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Nonprofit Accounting Differs from For-Profit Accounting

Nonprofit accountants help tax exempt organizations assure their financial accountability to their Board of Directors, their community and governmental agencies.  While there are some similarities between for-profit accounting and nonprofit accounting, the professional accounting standards used in the United States include specific guidance for tax-exempt organizations. Consultants who specialize in nonprofit accounting know how to handle the numerous accounting areas which differ. 

Tax exempt organizations have missions that address the needs of society while for-profit companies generate profit for their owners. Therefore, tax exempt organizations rely on contributions and grants, donated goods and services, program services, special events, and investment income as the source of revenues to cover the costs of providing their services to the community.

Tax exempt organizations are expected to account for their costs in three “functional expense” categories – program, fund raising, and general & administrative. Several rating agencies including Charity Navigator and Guidestar use this benchmark as one of the tools to assess the efficiency of the use of funds by tax exempt organizations.  

Another key component that differs between for-profit and nonprofit accounting is the treatment of net assets. Because for-profit companies have owners, the value that they build up over time is called stockholders equity and is available to the owners to use in the business or distribute to themselves. The tax exempt organization builds up value over time to have a reasonable financial stability  and continue to be able to perform its services for the community in perpetuity.    

The Countryside Consulting team has the experience to handle these and other issues that arise in adhering to the nonprofit accounting standards. They also track and interpret meaningful financial metrics for their clients in Southeast Pennsylvania, Delaware, and New Jersey. 

Non-profit accounting and accountants in Southeastern PA

 

Countryside Consulting, Inc.  690 Stockton Drive, Suite 105, Exton, Pennsylvania 19341
Phone: 610-458-1155