Friday, 18 November 2011

Nonprofits - What Are They?

The definition of plan assets and the balance of the Fund

According to the "Economic and Accounting Guide for Non-profit organizations," written by CPAs Gross, Larkin, Bruttomesso and McNalley, (fifth edition, PG 25) definition of these three concepts are as follows:

- The fund is part of an organization for which separate account records are kept.

- Assets are valuable things owned or controlled by the organization. Types of assets include cash, investments, assets and debts to the organization.

- The balance of the fund is the mathematical number obtained by subtracting the total liabilities of the total budget, is numerically the net assets of the organization, but has no other meaning. The financial statements of the Fund is not only on paper, in contrast with the funds, have no intrinsic value, and can not be used. Both assets and fund balances (as well as liabilities, costs and revenues) are part of the bottom book.

What are non-profit?

A few years ago, a client of mine dentist who did a great job for low-income patients under the medical assistance program in California called "medical", asked me weird. He wanted to know if it could be considered a "nonprofit organization", as he did a lot of medical work. At first I thought it was funny, but he was serious. I told him just because he charged less for his services do not qualify to be exempt from paying tax. In fact, he did a very nice profit. But it is a good example of how non-profit organizations (NPOs) are poorly understood by many in the general population.

Most countries around the world have NPO, but outside the United States are called non-governmental organizations (NGOs) or civil society organizations. These organizations are exempt from paying taxes because they provide a kind of public utility. Is said to improve the structure of society. They differ from a business organization, as there are owners. A board oversees the operations of the organization. An Executive Director to report to the Board of Directors, serves as a CEO of a company. Usually there is a lengthy application process to establish the mission or purpose of the organization before exempt status is granted.

According to Independent Sector, an organization that serves as a source of nonprofit boards, there are 1.5 million nonprofit that, combined, have general annual revenues of more than $ 670 000 000 000 dollars. They report that six percent of all U.S. organizations are nonprofit and one in twelve Americans work for a nonprofit organization. This is big business and has led to benefits for alarm companies that some of these NPOs are unfair competition. Think of a private hospital compared to a nonprofit hospital. The benefits of private hospital are taxed, but the NPO hospital can apply all their profits to higher salaries, more equipment, etc. So there is a high regard for NPOs by the Internal Revenue Service, Office of Attorney General, monitoring private entities, and the press.

There are all types of nonprofit organizations. Public charities are exempt under the Internal Revenue Service Code 501 (c) (3). These organizations, like hospitals, museums, orchestras, private schools, churches, scientific research organizations, soup kitchens, etc., obviously do much more than provide free care and services to the needy. To qualify for exempt status, these organizations show broad public support, rather than funding from a single source. In addition, private foundations, colleges, universities, social welfare organizations, professional associations and trade, and much more. Government organizations such as communities and organizations are also nonprofit, however, their accounting and recording are treated very differently from 501 (c) (3) organizations.

How does the profit of books arranged?

In short, the books of an NPO organized the same way as for-profit company apart from a few differences. It's okay for money not for profit, because there may be many applications the Council has provided for the extra money. But traditionally, the patent offices refer to profit as "Excess of revenue over expenses" to avoid being misinterpreted as a for-profit organization. A net loss is called "excess expenditure over revenue." Recall the fundamental equation that makes the work of double-entry bookkeeping:

ACTIVITY '= LIABILITIES' Shareholders' Equity

Instead, the term EQUITY, a profit FUND words to replace the balance of net assets or later. The concept is always the same. After subtracting liabilities to assets is the difference between what is owned by an organization. When a non-profit organizations differ from the budget presentation-profit organizations are the so-called fund accounting. It 'clear that the purpose of presentation varies, and the entire organization. For example, Little League baseball organization may only have a fund for which you have an account. There may also be restrictions on the use of fees they receive. Everything is simple.

Or, a scientific research organization may be working on several projects at the same time funding sources made up of private and government grants or contracts, private donations, sales of research documents, some of them are limited to specific expenses, and the rest unlimited. The challenge of accounting is the statement of income and expenses accurately for each fund or project and be able to combine all the funds in a financial sense.

The problem in the past for taxpayers is that I could not tell the financial documents that the funds were restricted and unrestricted and whether their contributions were being spent properly. The Financial Accounting Standards Board (FASB) decided that all external accounting should be done using the "net assets" as opposed to the approach of "Fund Balance" approach. Essentially, the net assets approach requires that the actions of the organization will be presented with three classes of assets, ie assets restricted, temporarily restricted assets, unallocated assets. You can still use Fund Accounting for internal accounting purposes, but also for external reporting, which are required to disclose your restricted and unrestricted funds. If you have limited funds, so not a big challenge.

A key factor in creating non-profit books is a thoughtful account plan. In other words, is to choose which bills are most appropriate accounting for revenues and registration fees, etc., and organize them in such a way to make sense. Some U.S. organizations simply follow the same format in IRS Form 990 for nonprofit organizations. They make their financial statements to conform to how to organize the return. This makes it easier to transfer information from their financial statements in the form 990.

However, the key is to design your accounts so that they tell you exactly where your revenue comes from and what expenses are related to these revenues. I have worked with nonprofit organizations that have not done a very good job of it at first, and I can testify that it is not fun to try to straighten the accounts later. It may be worth the money to hire a competent accountant to guide you through the configuration phase. Better yet, let your accountant review your books a few times a year just to make sure you stay on track and save the grief of year-end.