ACCOUNTING FOR NOT-FOR-PROFIT
Answers to Questions
An entity in the not-for-profit sector is different than one in the public sector because it
does not have the power to tax citizens; rather, it is dependent on contributions, dues, and
charges for services as its revenue sources.
A not-for-profit organization (NPO) is
different than a business in the for-profit sector because it has no owners who expect a
return on their investment.
In addition, an NPO operates for purposes other than
providing goods and services at a profit. Note that there are governmental NPOs that are
not governments, although they are considered part of the public sector because they may
have elected officials, the power to issue tax-exempt debt, and be a component unit of a
Not-for-profit sector – Girl Scouts of America
Public sector – Missoula Mining Museum (in the city of Missoula, Montana)
Private, business sector – Microsoft, Inc.
consists of resources received, either directly from contributors or donors
or indirectly from other not-for-profit organizations, in nonreciprocal or
transactions in which the donor does not receive direct tangible benefit commensurate
with resources contributed.
are recognized when resources are received in
In these cases, the party who provides resources
receives benefits in exchange for the resources he or she provides. Typical revenue
sources are membership dues, program service fees, sales of supplies and services,
investment income, and realized gains on investment transactions. Grants from
governmental agencies may have aspects of both indirect public support and revenues,
and thus, are reported as separate items in the operating statement.
Examples of organizations with a high proportion of total support and revenues in:
Contributions – American National Red Cross
Charges for services – St. Joseph Mercy Hospital
Investment income – Mott Foundation, Inc. (a private nonoperating foundation)
A not-for-profit organization following GAAP must recognize the fair value of donated
services if the services enhance nonfinancial assets, or require specialized skills, are
provided by an individual with the specialized skills and would otherwise have to be
purchased by the organization, according to
SFAS No. 116