Not For Profit Organization Accounting

Table of Content

Not-for-profit organisation as stated is an organisation whose primary aim is to back up an issue or affair of private involvement or public concern for non-commercial intents, without the ideas of doing pecuniary net income. Non-for-profit organisations are normally brought in by protagonists or givers who are affluent plenty to fund their organisation and are the edifice block to accomplish the primary intent of the organisation. Hence, not-for-profit organisation must prosecute ends that benefit the community, instead than personal net income ; they are non bound by the competition of concern sector, functioning merely for specific intents such as educational or charitable.

So, for a not-for-profit organisation to bring forth net income is critical. This is really obvious in the current economic system, where authorities plans are critically underfunded, while givers and other protagonist have become more inactive in their support as the economic system in the current province is lay waste toing. The thought that non-for-profit organisation should non gain net income which is frequently based on the misconception is misguided. From this point of position, organisation would happen it difficult to back up the wage or even rewards of their employees.

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Dissimilar for-profit organisation, not-for-profit organisation are funded by contracts and grants received from the governmental and other bureaus, where by 100 % of the support under that understanding must be used for specific intents where no net income is permitted and must be for educational and charitable intents. Although rather common, this understanding involves on grant or specific contracts merely, and should non be misdirecting with net incomes earned by the bureau.

Compare to the Federal authorities, not-for-profit organisation can non merely print exchequer securities or money when the money is tight. Most not-for-profit organisations are independent and self-sufficing, doing no different from any other concern corporation in that affair. For a not-for-profit organisation, net incomes and hard currency flows are the chief fuel that help maintain the organisation running. Without those net incomes, organisation would non run in an effectual and efficient manner.

As in the universe of not-for-profit organisations, net incomes are used to prolong, maintain and grow. It is really true that growing is every bit of import to not-for-profit organisations as it is to for-profit organisation. Growth expands the organisation ‘s ability to coerce more of those who promote from its plans and services. Growth besides can enables the organisation to distribute out its plans and funding beginnings to minimise hazard, for illustration, the hazard that a peculiar plan will be discontinued or the hazard of losing an of import beginning of support.

Besides to mere survival, not-for-profit organisation can derive net income in a few ways which include of heightening bing plans where by most of the plans operate on low budgets. In add-on, organisation can construct the capacity through provide quality plans and pull offing efficaciously by enrolling, hiring, and developing the resources of organisation. Furthermore, not-for-profit organisation can besides minimise the fiscal impact of any figure of unexpected outgos which are beyond the organisation ‘s control. Initiating and heightening fund-raising attempts is besides a necessity for any organisation that relies on public support to prolong its being and not-for-profit organisation should work as a self-funded line of recognition to protect against the down-side of cyclical hard currency flow periods.

This is the figure of grounds why it is of import and important for not-for-profit organisations to bring forth net incomes. Merely because the term “ non-profit ” is a revenue enhancement position, it does non intend that not-for-profit organisations should non bring forth net incomes.

Question 2.

First, conceptual model for accounting play an of import function to advance consociation of accounting ordinance and criterions by supplying a footing for choosing an appropriate accounting intervention permitted.

For illustration in Australia, conceptual model play an of import function to develop a common cognition of fiscal coverage for all people in concern. With conformance with international accounting criterions and constructs besides have develop to the model as it aligned with international model. Besides that, footing for developing accounting criterions is used in the conceptual model.

In contrast, the conceptual model besides act as usher to supply construction to the procedure of making future fiscal coverage criterions and ensures that criterions are based on cardinal rules which to see advantages of options. The criterions which are sets by the IASB ( International Accounting Standards Board ) . This is to avoid the occurrence of criterions from going ad hoc and transitory. If without the accounting model, accounting criterions might be based on a solution that is relentless with a incorporate theory of accounting with the most equal solution to a peculiar issue. The Conceptual Framework is a necessary component in the advancement of principles-based accounting criterions.

It could be argued that the deficiency of a conceptual model led to a proliferation of ‘rules-based ‘ accounting systems whose chief aim is that the intervention of all accounting minutess should be dealt with by elaborate specific regulations or demands. Such a system is really normative and inflexible, but has the attractive force of fiscal statements being more comparable and consistent.

By contrast, the handiness of a conceptual model could take to ‘principles-based ‘ system whereby accounting criterions are developed from an agreed conceptual footing with specific aims.

In add-on, conceptual model besides of import to help the preparers of fiscal statement in the application of IFRS ( International Financial Reporting Standards ) in covering with accounting minutess, events, conditions or fortunes which there is non yet an accounting criterion.

Meanwhile, Conceptual model is a usher and a regulator of subjective judgement made by direction when fixing fiscal statement and others fiscal study. The Conceptual Framework assists users of fiscal studies in construing the information contained in fiscal statements prepared in conformance with fiscal accounting criterions. The Conceptual Framework assists national criterion puting organic structures in developing national accounting criterions.

Conceptual model accounting is really of import without it, criterions were produced on a unsafe attack, frequently responding to a corporate failure, instead than being proactive in finding best policy. Some standard scene organic structures were biased in their composing ( ie non reasonably representative of all user groups ) and this influenced the quality and way of criterions. Besides that, the same theoretical issues were revisited many times in consecutive criterions – for illustration, does a dealing give rise to an plus ( research and development outgo ) or liability ( environmental commissariats ) ?

Question 3

Bookkeeping is the records of day-to-day concern minutess. All the entries include gross revenues and purchases are recorded in the book. Bookkeeping can be divided into two types of methods: Single Entry Bookkeeping and Double Entry Bookkeeping.

Single Entry Bookkeeping involves hard currency book that records petty hard currency, histories collectible and receivable.

Double Entry Bookkeeping involves the minutess that are recorded in debit and recognition columns which have equal and opposite effects in two different histories with the equation of assets = liabilities + equity.

Beginning and Evolution of Bookkeeping

Bookkeeping in non-written signifier has been created in ancient times ; people merely used items to enter their day-to-day trading. As clip passed, people desired for more sophisticated record maintaining. Because of the statement in which this find was excessively complicated, bookkeeping was non being to the full utilized. However, the clerking system was so disseminated and being practiced in 1494 by Luca Pacioli.

Luca Pacioli was an Italian monastic who had published a book named “ SUMMA ” which contained a subdivision on book-keeping. In this book, Luca Pacioli wrote down a series of tools for bookkeeping such as diaries and legers. In property to the presence of the rules of dual entry clerking, it formulated out the foundation of modern twenty-four hours clerking and the dual entry system. The system was so being further improved and used in the ulterior century. Luca Pacioli is widely known as the male parent of modern clerking.

The importance of modern twenty-four hours clerking and dual entry system evolved

The dual entry clerking system has the error-catching characteristic. It helps in observing the mistakes by analyzing whether the entry is appropriate and trustable. For illustration, a company found an mistake in the statement ( i.e. Cash ) ; due to the dual entry bookkeeping built-in matching rules, there will be another history ( i.e. Account Receivable ) needed to be adjusted. At the terminal, there is higher opportunity to happen out the mistakes since it is more than one history affected by the incorrect entry.

Previously, bookkeeping system used to measure business communities ain fiscal place. During that clip, it was sufficient to understand ain fundss through records. However, the company stakeholders today non merely have to understand fiscal information in ain company, but besides have to compare them with their rivals. They usually need income statement ( i.e. Trading and Profit and Loss Account ) and place statement ( i.e. Balance Sheet ) to do opinion. This fiscal information which used for cost planning, budgeting and prediction is sourced from bookkeeping as they fixing the statement.

In today ‘s universe, all minutess such as bills, gross revenues and purchase orders are formed in paperwork. As the size and the complexness of the company increases, the more complicated in the minutess are. Limited capacity of human being and separation of responsibilities in work may take to mistakes occurred. This shows that the written records supported by documental grounds and standardisation are of import. Therefore, the company needs strong internal auditing patterns in order to forestall mistakes in statements. Double entry book-keeping which record dealing logically and built-in mistake checking characteristics is needed good by the company.

The universe we live has alterations significantly, but the dual entry clerking is still utile in today ‘s concern environment. There was an allowance for flexibleness in term of rating and new creative activity of non-traditional history ( i.e. rewards collectible and marketable securities ) ; the clerking system is a subset of the larger information system. In other word, it gives greater flexibleness in instance any market alterations.

Question 4

Using accounting criterions could consequences in a more easy apprehensible fiscal statements. Procedures required for concern to follow are stated in the accounting criterions published by the FASB. When making fiscal statements, companies are expected by the fiscal statement users to follow the published accounting criterions. While construing the consequences reported, these users rely on the premises set Forth in the accounting criterions. The users will construe the fiscal statements of different companies by utilizing the same premises. Once these premises can be understood by the users, reading any fiscal statements will be hassle free.

Second, supplying counsel to the comptrollers are another advantages of utilizing accounting criterions. The several comptroller may take mention on published accounting criterion in order to find the manner to enter the event whenever fiscal coverage issues arises. Issues that includes new accounting minutess originating from engineering, for illustration cyberspace gross revenues, or possibly new public presentation incorporated alterations in pension programs by the company. When making accounting criterions, FASB incorporates non merely the demands of fiscal statement users but together with the company ‘s feedback every bit good. This procedure is to do certain that the comptroller can be rest assured, as the counsel provided through the accounting criterion passed the strict procedure of guaranting that it achieve everyone ‘s demands.

One of the disadvantages of utilizing accounting criterions concerns with comptrollers following the inflexible model. Each company encounters different jobs and experiences. Each comptrollers must do certain that they could be able to suit the company ‘s alone experiences into the guidelines of the published accounting criterions.

Cost for the company to follow with the criterion should take into consideration when it comes to utilizing accounting criterions, which leads to another disadvantages of accounting criterions. The company demand to see the demand of the new accounting criterions and what actions the company should take to recognize the criterion and what the cost will be. In many state of affairss, the company should plan new steps that require a big fiscal investing. It includes the employee labor costs, system ascents and employee preparation.

Question 5.

The chief virtue of historical cost accounting construct is that historical cost is easy to find and can be verified. It besides is a cheaper manner of rating. Therefore, it no demand a large figure of appraisal for comptrollers to enter the informations and besides easier to inspect later. Besides, historical cost is based on the existent and non simply possible. The value of the assets that recorded on the fiscal place is based on the cost of acquisition monetary value. For this ground, they are calculated and reported objectively. Based on the verifiable, it can minimise the hazard of use of figures by the directors.

Furthermore, historical cost is utile in control intent to a company. It is a nonsubjective system which records the original cost of an point when it purchased. In traditional accounting, the aim of accounting is affecting chiefly the map of direction. Records of past dealing are necessary for answerability. That is because it can supply the grounds enemy find how effectual direction has met its duties. If used other method for entering possibly would less nonsubjective since the sum being recorded would depend on single point and is diverse from difference people.

Another virtue of historical cost is the dependability. Reliability is one of the of import features of fiscal study, it examined in the IASB ‘s model. Historical cost is use the original pecuniary value. As a past value, the value of assets historical cost is more faithfully to find than other accounting construct.

Nowadays, many fiscal study of company still used historical cost accounting construct in their accounting system. It are straightforward to enter the value of assets, and easy to examined in the accounting model.

Otherwise, the biggest defect of historical cost accounting is it does non enter the current market value of the assets. It omits the possibility of the current value of assets possibly higher or lower in the hereafter. The value of the assets that recorded on the fiscal place is based on the cost of acquisition. This may do the companies overvalue or undervalue the assets based on the out dated figures, particularly in the clip of rising prices. It is possible for the companies to have a fixed plus more than 10 old ages clip particularly for the land and belongings that the value will increase later over the old ages. As consequence, the proprietors of companies are non able to calculate the future hard currency flow of the fixed assets realistically. This may increase the trouble for the stockholders to measure the existent public presentation and capableness of direction of a company as the historical rating footing does non recognize the market value of the assets.

Following, historical cost accounting besides will take to exaggerate the net incomes. As the historical cost accounting does non account the alterations in current market monetary value of the assets, it will do the companies to undercharge the depreciation of assets. The companies will merely bear down the depreciation based on the acquisition cost alternatively of the existent replacing cost of assets at current monetary values. As consequence, the net incomes that recorded will non reflect the existent cost of the trading due to the historical cost accounting charge the cost of sale based on the acquisition cost of the assets. The wrong net income figures will be given to cut down the company ‘s capitals as the company needs to pay high dividends to stockholders and bear the high revenue enhancements for the high net incomes gained.

Another defect of the historical cost accounting is it does non unwrap the keeping additions of an plus. If the company acquired an plus, for illustration land at a low monetary value in the old clip, after a period of clip, the monetary value of the land may be higher than the cost of acquired. However, the additions for keeping the land will non enter on the fiscal statement. The additions will merely recognize until it has been sold due to the historical cost principal and gross acknowledgment principal. This may falsify the operating consequences of current twelvemonth as the keeping additions are really accrued in the old period alternatively of recorded in the period of it sold.

( 2,638 words )


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