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Invoice structure for non-profit organizations

[Music] let's talk about accounting accounting principles are essentially the same whether you're a for-profit or a nonprofit organization you have your debits and your credits you have your assets and your liabilities and you have your income and expenses but where there is a difference is there is no owners equity in a nonprofit organization there's net assets it's because of this significant difference in accounting presentation that the accounting requirements for a nonprofit organization are much more complicated than a for-profit company so why does a for-profit company exist well to make money and profits for its owners why does a nonprofit company exist to fulfill a specific need in society and to serve the community so the bottom line for a for-profit company is to make profits for their owners whereas for a nonprofit organization the bottom line is accountability the Financial Accounting Standards Board establishes accounting and Reporting requirements for public and private companies including nonprofit organizations the last major pronouncement for nonprofits was fby 116 and 117 back in the 90s these establish conditions for recognizing contributions and revenue for nonprofits and establishing standards for financial statement presentation where the money donated to a nonprofit organization needs to be designated as either unrestricted temporarily restricted or permanently restricted funds so the money that is unrestricted could be used however the nonprofit feels it's needed temporarily restricted revenue is money that's designated for a specific purpose and permanently restricted funds are money donated where the funds cannot be used only the earnings from those funds could be used for the nonprofit so the fundamental differences between a for-profit and a nonprofit organization when it comes to accounting is the net asset section for nonprofits and owner equity for for-profits in the nonprofit World in accounting net assets are broken down into unrestricted temporarily restricted and permanently restricted funds because the money that's donated and given for specific purposes has strings attached in the for-profit world there are really no strings attached to revenue as long as the consumer receives goods and services that they pay for the consumer really doesn't care what happens to the money but in the for in the nonprofit world where that money is used is extremely important that's where the accountability and transparency come through and are are extremely important in nonprofit accounting another key component of nonprofit accounting is the necessity of classifying all expenses by functional area those functional areas are management in general and fundraising which are classified as support services and program which are the costs of fulfilling their mission this is critical in the Public's evaluation of a nonprofit's financial statements so they can measure the cost of the mission and the support services is required to operate the nonprofit this is also necessary when the nonprofit must comply with IRS regulations for financial statement presentation to the general public and also in completing their 990 so when it comes to Preparing financial statements a for-profit has a balance sheet and a nonprofit has a statement of financial position the difference being that the for-profit balance sheet has owners equity which is essentially the net worth of of the company in a statement of financial position there is no owner's equity there is your net asset section which again breaks down your activity by the three Net asset classes unrestricted temporar temporarily restricted and permanently restricted the income statement for a for-profit shows revenue and line item expenses such as salaries payroll taxes rent utilities supplies Etc the nonprofit statement of activities does not have line item expenses it breaks down expenses by functional area management in general fundraising and program so the general public when they read the financial statements can see how much money has been dedicated for support services and how much money is being used to fulfill the mission