Question

1. Describe the four types of Not-for-Profit entities.

2. Discuss the role of funds in accounting for NFP’

Answer 1

1. Describe the four types of Not-for-Profit entities.

The four types of Not-For-Profit Entities are:

1. Public Charities: Charitable organisations are large in number and provide services to help the society without any motive to earn profit. It is dependent on the charities by public to manage its expenses.
2. Research Entities: Some entities form these types of organisations to conduct research on wildlife, cultures, environment and medical science. These organisations are set up without any motive of making profit.
3. Educational: Some educational centres are set up to educate children, adults to learn new skills and employability. These can be in the establishment of a training centre, universities, colleges, etc.
4. Hospitals: Some organisations are set up for treatment of patients free of charge or may be at a very lower rates.

2. Discuss the role of funds in accounting for NFP.

As compared with forprofit entities, NFP doesnt uses funds to generate profit, it uses fund accounting to keep a track of the funds. It uses fund accounting to focus on accountability of the funds, and use of separate funds with their own ledger to more easily assess each fund individually.

A separate fund is created for each of the organisations various programs, also for its overheads, general administrations, fund raising activities, etc. It helps to track funds easily for each program.

Another role of fund accounting is by tracking revenues and expenses separately the donors could also be tracked easily, and how the donors funds are being spent.