Accounting has two primary forms: For-profit and Not-for-profit. While they share many common elements, there is a significant difference in the accounting procedures, management objectives and reporting requirements between the two.
Fund accounting encompasses most aspects of For-profit accounting. However, it goes beyond the requirements of a For-profit system both in form and function.
4 Reasons Why Fund Accounting is Different.
- A not for profit organization is structured around a series of related activities that are accounted for separately because of different legal and reporting requirements. Debits and credits need to be balanced by fund and by net asset class versus a "company" alone. A separate chart-of-accounts is maintained for each fund. For-profit systems can maintain separate revenue and expense accounts, but co-mingle balance sheet accounts.
- Fund accounting reports need to break down data by fund and by fund class as well as functional groupings. Statement terminology is different from for profit balance sheets and income statements. Reporting to funding sources is essential whereas for profit companies do not need to report their performance to their customers.
- Not-for-profit and Government organizations have unique financial requirements enacted by the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), and the International Public Sector Accounting Standards.
- Grant reporting and administration requires both current, grant calendar, and life-to-date financial performance which is generally not available in for profit systems. Financial data has to be aggregated by expenditure codes and expenses need to be tracked against grant budgets as well as organization budgets.
For a nonprofit organization, effective money management is key to operational success. Your nonprofit must be able to provide transparency to members and patrons alike. You must be able to achieve security for your sensitive data and still be able to carry out your mission with efficiency and agility.
This can only be accomplished with top notch accounting software, supported by the Cloud like Tangicloud.