Financial Statements And Non Profit Accounting

By Author: Verna Derosier
Total Articles: 5
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Non profit organization leaders must also have basic skills in financial marketing, aside from great headship. They should be able to understand cash management and bookkeeping, and processes that assure that their financial statements and reports are done with integrity such as having yearly visits from a third party auditor.

According to a non profit accounting guide, a financial statement is a presentation of financial information, such as balance sheets, revenue statements and statements of cash flow, or any supporting statement that is projected to communicate an entity's financial status at a point in time and its operation results.

Non profit organizations use a specialized system called fund accounting, which fundamentally collates financial information together into accounts that have a similar purpose. This system provides the organization an idea of how much fund is available in order to accomplish a specific task.

According to accounting experts, if one reads financial statements to understand how well a nonprofit fund accounting is managed, it is utterly important ...
... to consider three aspects, which are the amount spent on fundraising, total assets, and salaries. Also, one has to look at the total amount spent on organization management and general expenditures.

In standards for charity accountability, it is required that a non profit organization must spend at least sixty five percent of its yearly budget on program activities. It is also stated that in non profit fund accounting, unrestricted net assets available for use must not be more than three times the size of the past year's expenses, or three times the size if the current year's budget.

Lastly, it is also very much important to compare and contrast similar organizations when using financial statements for non profit fund accounting. A typical non profit art gallery may have more assets than any other non profit organizations because it may own its building or establishment, and even a surrounding park or an auxiliary office. Also, one must be aware that new profit organizations may have greater administrative or fundraising expenditures that other organizations do. Benchmarking with non profit organizations with similar financial status would be much better.