Some key differences in accounting between for-profit and not-for profit organisations:
|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.
|Money mostly received from people or organisations who want it spent on the organisation’s purpose.
|Money received by selling goods or services.
|Money held in reserve to be applied to the organisation’s purpose in future.
|Money owned by the business owners (shareholders).
|Governance body (Board), Donors/funders, members, DIA (via Charities Register), clients.
|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.
|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.