Nonprofit Accounting Basics

Save

Nonprofit accounting can be confusing for many people, including those with experience in other industries. For example, when someone says that a temporary net asset was released, it may be a mystery to many as to what this means. Nonprofit accounting may be considered as regular accounting with an extra layer of detail. Financial Accounting Standards Board (FASB) pronouncements 116 and 117 provide information and guidance in this industry.

Net Assets

  • In the nonprofit world the concept of "net assets" is utilized. They could be unrestricted, temporarily restricted and permanently restricted. When revenue is received to pay for any expense, it is booked under the unrestricted net asset. If the revenue is to be used next year, then it is booked under the temporarily restricted net asset. Endowments, funds that only income or interest can be used for daily operations, are booked as permanently restricted net assets. Every transaction in the general ledger is booked in one of these net assets.

Reports

  • Reporting for the nonprofit is different than for for-profits. The balance sheet is named statement of position. It looks like a balance sheet, but instead of owner's equity, you will see the net assets presented in separate lines. Nonprofits have a statement of activities that can be considered a summarized income statement where expenses are often shown by area, not by type. You may see expenses by administration, programs and fundraising summarized by each of these areas. The other report that is typical of some nonprofits is the statement of functional expenses, which presents detailed expenses, such as salaries and rent, by the same areas as the statement of activities..

Release from Restriction

  • When restrictions are lifted from revenues booked in the temporarily restricted net asset, a journal entry is set up to release the funds. The entry increases unrestricted net assets and decreases temporarily restricted net assets. In some cases, there may be actual transference of cash from one bank account to another. The release from restriction is reported in the statement of activities under revenues section.

Promoted By Zergnet

Comments

Resources

You May Also Like

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!