The Difference Between For-Profit Balance Sheets & Nonprofit Balance Sheets
A balance sheet, also called a statement of condition or a statement of financial position, is a record that summarizes the status of a company's finances at a given time. Balance sheets are used by current and potential investors to determine the worth and promise of an investment, and by lending agencies when evaluating loan applications.
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Nonprofit vs. For-Profit
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A nonprofit organization is one that gives its profits or surplus funds to a particular cause, rather than distributing them to owners or shareholders like a for-profit company. A nonprofit organization publishes a balance sheet that looks slightly different from a for-profit balance sheet. Differences in the way nonprofits and for-profits present their statements of financial position has to do with differences in the structure of these companies.
Basic Balance Sheet Features
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In both for-profit and nonprofit companies, the basic components of the balance sheet are the same. The first part of a balance sheet lists all of the assets owned by the company. This list will usually include both fixed assets (tangible, long-term assets that cannot be easily liquidated or converted to cash) and current assets (easily liquidated assets that are expected to be sold in the near future). The next section of the balance sheet lists liabilities, which are obligations or claims against the assets of the company. The difference between the assets and liabilities is listed on the balance sheet as either equity or net assets, depending on whether it is a for-profit or a nonprofit organization.
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"Stockholder Equity" vs. "Net Assets"
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A for-profit company is owned by stockholders and distributes its profit among those owners of the company. Therefore, the difference between assets and liabilities represents the ownership interest of the stockholders. This is referred to as the "owners' equity" or the "stockholders' equity." A nonprofit doesn't have owners or stockholders, so these would be inappropriate terms for the difference between assets and liabilities. Instead, the term "net assets" is used in this section of the balance sheet.
Net Assets Specific to Nonprofits
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Within this "net assets" section, a nonprofit balance sheet lists three types of assets that are specific to donations, and therefore do not always appear on for-profit balance sheets. These assets include temporarily restricted net assets, where the donor has stipulated either a specific purpose for the donation or a time period in which it must be used; permanently restricted net assets, whose stipulations never expire and cannot be removed; and unrestricted net assets, whose use is not limited by restrictions of the law or the donor.
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References
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