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Nonprofit and For-Profit Accounting: What’s the Difference?

All business entities, whether nonprofit or for-profit, need accounting for administrative and financial organization. Even nonprofit organizations (NPOs) have to account for the funds they receive and spend; this act of establishing financial accountability is the essence of accounting.

More often than not, these business entities rely on the expertise of in-house accounting teams composed of certified public accountants, bookkeepers, and clerks. You can also choose the best 501c3 nonprofit organization online.

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The accounting processes needed for NPOs and profit-oriented businesses essentially remain the same. This is especially true with regards to keeping track of the entity's revenue and expenses.

However, the nature of an NPO makes nonprofit accounting a little more complicated than for-profit accounting. Nonprofit accounting usually requires accounting teams to keep track of some additional financial information and generate more specific reports.

Accounting departments of nonprofit organizations typically have to create reports for the accounting of contributions. Contributions may come from membership dues, pledges, in-kind donations, and events such as fundraisers.

The funding received through these means has to be duly recorded by NPOs and must be included in the organization's financial statements. This applies especially to NPOs that hold a tax-exempt status.

Nonprofit organizations that are exempt from tax may also be required to make annual reports on the organization's functional expenses.

Functional expenses, in accounting for non-profit organizations, refer to the expenses incurred during activities such as program services and fundraising activities.