For Profit vs Not-for Profit

Some key differences in accounting between for-profit and not-for profit organisations:

  Not-for-profit For-profit
Expenditure Money spent on furthering the organisation’s purpose: to improve the environment, health, social connections, social disadvantage, culture, science etc. Money spent to generate Income.
Income Money mostly received from people or organisations who want it spent on the organisation’s purpose. Money received by selling goods or services.
Equity Money held in reserve to be applied to the organisation’s purpose in future. Money owned by the business owners (shareholders).

 

Accountability Governance body (Board), Donors/funders, members,  DIA (via Charities Register), clients. Shareholders/business owners.
Accounts Need to record what purpose funds were spent on, how they were obtained and what existing funds are earmarked for. Need to identify trends in sales and expenditure to maximise financial efficiency and allow analysis of how expenditure has generated sales.
Financial Statements Need to show how funds were spent in line with donor/funder requirements, whether income covered expenditure and what reserves and obligations the organisation may have. Need to show profit/loss and financial stability. Individual income and expenditure accounts are only relevant as an analytical tool for investors.
Use of Financial Statements For decision-making; accountability; fundraising. Main users not necessarily proficient in accounting. By professionals advising business owners/shareholders/potential investors and for tax purposes.

One Thought on “For Profit vs Not-for Profit

  1. Denis Waters on 15/07/2014 at 10:12 pm said:

    As a president of a Rotary Club in oz I have found your website the best source of a summary between NFPO and FPO accounting needs.

    I have conducted planning seminars for NFPOs (and Rotary Clubs ~ Visioning) and the conceptual basis of both planning and accounting for NFPOs is well encapsulated in your summary table. The differences are often not well understood, perhaps because both organisations are subject to similar corporations style legislation.

    A further difference is that NFPO’s generally have many volunteer members and so the way they are managed and treated is different. FPO has much more command and control than do NFPOs

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