Question

Discuss the major similarities and differences in accounting for for-profit and not-for-profit organizations. Be sure to consider differences in organizational ownership, fund accounting, and financial reporting.

Answer 1

Similarities between for-profit and not-for-profit organizations:

(1) not-for-profit organizations have boards,management and staff for efficient working, same as present in for-profit organizations.

(2) the sources for both the not-for-profit and for-profit organizations are limited, and they have to achieve their goals by using those limited available funds.

(3) as the for-profit organizations report their financial statements at the end of the accounting period, the not-for-profit organizations are also required to report at the end of the accounting period.

Differences between for-profit and not-for-profit organizations:

(1) the ownership of the for-profit organizations is held in the hands of business owners, shareholders or sole proprietor or partners. where as the ownership of not-for-profit organizations will be held by trustees, governing bodies or committee members.

(2) the funds of the for-profit will be raised by share capital,bonds, loan,etc.. and the management has to account them properly and need to report its utilization to the shareholders from time to time. the funding sources of not-for-profit organizations is by way of government grants, donations, etc.. these funding should be properly accounted for and reported to the governing bodies.

(3) the financial reporting in case of for-profit organizations should be made to the shareholders in the form of income statement, cash flow statement, and balance sheet at the end of accounting period. the not-for-profit organizations has to report in the form of receipts and payment account, income and expenditure account and balance sheet at the end of accounting period