Question

Why do you think we've developed and used such a different type of accounting for not-for-profits and municipalities?

Answer 1

ANSWER:-

Given that the different types of accounting for not for profits and municipalities is:

A non-profit organization refers to a group organized for motive other than generating profit and where in no part of the organization's income will be distributed to its members,directors or officers.

Non-profit organizations have to be designated as non -profit when created and can pursue activities permitted by statutes for non-profit organisation.Non-profit organizations include public schools, public charities,churches, political organizations, legal aid societies labor unions, professional associations, public clinics and hospitals,volunteer services organizations, museums,research institutes, and few governmental agencies.

Non profit organizations and municipal corporations, like any other organisation or business ,consume the revenue of the market at the less prices and thus affecting the profit of other organization or business. Thus there is a separate accounting and financial reporting standards because the as the needs of users of financial reports of not -for-profits and municipalities differ.

Under the FASB issued statement NO.117, non-profit organization is required to issue 3 primary statements which consists the balance sheet ,the statement of activities, and the statement of cash flow. A for -profit accounting will have one equity section, with capital and retained earnings ;and on contrary a non-profit accounting needs to separate this   section into that assets and is required to report each category as unrestricted , temporarily restricted and permanently restricted net assets.

As the operating environment of the not -for-profits and municipalities is quiet different and these have a responsibility to be accountable for the use of resources that is significantly different from business enterprises thus we 've developed and used such a different type of accounting for not- for-profits and municipalities.

Any queries please leave your valuable comment on comment box