Profit and Non-Profit Organisations organizes the company in the same manner when it comes to financing. Both are spending money efficiently to keep the products, programs, services are operational. But the main difference with profit organization is non-profit organization reinvest the investment to the programs and services they offer. So Non-profit organizations represent only financial statements instead of balance sheet like a Profit Organisation.
Financial statement of Non- Profit Organisation:
The Financial statement reports that Organisation Assets and Liabilities in some order of when the Assets will turn to cash and Liabilities need to be paid. These are usually present in an end of the month, quarter or year.
Basically, the Non-Profit organization does not have owners. That’s the reason they implemented financial statement called Net Assets.
Net Assets can Be Represented as Assets= Liabilities + Net Assets
Net Assets are divided into three categories.
- Unrestricted net assets
- Temporarily restricted net assets
- Permanently restricted net assets
These are implemented based on restrictions made by Donors.
Unrestricted net assets
If a donor does not specify a restriction on his or her contribution, the amount received by the Non-profit is recorded as an asset and as unrestricted contribution revenues. The Unrestricted contribution revenues also cause the amount of unrestricted net assets to increase. For instance, if a Non-profit receives an unrestricted contribution of $800 of cash, the effect on the statement of financial position is:
Temporarily restricted net assets
If the Non-profit receives a contribution that has a donor-imposed restriction, the amount is usually recorded as an asset and as temporarily restricted contribution revenues. Temporarily restricted contribution revenues also cause the amount of temporarily restricted net assets to increase. For example, James donates $20,000 with the requirement that the non-profit use it to purchase a vehicle that is urgently needed in one of the non-profit’s programs. The effect on the non-profit’s accounting equation at the time the contribution is received is:
Permanently restricted net assets
If the donor stipulates that her contribution must be held by the non-profit in perpetuity, the amount is recorded as an asset and as permanently restricted contribution revenues. Permanently restricted contribution revenues also cause the amount of permanently restricted net assets to increase. To illustrate, let’s assume that Mary contributes $100,000 to a non-profit and stipulates that only the interest on the $100,000 can be spent.
The total of three classifications called as Total Net Assets
Financial Statement of Non-Profit Organisation
Revenues and Expenses are two primary sections where summarized transactions amounts.