comparison of nonprofit organizations’ accounting statements and profit organizations’ accounting statements

comparison of nonprofit organizations’ accounting statements and profit organizations’ accounting statements

Introduction

A non-profit organization is an organization that uses its revenues to achieve its long term goals instead of sharing the progits with the shareholders. They are usually exempted from tax. On the other hand, the profits organizations are those in business for the purpose of generating profits. this paper will entail a comparison of nonprofit organizations’ accounting statements and profit organizations’ accounting statements.

Account statements in nonprofit organizations versus in profit organization

For profit and not for profit organization use the four accounting statements, which are the balance sheet, functional expenses, cashflows, income statement, and balancesheet. The balancesheet in for profit’s company indicates the assets and the liabilities that the company has. It also indicates the shareholder’s equity/owner’s equity. To get the owner’s equity, assets are subtracted from the assets. The shareholder’s equity indicate the company’s networth. The non-profit organizations does ot give an indication of owner’s equity because it does not trade its shares. In place of the balance sheet is the statement of financial position, which indicates the liabilities and assets. Subtraction of liabilities from assets indicate the net assets which is the company’s net worth. The income statement indicates the revenue generated in the profit organizations. It will indicate the costs and expenses incurred while generating the revenue (operating costs). it indicated the profits the company generated over a certain period. In the nonprofit organization, the income statement is rather called the statement of activities. it indicates the changes in the company’s net assets, but does not show the profits because the objective of the organizations is not to generate profits. the statement of cashflow are used both n the profit and non profit companies. they indicate the movement of cash in and out of the organizations.

Differentiate between governmental not-for-profit organizations and nongovernmental not-for-profit organizations.

The governmental nonprofit organizations are the organizations that re dependent on the government for its operations. It is run by the government and government employees. the government makes the decisions such as its expansion, maintainance, or shut down. The governmental not for profits don’t run for the purpose of making profits, rather to help the public. For insatcne, FEMA, FBI, CIA, etc. the nongovernmental nonprofit organizations are those that operate independently from the government. They do not get financial assistance from the government fortheir opeartions. Nonetheless, they also don’t operate for the essence of making profits. they include churches, Red Cross, Grenpeace and Worldwide Fund, etc.

GASB and FASB

He GASB believes that the government should be accountable to the public because it operates a democratic society. the financial statemnts help the government to fulfill this duty. Public accountability is keeping the taxpayer in the know of how the money is being used. GASB also believes that the financial reports will assist the external users in comparing the actual financial results with the legally adopted budget. They will aslo be able to assess the financial status and the financial operations. This way they can determine the compliance with the financial related laws and regulations. In short they will understand if the government is using their money effectively and if it is worth compling to the rules. The FASB believes that the externa users need access to financial reports of nonprofit organizationsto undertsant the deceions made in resource allocation. The public also gets to know the ability of the nonprofit organizations to provide services incase they will want to volunteer. They understand the performance and management of the nonprofits organizations.

Comprehensive Annual Financial Report (CAFR) and the GASB’s 24 reporting model

A CAFR is a compilation of government financial statements that comprises of the financial reports of a state, local or any other federal entity that comply with the requirements set by the GASB. The GASB sets the standards through which the CAFR must follow. It is ccompiled by a government staff and audited by an external American institute of certifies public accountants which also follows the GASB requirements. The CAFR comprises of three sectors: the introduction, financial and statistical. its main purpose it to provide accurate and essential information about a city’s financial condition and performance.

The GASB’s 24 reporting model establishes the accounting and financial reporting standards for pass through grants, food stamps, and on behalf ppayments for benefits and salaries. The passthrough grants are those receiver by the government to spend or transfer to a third recipient the statement also requires that the government  recognizes their distributions of food stamp benefits as revenues and expenditures in the general funds or a special revenue fund, whether the state government distributes the benefits directly or through agents, or if the benefits are written on hard copy paper or in electronic form. State governments should report the food stamo bbalances held by them or by their agents at the balance sheet date as an asset by deferred revenue.

The fringe benefits include the payments made by the government entities on behalf of the nongovernment entities and payments made by the nongovernment entities on behalf of the government entities. The GASB’s 24 reporting model statement also requires that employer government recognized the revenue and expenditures or expenses made during these on-behalf payments. Revenues should be equal to the amounts that third party receipients have receives and that are receivanle at year end for the current fiscal year.

Distinguish between combining financial statements of a governmental entity and basic financial statements of for-profit organizations.

Combined financial statements are the financial reports that that give information on

Differences between the economic resources measurement focus and the current financial resources measurement focus

The economic resources measurement focus determines all the economic resources that are in a company. it measures the fixed assets, and long term debts. It also measures the depreciation of the assets in a company. depreciation is recorded as a cost of operations. On the other hand, the current financial resources only measures the primarily financial resources and not the long term assets. It measures the cash or assets that are expected to be converted to cash within the accounting period or shortly after. These measuresments determine whether the financial respurces obtained during accounting perios are enough to cover all claims made against the funds during the same period. The difference with the economic respurce measurement focus is that it does not record the long term capital assets and obligations.

The difference between measurement focus and the basis of accounting.

The measurement focus tells a company what to record in the financial statements. The two focuses are as mentioned above: the current financial resources and the economic resources. The current financial resources focuses on the short term assets while economi resources focuses on long term assets and obligatins. The basis of accounting will show when a measure of transcation is recorded in the financial statement. The basic accounting also compirese of two modes which are the modifies accrual basis and aaccrual basis. The modified accrual basis requires that revenues are reports when they are available and measurable. Expenditiures are also reported after they are incurred. On the other hand, the accrual basis of accounting requires that revenues are recorded dr=uring the period they are baing earned. Even if the revenes have not been collected, they should be recorded. Expenses are recorded when they are being incurred.