What is the difference between a balance sheet of a nonprofit organization and a for-profit business?
While many differences exist between nonprofit and for-profit businesses let's give focus to the accounting world of them both.
For example, one of the well-known factors between the two business is related to tax exemptions. One difference in the balance sheets of a nonprofit or not-for-profit organization and a for-profit business is the name or title shown in its heading. In a nonprofit, the name of this financial statement is the statement of financial position. In the for-profit business this financial statement is the balance sheet.
Another difference is the section that presents the difference between the total assets and total liabilities. The nonprofit's statement of financial position refers to this section as net assets, whereas the for-profit business will refer to this section as owner's equity or stockholders' equity. The reason for this difference is the nonprofit does not have owners. This means that the nonprofit organization's statement of financial position will reflect this equation: assets – liabilities = net assets.
The net assets section will consist of the following parts: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The amounts reported in each of these parts are based on the donor's stipulations.
The difference in financial statements is just one of the many reasons why extensive policies and procedures are a key tool when establishing and building a business or brand. Fontenot & Associates Solutions LLC can start the process of developing your business policies and procedures virtually, no need to delay any further.
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