Bshs 373 - Nonprofit Versus For-Profit

Nonprofit versus For-profit

January 24, 2011

BSHS 373

Michael Levine

Nonprofit versus For-profit

Nonprofit and for-profit companies have a lot of things in common as well as different. Each part of the business is run with documents and statements. These documents and statement have different parts that help the company run for success. Auditing is something that runs in both types of companies. Auditing is going to continue to increase as the world continues to grow. Every company has to watch out for each other in the company so that they company is successful. Trial balance sheets are only one part of a company's financial statements that are very different yet the same as nonprofit and for-profit companies.

What are the major accounting differences between nonprofit and for-profit organizations?

Nonprofit and for-profit companies have many similarities and differences (Martin, 2001). Most of the differences I have come across are in the statements. Nonprofit companies focus on accountability whereas for-profit companies focus on profitability (Meade, 2010). The financial statements for nonprofit and for-profit companies have different listings. For-profit companies use Income statement, balance sheet, statement of retained earnings, retained earnings, and net income. Nonprofit companies use a few different elements in their financial statement than for-profit companies, such as statement of operation, statement of financial position, statement of changes in net assets, net assets, and excess of revenues over expenditures (Meade, 2010). Both for-profit and nonprofit companies use statement of cash flows and revenue and expenditures. Nonprofit companies have more ledgers and funds in the accounting department than for-profit. Nonprofit records show each fund differently because they must be individually balanced. For-profit companies use general ledgers to keep their accounting accurate. The reason they use the general ledger because it is a self-balancing account (Meade, 2010). Nonprofit companies use the statements to determine changes in assets for future purchases. Nonprofit companies can have earned revenue from donations and grants where for-profit companies cannot. For-profit companies have to earn their revenue from other companies or consumers (Meade, 2010).

Stakeholders in a for-profit company are worried about making money, but in nonprofit companies they are worried about the right use and distribution of resources to reach its mission (Meade, 2010). Nonprofit rely on time to keep track of the financial performance in the company. For-profit companies should do this as well but are not as worried about it. Nonprofit organizations hold meeting to get their financial statements approved by the members of the company. By doing this it helps to not only reassure them when auditing comes but also it help to reassure the stakeholders in the company (Meade, 2010). For-profit and nonprofit companies choose their accountant very carefully. What works for one type of company does not work for another company (Meade, 2010).

These are some of the major difference I found in nonprofit and for-profit companies. Using time to get what is needed. Who is affected by the company is different for each type of business. The forms that are used are the same but what is on them is different (Meade, 2010).

Why are audits becoming increasingly important in the nonprofit sector?

There are many reasons on why audits are becoming more important in the nonprofit sector. Three things that stuck out and has been playing a huge factor more today is fraud, solicitation, and business oversight. These three have had huge impacts on the nonprofit sector more recently and continue to grow instead of decrease.

Fraud

One reason audits are becoming important in nonprofit sectors is because of fraud. Many nonprofit companies work with volunteers or what they think of as reliable employees. The companies tend to forget that they may steal. Not everyone is trustworthy (Buckhoff & Parham, 2009). "According to the 2008 Report to the Nation on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE),