For the most part, when someone starts a non-profit organization, it isn’t because they wanted to have a business with endless paperwork to fill out. It is usually to fill a need in a way that will be beneficial to others. For this reason, it shouldn’t come as a surprise to find out that accounting looks different for a non-profit organization when compared to a for-profit. Propel Your Accounting is here to talk about the differences between these two when it come to accounting.
Accounting Differences Between Non-Profit & For-Profit
When it comes to a non-profit organization, the accounting side of things looks drastically different from for-profit.
– Overall Focus: The overall focus of non-profit organizations differs drastically from for-profit organizations. For-profit is going to be focused on making a profit. On the other hand, a non-profit is going to be more focused on accountability as they consider the donors that and those who have otherwise contributed to the cause. Because they are so focused on accountability, they will employ the use of fund accounting or keep their finances organized.
– Reporting: The way that finances are reported and recorded is going to be different for non-profits as well. This will again have to do with the focus. A non-profit is focused on putting all of the funds back into carrying out their mission. They will create a statement that shows their activity rather than an income statement. Instead of a balance sheet, they will keep a statement of financial position. Having the right accounting software can make all the difference for a non-profit.
– Taxes: A huge benefit for 501c3 organizations is that they don’t have to pay federal taxes. This doesn’t necessarily mean that they are off Scott free from all taxes, but they don’t pay taxes like a for-profit organization either. Form 990 is filled out for non-profits to ensure they are held accountable, have financial transparency, and it helps them avoid fees and penalties. Also, some states will require taxes to be paid while others do not. It is important that you know what the laws are for your state.
– Auditing: The auditing process is going to look different for non-profits as well. They don’t pay federal taxes, so the IRS isn’t going to be watching to make sure they have paid what they owe. Instead, they will be looking to make sure they are using funds appropriately. There are very few non-profits that are ever required to do an audit.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you have a non-profit and are confused on what that means for your accounting services that you need, you can turn to Propel Your Accounting to answer all your questions. We will make sure that you are dotting all your i’s and crossing all your t’s. There are some nitty gritty details that you might have questions about. Call us today!
