Differences Between Profit and Non-profit Accounting

Profit vs. non-profit accounting

Different users and different needs

A for-profit organization may be an individual, partnership, or corporation; that runs the business for profit and wealth maximization. The stakeholders are interested in the finances of the business. On the other hand, a non-profit organization is an entity that operates for social, educational, religious, charitable, or any other non-profit motives.

The member’s contribution and other resources providers receive any financial return directly from the organization.

The main difference between profit and non-profit accounting is accounting for all the financial transactions to know how much profit the business has made. Whereas non-profit organization accounting focuses on the appropriate allocation and utilization of funds.

Accounting for non-profit organizations is concerned with tracking the contribution made to the organization and its utilization. It focuses more on accountability.

Financial Reporting differs for the non-profit organization

Non-profit organization accounting maintains different styles of financial statements. The key difference being the non-profit reinvests all its funds to support its mission.

The difference in the financial reporting includes balance sheet vs statement of financial position and income statement vs statement of activities.

Balance Sheet Vs Statement of financial position.

The profit organization prepares a balance sheet otherwise the statement of assets and liabilities. It shows the assets that are available to pay the creditors and stakeholders of the company.

But since the non-profit does not have any stockholders, it uses a statement of financial position. Statement of financial position that shows the asset that is available for reinvestment for the purpose of the organization in the future.

Income Statement Vs Statement of Activities

The income statement of the profit organization shows the revenue, expenses, gains, and losses for a specific period. The bottom line is how much profit/loss the business has made. The non-profit creates a statement of activities instead of an income statement. It shows the net changes in the assets in relation to the earnings and expenses throughout the year from the fundraising activities.

The difference in auditing purpose.

The purpose of the auditing of the profit organization is to determine whether the financial records are accurate, fair, and in accordance with accounting principles. And the pay of taxes is according to a legal obligation, but the auditing purpose for the non-profit organization is different. They don’t pay taxes; the purpose of auditing is to ensure the placement of proper internal controls and utilization of funds for the mission.

The accounting of non-profit organizations is unique and different in many ways, particularly finances and accounting. When you understand the unique requirements, you can better perform non-profit organization accounting.

We at Accounts Junction are well aware of the unique needs of non-profit organization accounting. We have a dedicated team of professional experts with years of experience handling clients who work for a noble cause. Our experts use the latest accounting software and technology to serve you.