Question

Nonprofit vs. Profit accounting differences

What are some key differences in accounting between nonprofit organizations and for-profit companies?

Answer 1

Answer:

Nonprofit and for profit entities primarily differ in terms of their goals. For profit organisations aims at profit maximisation and capital appreciation to the stakeholders of the company whereas nonprofit companies works towards the cause for which it is formed. the ultimate goals of these entities are contrast and which will result into different accounting treatment in their books of accounts.

key differences in accounting between nonprofit organizations and for-profit companies:

1. Reporting: For profit entities aim at profit maximisation and capital appreciation for the stakeholders, accordingly the company will prepare Income statement and Balance sheet. Whereas nonprofit companies will not have captal so, they will prepare a statement of financial position, which outlines the net assets of the entity and inspite of income statement, statement of activities will be prepared which contains the details of revenues and expenses.

2. Tax exemptions: For profit companies are taxed at the normal provisions, where the entity is liable to pay all applicable taxes. whereas the nonprofit companies aims at welfare of the society, governments tend to help this cause and reduces their costs by excempting the taxes. And if the nonprofit entity carries a bussiness which is secondary to its scope, it may result into taxes. Since the two entities are having a different tax effects on them,it will result into Differential accounting for taxes in their books of accounts.

3. Budgeting: Budgeting is important for both the entities. where as the presentation and preperation of the budgets will differ accordingly to the objectives of both the entities.

Hence, these are the Key differences in accounting for Nonprofit and for profit entities.

PS: Please use 'Thumbs up' if you are contented with my solutiion.