Government and not for profit accounting share some similarities. For instance, both of them require a greater need for transparency because constituents and donors want to know where their money is going. Both also require a need for reduced human error. But there are differences between the two as well, and accountants need to be aware of them, should they move from one entity to the other. Here are some of the main differences between government and not-for-profit accounting practices.
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Some major differences between government and not-for-profit accounting standards
Differences in standards
Both governments and non-profits follow GAAP, the Generally Accepted Accounting Principles. But each organization also has their own standards to keep in mind as well. The government follows the Government Accounting Standard Board (GASB), and non-profits follow the Financial Accounting Standards Board (FASB). CFOs and accountants need to be aware of the differences that their respective board standards have from the GAAP.
Differences in statements
Non-profits and governments report with two common financial statements: The Statement of Activities and Statement of Cash Flows. There is also a third statement which differs for each. Government agencies use the Statement of Net Assets, and non-profits use the Statement of Financial Position.
Differences in reporting
The GAAP and the GASB culminate in the Comprehensive Annual Financial Report. The CAFR analyzes a government’s financial status and includes overall financial data as well as specific information as to where certain funds are allocated. The budget is the culmination of the political process. Because it is so important, the budget is a source of constituent concern and controversy, unlike the annual report.
In contrast, non-profit organizations put together financial reports for their Board of Directors and subsequent stakeholders (i.e., donors, members, funding agencies). Since they report directly to stakeholders, their reports need to be easy to read and comprehend.
Many government and not-for-profit accounting organizations have not yet established adequate accounting systems to measure non-monetary aspects of their performance. It is important to track these qualities because monetary aspects do not always cover the full picture.
Software works with both government and not-for-profit institutions to deliver responsive, organized, and efficient budgeting year after year. Our software integrates easily tracks and organizes multiple avenues of data. Since it is online, the data is easy to update from multiple personnel and smart devices. You’ll reduce human error and please your constituents at the same time. And because we specialize our software for your needs, you never need to worry about using the wrong kind of reporting standard.
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