It has often been said that the accounting procedures used in a non profit organization is much more complex than the ones used in a commercial organization. After all, it is much harder to monitor funds when your main objective is not about making money but about assuming responsibility over which way each cent went. With accounting NFPs, accountability takes on a much heavier and more formal meaning.
Or is it? For one, all you need to do is record the cash going in and the funds going out.
In truth, accounting for a non profit organization is no different from handling the profits of a company. Although terms such as “fund accounting” may seem to be scary, it actually can be related to a procedure involved in a commercial accounting.
For instance, accounting for nonprofit means taking into consideration three types of funds – unrestricted funds, temporarily restricted funds, and permanently restricted funds. In layman’s term, this can be seen as funds readily available, funds that would soon be available, and funds that you cannot touch. These funds can be related to the income that a company is receiving – income that has already entered your cash register, income that is yet to be collected, and income realized from long-term investments.
Accounting nonprofit organizations would also mean considering various fund sources. Each source need to be set up as distinct from one another meaning, a grant from another institution should be different from funds collected for a specific project. In commercial accounting this could be set up as different jobs. Think a long list of services being offered by a company. Each service is equivalent to a fund source. Any expense associated with the said service or product can be chalked up as cost of goods sold in the same way that any expense related to a certain fund should be listed under it.
The objectives involved in accounting for nonprofit organizations as well as the corresponding reports that need to be generated might seem different and more challenging than accounting for commercial organizations but in truth, they are governed by the same accounting principles.