Question

Compare and contrast the basic financial statements for non-profits to those same statements for government and for-profit organizations. Explain why these differences and similarities are important when contrasting non-profit organizations from government's financial roles and responsibilities as well as effectiveness and efficiency.

Answer 1

Comparison of basic financial statements of non-profit organization to government organization with its brief explanation on government's financial roles and responsibilities as well as effectiveness and efficiency -

Statements

There are mainly three financial statements that non-profit and govt.agencies use in their reporting.Two of them are same which are-

1)Statement of Activities

2)Statement Of Cash flows

The third statement is technically referred to same information but are named different for both the entities.

Government - Statement of net position

Non-profit - Statement of financial position

These two statements are same as that of the balance sheet.They summarizes the assets and liabilities of the company showing the net assets of the entity and also assess the financial health of the same.These two statements are similar because for both the entities ,there is no owner.The main difference lies in people whom  those statements are affecting .For government bodies these statements affect the tax payers whereas in non-profit organization it affects those who benefit from the organization.

Reporting

Government Accounting

Every govt. body has to report under CAFR (Comprehensive Annual Financial Report). It analyzes the financial status of the entity and is put together using GAAP and GASB.

Nonprofit Accounting

Non profit are not required to publish CAFRs. However they are required to put together all their financial reports for their BoDs and subsequent investors. These reports are called Report of Consolidated Financial statements which will include-

- Statement of Activities

-Statement of Cash flows

-Statement of Financial Position

Standards

As in all accounting programs, the entities follow certain guidelines and principles .Both non-profit and govt. entities must follow GAAP (Generally Accepted Accounting Principles).

In addition to it ,govt. and non -profit entities have their own standards which they need to follow.

Government- GASB (Government Accounting Standards Board)

Non-Profit- FASB (Financial Accounting Standards Board)

GASB is intended for taxpayers, public officials ,investors and others who use financial reports especially local and state govt. agencies within US.

FASB is intended for investors and others who use financial reports specifically any public ,private or non -profit organization.

COMPARISON OF BASIC FINANCIAL STATEMENTS OF NON-PROFIT AND PROFIT ORGANIZATION

As the name suggests for profit organization ,it's main goal is driven by profit making whereas in non-profit organization is motivated by charitable purpose. This is where their financial statements reflect this difference.

Reporting revenue and expenses

For profits produce and income statements (P&L) which include their revenues,gains,expenses and losses to evaluate financial performance.

By comparison,non-profits just want revenue to cover their cost incurred while fulfilling their purpose in present and in future.They often rely on grants and donations in addition to fees for service income. So they prepare Statement of Activities in place of income statement where it shows the revenue less expense and classifies the impact of each net asset class.

Balance sheet Considerations

Profit Companies prepare balance sheet that lists the owner's or shareholders' equity based on companies' assets and liabilities along with the carried profits. The equity determines the value of a company's common and preferred stock.

Non-profits have no owners so they prepare a statement of financial position.It also looks at the assets,liabilities and prior earnings.The resulting net assets ,as per the new standards in 2018 have been classified into two-1)net assets without donor restriction 2)net assets with donor restriction.

Footnote Disclosures

Another major difference is non -profits tend to focus more on transparency than profit business do.Thus ,their financial statements and footnotes include more disclosures like about the nature and amount of donor-imposed restriction on net assets;amount ,purpose and type of boards designations of net assets etc.