Question

Using the Internet 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

The major difference between a for-profit organization and a not-for-profit organization is the objective of doing business. For-profit has the profit motive attitude by selling products or services in cash or credit. Not-for-profit is not profit motive; this is created for social welfare and charity; their earning is basically based on donations from others.

For-profit: Revenues

Journals

Date	Account titles & explanations	P.ref	Debit	Credit
	Cash		XXX
	Sales revenue			XXX
	To record selling of products in exchange of cash
	Accounts receivable		XXX
	Sales revenue			XXX
	To record selling of products on credit

Analyses:

(1)In the first journal the firm made cash sales. Therefore, cash is debited since this is an asset; the corresponding credit is sales revenue.

(2) In the second journal there is a credit (on-account) sale. Therefore instead of cash, accounts receivable is debited; the credit is same.

Not-for-profit: Revenues

Journals

Date	Account titles & explanations	P.ref	Debit	Credit
	Receivable		XXX
	Contribution Revenue --- Unrestricted			XXX
	To record receiving donation for unrestricted award
	Receivable		XXX
	Contribution Revenue --- Restricted			XXX
	To record receiving donation for restricted award

Analyses:

(1)Sometimes donor used to donate without giving any restriction. It makes the fund free. The journal is very similar to as for-profit revenue journal; the only difference is the word “Unrestricted”.

(2) In the second journal the donor gives restriction, suppose using the award for child care only. In this case the journal would be changed by the word “restricted”; the award must be applied as restricted.