The fund concept in a non-profit organization embraces the principle of additional separate accounting entity. Thus, the accounting system provide for a number of self-balancing 'funds-units' used in accordance with the limitations placed on the use of funds. The procedure of funds has been designed to prevent sources intended for a specific use to be applied for any other purpose.

Accounting Funds can be divided generally into two categories. (1) revenue funds - the primary use of accounting records for this type of fund is to reveal the source of the fund and the manner in which it was applied. These funds are typical of those encountered in non-profit organizations. (2) self-supporting funds - These are entities that fund, once an initial contribution has been done to them, are intended to be self-sufficient. These funds can be considered as a small profit-oriented enterprises in the framework of a non-profit organization....