Question

Using the Internet and Strayer Library, research the treatment of revenues for a for-profit versus not-for-profit entity. Next, analyze at least two (2) accounting treatments for revenues for profit and a not-for-profit entity.

Answer 1

Profit earning organisations have to pay income tax on the stated profit earned during the given financial year while not for profit organisation's income or revenue are exempt from levy of income tax.Another major difference between ffor profit and not for profit organisation is that the for profit organisation has to put quater revenue and income tax statement while there is no such levy on not for profit organisation.

Accounting treatments for Revenue are as under:

The owners of for profit organisation owns pecentage of shares in the entity which are commonly known as equity. The same is recorded in entity's accounting system and is increased or decreased over time. Also if the organisation earns profit in the market place the same is distributed by way of dividends or disbursement of profit amoung the owners or members. While in case of not for profit organisations the entity is run by board , staff or members but no one actually owns percentage share in the ownership as the same is registered for public interest. Hence, in the books of not for profit entity there is no such account as owners equity or retained earnings.

Another major difference is the financial reporting of the two types of the organisations. For profit organisation mandatorily has to maintain balance sheet in which states the assets owned by the entity and the percentage of ownership of each owner along with reserves and surplus owned by the entity. While the not for profit organisations only have to maintain position statement which states the assets which could be further used for public interest.