Accounting Short-Answer Questions

Accounting Short-Answer Questions Kathi Chambliss May 14, 2013 BSHS/373 Frieda Flowers

Accounting Short-Answer Questions

First we need to define nonprofit and for-profit organizations. For-profit organizations capitalize on profit. Nonprofit organizations capitalize, through grants, fundraising, and government programs, the mission. Since nonprofits serve the public a clear understanding of how income is spent. There are audits, regulations, abide by rules and regulations. Nonprofits and for-profits are governed by a different set of rules. One way nonprofit and for-profit are different is through tax exemptions. Forprofits report on a number of things for example income, deductions, and salary payments, to name a few. Reports have to be created to enable the IRS to know how much taxes the organization will have to pay. Nonprofits are still responsible for reporting to the IRS however is allowed to file tax exempt. Even though the rules are different a nonprofit organization still has to pay taxes on payroll, real estate and sales tax on operations that produce revenue. Another difference that separates nonprofit from for-profit is balance sheets and statements of financial position. For-profit organizations use a balance sheet to help owners determine profit because it shows assets and liabilities. Because there is no profit to be determined in a nonprofit organization, this type of organization only needs a statement of financial position. The financial position shows cash on hand, money owed, and value of the agency. For-profit organizations use income statements every quarter to show how much money is being made, losses, expenses, and any warning signs that things might be going wrong. Nonprofits prepare a report known as financial activities because there is no profit to show. It does show revenue, expenses, and assets however it also shows if the "assets

Accounting Short-Answer Questions are unrestricted, temporarily restricted, or permanently, restricted for or from projects, functions, or capital expenditures." (Nonprofit Accounting Software, 2011) Nonprofits are constantly proving where their money came from, where it is going, and is the targeted population being served properly. Because of this, all nonprofits require an audit to be prepared at the end of every year. An audit is a report, prepared by a CPA, providing lucidity to nonprofits donations and how they are spent. Each nonprofit has a treasurer and secretary who maintain the books and manage the

deposits. Nonprofits require several other board members to co-sign on checks. Also two people are required to handle the income, make deposits, and categorize funds. Using the organization's minutes, an auditor will verify justifiable expenses. All purchases made by people of nonprofits are required a strict paper trail for verification. Last the auditor closes the books for the fiscal year, prepares a balance sheet, reconciles bank statements, and determines what funds have not been put on the books. Even though nonprofits are tax-exempt the IRS can do an audit. "When the IRS audits, it looks for specific items, such as a 3:1 ratio of charitable work to fundraising efforts. What this means is for every fundraiser, an organization must do at least three giving campaigns in accordance to its bylaw mission." (Mason, 1999-2013) Nonprofit and for-profit have similarities in accounting practices for example credit, cash, payroll, property, and assets. However when it comes to nonprofits accountants with nonprofit experience is preferred. "There are regulatory issues, compliance issues, audits, and reporting demands that the differences in total demand accuracy and a prove track record." (Nonprofit Accounting Software, 2011) Weaknesses in an organization can cause irreversible damages and an auditor can uncover these

Accounting Short-Answer Questions

weaknesses and make suggestions on how to fix and improve these procedures. "Internal controls are policies and procedures that safeguard operational efficiency and ensure that funds are used appropriately. They also guard against the deliberate misuse of money." (Rees)

Accounting Short-Answer Questions References Mason, L. (1999-2013). Non-Profit Audit Requirements. Retrieved from http://www.ehow.com/aobut_5065599_nonprofit-audit-requirements.html Nonprofit Accounting Software. (October, 2011). Accounting Differences Between Nonprofits and For-Profits. Retrieved from http://www.nonprofitaccountingsoftware.org/2013/10/accounting-differencesbetween-nonprofits-and-for-profits/ Rees, S. (n.d.). What an Audit is and Why Your Nonprofit Should Have One. Retrieved From http://ezinearticles.com/?What-an-Audit-Is-and-Why-Your-NonprofitShould Have-One&id=2172659