What are the basics of accounting for non -profit organizations?

Basic components of accounting for non -profit organizations consist of income in the form of gifts and expenditure concerning charity programs and services. Unlike the normal corporation, the non -profit organization does not produce or sell the product or lays inventory or calculates the costs of the goods sold. Instead, the accounting system for the non -profit organization deals with sources of income, restrictions on the use of funds and categorical assignment of expenditure between direct and indirect costs of the program.

The non -profit organization is a business without a profitable motif. Its operational purpose is to provide public service. Although the non -profit organization is legally a corporation and affects the financial environment that has all the same pitfalls as a normal profitable company, accounting inputs are different. Place of products has programs. Gifts replace the sale of books in the income category. In both cases they may look the same as asset and obligations often have limitation on assets and specialized conditions establishedCH for obligations that cause them to be treated or appreciated differently on the financial statements. An ordinary non -profit organization has income from individual gifts, grants from foundations and corporations and grants and contracts from government agencies. It can collect program fees and take loans. The most important accounting problem is the limitation based on these revenue sources, which must be properly carried out on books.

non -profit income is limited or unlimited. Income that is limited means that it can only be used to cover the expenditure or for specified purposes. For example, a Foundation's grant usually comes up with a contract that limits the use of funds for direct expenditure on the program running in the current year. This means that the funds cannot be converted to another program that is used to pay the general overhead costs or are used to cover the shortcomings of the budget from the previous year. Billing for nEzisk organizations must take all these restrictions into account and properly assign revenue to expenditure that it can legally cover.

Further, non -profit expenses are often limited by restrictions on revenue sources. For example, a government grant on the program may stipulate that more than two percent of the total amount cannot be used for travel costs related to the program. Government grants are sometimes limited to cover certain types of expenditures completely, when the jurisdiction concerned prohibits public money to be spent in a certain way, for example on specific types of medical treatments. The most problematic restriction of expenses in accounting for non -profit organizations concerns the amount of program money that can be assigned to administrative or indirect expenses. Many grants you can make the maximum percentage that can be focused on these types of expenditure that must be monitored as part of the accounting system.