Not-for-profit (NFP) accounting

Definition

Not-for-profit (NFP) accounting focuses on tracking, recording, and reporting financial activities of organizations that operate for purposes other than generating profit. It ensures compliance with regulations and helps in effective resource allocation to fulfill the organization's mission.

5 Must Know Facts For Your Next Test

1. NFP accounting uses fund accounting to segregate resources based on their purpose and restrictions.
2. Financial statements for NFPs include a Statement of Financial Position, Statement of Activities, and Statement of Cash Flows.
3. NFPs classify net assets into categories: without donor restrictions and with donor restrictions.
4. Donations, grants, membership fees, and fundraising events are common revenue sources in NFP accounting.
5. NFPs must adhere to specific reporting requirements set by governing bodies like the Financial Accounting Standards Board (FASB).

Review Questions

Related terms

Fund Accounting: A system used by NFPs to manage and segregate resources according to their intended purpose.

Statement of Financial Position: A financial statement that reports an organization's assets, liabilities, and net assets at a specific point in time.

Donor Restrictions: Conditions imposed by donors on how contributions can be used by the not-for-profit organization.