Similarities between government and for-profit organizations

While for profit organizations and not-for-profit organizations are different in many ways, even down to the core of how and why they conduct business and operate, there are also some similarities about them. Some similarities even go into their accounting uses and methods. Because they both do monetary transactions, they must have some similarities; however because they are very different, they also have major differences in how they conduct monetary transactions.

Differences and Similarities A major similarity is, of course, that not-for-profits and for-profits alike must report its finances to the Internal Revenue Service (IRS). However, nonprofits tax status will be exempt from income taxes if the IRS approves the organization as a 501(c). Nonprofits are required to provide financial statements by U.S. generally accepted accounting principles (GAAP) and is governed or regulated by the Financial Accounting Standards Board (FASB). Some of those financial statements include: Statement of Financial Position, Statement of Activities, Statement of Functional Expenses (The FASB does not require the statement of functional expenses for every nonprofit, however it is encouraged), Statement of Cash Flows, and Notes to Financial Statements. Even though Nonprofits are exempt from paying taxes, they must still follow basic reporting rules set up and maintained by FASB. Keeping up

Government and nonprofit accounting are often lumped together as they both use fund accounting principles. However, the way in which they operate, organize financial information, and report on their data differ greatly.

Below are the 3 major differences between nonprofit and government accounting processes.

Similarities between government and for-profit organizations

3 Big Differences Between Nonprofit and Government Accounting

1. Accounting Standards

Like all accounting programs, there are certain guidelines and principles an organization and entity must follow. Both nonprofits and government agencies must follow GAAP, the Generally Accepted Accounting Principles. GAAP’s main objective is to ensure that financial information is reported on effectively and efficiently. This is done through the GAAP’s set of principles, standards, and procedures that aim to help to standardize accounting across the industry and regardless of for-profit, NPO, or government status.

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In addition to GAAP, government and nonprofit organizations have additional standards they need to follow that differ from each other:

  • Government – GASB (Government Accounting Standards Board)
  • Nonprofits – FASB (Financial Accounting Standards Board)

Both the FASB and GASB “develop and issue accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information.” However the GASB is intended for “taxpayers, public officials, investors, and others who use financial reports”, specifically for state and local government agencies within the United States. The GASB defines three different reporting methods for government accounting.

The FASB is intended for “investors and others who use financial reports,” essentially any public, private, or nonprofit organization or business. Unlike the GASB, the FASB defines only one method of reporting for nonprofit accounting.

2. Statements

There are 3 main financial statements that nonprofits and government entities use in their reporting. Two of them are the same: Statement of Activities and Statement of Cash Flows. The third statement, while technically a statement of the same information, is referred to differently by both entities:

  • Government – Statement of Net Position
  • Nonprofits – Statement of Financial Position

These statements are similar to balance sheets. They summarize the assets and liabilities, showing the net assets of the organization and assessing the financial health of the government body or organization. The statements are similar to each other because in both the nonprofit and the government, there is no owner. The main difference is that the statements represent the assets that affect different people: for the government’s statements, it affects the taxpayers; the nonprofit’s statements, it affects those who benefit from the nonprofit.

3. Reporting

Government Accounting Reports

Every year, government organizations must put together a CAFR (Comprehensive Annual Financial Report). The CAFR analyzes the financial status of the entity, and is put together using the GAAP and GASB.

The CAFR can include overall financial data as well as information on specific funds and reports the results of the period in question, often the financial year. The CAFR also includes consolidated financial statements and includes accumulations from previous years. This also includes a comparison of the period budget and the actual spend.

Nonprofit Accounting Reports

Nonprofit organizations are not required to publish CAFRs. However, they are required to put together financial reports for their Board of Directors and subsequent investors. These are called the Report of Consolidated Financial Statements which will include:

  • Statement of Activities
  • Statement of Financial Position
  • Statement of Cash Flow

Nonprofits typically do this through their fund accounting software, as most solutions include templates that make reporting easier to read.

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What are the similarities between profit and non

Both serve the needs of the community. Both make income, but reinvest all earnings back into the organization to continue operations and to support their causes. Although both have a staff consisting of mostly volunteers, they also hire and pay some higher-level employees within the organizations.

How government accounting is similar to not for

They summarize the assets and liabilities, showing the net assets of the organization and assessing the financial health of the government body or organization. The statements are similar to each other because in both the nonprofit and the government, there is no owner.

How is business similar to a not for

Nonprofits can have a separate legal entity; not-for-profits cannot have a separate legal entity. Nonprofits run like a business and try to earn a profit, which does not support any single member; not-for-profits are considered “recreational organizations” that do not operate with the business goal of earning revenue.

What are the key differences between for

Generally, for-profit companies seek to provide a product or service to consumers and make a profit by doing so. A nonprofit organization's purpose is to provide a service or benefit to the community with no intention of earning a profit.