Nonprofit accounting differs from standard business accounting in some significant ways.
For one, the financial statements have different names. A nonprofit doesn’t have a “Profit and Loss Statement”, but a “Statement of Financial Activities.” Instead of a “Balance Sheet,” a nonprofit as a “Statement of Financial Position.”
These distinctions may seem arbitrary, but it might make more sense if you think about how a nonprofit does not have any profit, or net income, per se. At the end of the year, what it has left is not its current year earnings, but simply its “Change in Net Assets.”
The Statement of Financial activities records all these changes in net assets (donor contributions, expenditures, and transfers between funds). Then the net of those changes flows through to the Balance Sheet/Statement of Financial Position–specifically to the section of the Statement of Financial Position called “Net Assets.” This section is equivalent to the Equity section for a for-profit business.
The total Net Assets/Equity can be reconciled against the Statement of Financial Activities when run for all dates.
Here’s a cheat sheet:
|For-Profit Business||Nonprofit Organization|
|Income Statement or Profit & Loss||Statement of Financial Activities|
|Balance Sheet||Statement of Financial Position|
|Net Income||Change in Net Assets|
|Equity/Retained Earnings||Net Assets|
This is just a small intro to a bigger topic. If you’re looking for more info, I recommend heading here.
If you’re looking for some help in making QuickBooks work for your nonprofit, fee free to schedule a call with me.