Question

Can you use proprietary accounting standards in a non-profit entity?

Answer 1

Answer

From churches to youth organizations to the local chambers of commerce, nonprofit organizations make our communities more livable places. Unlike for-profit businesses that exist to generate profits for their owners, nonprofit organizations exist to pursue missions that address the needs of society.Fund Accounting is the method of accounting used in non profit entity.Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law.It emphasizes accountability rather than profitability, and is used by Nonprofit organizations and by governments.

For governments to achieve the objective of accountability, financial information must be both relevant and reliable for reasonably informed users. Financial reports must satisfy numerous and diverse needs or objectives, including short-term financial position and liquidity, budgetary and legal compliance, and issues having a long-term focus such as capital budgeting and maintenance. Additionally, differences exist in the amount of detail that various users need.

Governmental fund financial statements continue to be prepared using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized in the accounting period in which they become available and measurable, and expenditures are recognized in the period in which the fund liability is incurred, if measurable, except for unmatured interest on general long-term debt, which should be recognized when due.Proprietary fund financial statements continue to be prepared using the economic resources measurement focus and the accrual basis of accounting.

Some of the governmental entities that have followed not-forprofit principles are proprietary activities. Proprietary activities are usually thought to be business-type activities, rather than not-for-profit activities. It is well known that proprietary funds (enterprise funds and internal service funds) ―are used to account for a government’s ongoing organizations and activities that are similar to those often found in the private sector. So it can be concluded that generally accepted accounting principles here are generally those applicable to similar businesses in the private sector and that the measurement focus is on determination of net income, financial position, and cash flows.

Hence we can say that proprietary accounting standards can also be used in non profit entitie broadly.