Question

Compare the For Profit formats and reporting to the Not for Profit formats and reporting, what are some of the similarities and differences.

Answer 1

Ans

The establishment accounting guidelines for both types of entities, defines not-for-profit organizations as: "entities, normally without transferable ownership interests, organized and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purpose. A not-for-profit organization's members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization."

The content of the financial statements of an Not For Profit differ from a profit-oriented entity’s financial statements in a number of ways. This is due to the unique activities and objectives of NFPs and the different information needs of users of Not For Profit financial statements. The applicable legal and regulatory frameworks can also give rise to differences in the content of the Not For Profit financial statements. Highlighted below are some of the unique features within the four primary statements that can form part of an Not For Profit financial statements.

The relationship between the financial statements, the financial report and the annual report, and provides examples of the common content contained in these documents. It should be noted that not all the examples of content provided below will always be included, as this will depend on a number of factors, including the size of the NFP, accounting basis adopted, applicable legislation or other requirements and accounting standards applied in preparing the financial statements, financial report or annual report.

NFPs may hold and operate a range of different assets that provide them with economic benefits. Some of these assets that are held, and provide benefit, over the long term are classified as non current assets. Assets that provide benefits over the short term (usually within one year) are classified as current assets. In fulfilling their objectives, NFPs also enter into commitments and obligations that give rise to liabilities. Similar to assets, liabilities are either current (short term, usually requiring settlement within the following financial year) or non current (due after more than one financial year). The difference between assets and liabilities (net assets or net liabilities) represents the equity the NFP holds.

Similarities between Non Profits and For Profit Business

• Both non profit as well as for profit organizations have goals and missions which are well defined. Their products or services are known by every one.

• The non profits should satisfy the objectives and needs of their various stakeholders just like a private company knows their customers and serve them accordingly.

• Both non profit and for profit organizations have limited resources and the goals must be met with the limited funds.

• Like private and commercial business corporations, many non profit organizations have boards, management and different levels of staff which help in the efficient working of the organization.

Differences between Non Profits and For Profit Business

• There is third party funding in the case of non profit but not in for profit business. A non profit may get donations, grants and government funds.

• The non profits are generally run by the volunteers but for profit businesses are run by employees who are hired at wages.

• The stakeholders might not contribute financially to the organization unlike the for profit business where the shareholders have to contribute financially.

For profit	Not For profit
Income statement or Statement of operations	Statement of operations
Balance sheet	Statement of financial position
Retained earnings	Net assets
Statement of cash flows	Statement of cash flows
Net income	Excess of revenue over expenditure
Statement of Retained earnings	Statement of changes in net assets
Revenue expenditure	Revenue expenditure