Accounting In Non-Profit Organisations

Asset - Accounting In Non-Profit Organisations

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The nature of this type of company implies that any increase in net assets arising from the activities of the undertaking must be applied to improve the society services rendered by the specific organisation. The increase in the net assets of the entity does not accrue to the persons supporting the organisation (e.g. the members).

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Depending on the type of undertaking, equity is regularly furnished by grants from state or authorities, donations or membership fees. These contributions to equity do not give the same ownership as contributions to the equity of a small company give on shareholders and therefore, dissimilar accounting practises apply to these enterprises.

Bearing in mind the typical characteristics of a non-profit organisation, the request arises which singular requirements of accounting systems and financial reporting procedures apply to this singular type of organisation. The financial accounting must supply economically interested groups with a full, tell of what the singular organisation achieved during a specific period or at the end of its financial accounting year. The accounting records and ideas developed for an economic entity must be logical and consistent and must be linked to the objectives of the entity, as well as the circumstances in which it conducts its activities.

Because of the typical characteristics of non-profit organisations, the traditional aim of accounting reporting should be to supply control over sources by means of accounting responsibility. finding that the function of stewardship is basic to this type of organisation and because accountability for behalf is not linked with this type of entity, most non-profit associations and organisations use the so-called funds accounting procedures for financial reporting.

Funds accounting requires that the sources of finance of an organisation be divided into various funds. A fund can be defined as a sum of money or other source that are set aside for a specific operation designed to accomplish specific objectives and that is regarded as a separate accounting entity.

The difference between this definition of a fund and the usual meaning thereof is obvious: the notion fund implies an number of money for some other source that is intended for a specific purpose. The notion fund in a non-profit organisation embraces the supplementary principle of a separate accounting entity. Thus, the accounting ideas will supply for a number of self-balancing 'fund-units' utilised in accordance with the limitations located on the use of the funds. The funds policy is designed to prevent sources intended for a specific use from being applied for any other purpose.

Funds accounting can commonly be divided into two categories. (1) revenue funds - The traditional use of accounting records for this type of fund is to disclose the source of the fund and the manner in which it was applied. These funds are typical of those encountered in non-profit organisations. (2) Self-sustaining funds - These are fund entities that, once an introductory offering has been made to them, are intended to be self-sufficient. Such funds can be carefully as small behalf orientated enterprises within the framework of a non-profit organisation.

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