Accounting in Profit and Non-Profit Organizations - By: Verna Derosier

Accounting is usually applied in for profit and for non-profit businesses. It is the process of recording, categorizing, and organizing in terms of money, transactions, and events which relate to finances. These processes are interpreted accordingly thereafter.

Profit-based companies are usually owned by a group of people or shareholders. This kind of business is created through investments, transferred assets, money, and skills. The law sees this group of people as an entity called the corporation. The corporation takes ownership of the shares and title. People elected in the board of the directors (BoD) have fixed terms that are decided upon by the same individuals who started the corporation. After the designated term, the members will convene to elect new members.

For profit businesses, each share of stock empowers its owner to cast one vote. Those who own a greater number of stocks are allowed to cast votes equal to the number of shares. Furthermore, in order to monitor the company’s funds, a commercial type of accounting system is used unlike the type used in accounting for nonprofit organizations. This type of accounting focuses mostly on the company’s earnings and expenses. In addition, it only uses one general ledger for the company.

On the other hand, when individuals convene to provide investment, money, and skills to achieve a common goal, a non-profit organization (NPO) is made. Unlike profit businesses, individuals herein do not have guaranteed shares, nor legal ownership of the company. All of the invested funds to create the company are used to advance its advocacies, purposes, and services initially deemed by its BoD. To properly monitor funds, fund accounting nonprofitorganizations are familiar with is used. With fund management accounting, NPOs utilize and differentiate donations according to the terms provided by the donors. The NPOs use more than one accounting record, usually one for each project.

In contrast to profit businesses, once the director’s designated term ends, it is now up to the remaining members of the board to re-elect the previous chair or choose someone new to take the seat. The election is no longer based on a per-share voting power. In other non-profit organizations with defined members, all associates get to cast their votes and elect the new chairperson of the board to oversee activities and funds management. For fund management, NPOs usually hire accounting firms or an individual to undertake accounting for nonprofitorganizations. Preferably, those experienced with non-profit organizations get the job.

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