In the world of accounting, a non-profit organization is any group that operates for social good, rather than to make a profit. This means their accounting practices differ a bit from for-profit businesses.

Here's a breakdown of key points about non-profits in accounting:

  • Focus on Accountability:  Non-profits prioritize demonstrating how they use their funds. This is because they rely on donations, grants, and contributions, and donors want to see their money used effectively  for the cause they support.
  • Different Financial Statements: Non-profits don't use a traditional profit and loss statement. Instead, they use a statement of activities, which shows how their net assets changed over a period. They may also use a receipts and payments account to summarize cash flow.
  • Fund Accounting:  Non-profits often employ fund accounting, a method that tracks restricted funds separately from unrestricted funds. This ensures funds are used as intended by the donor.
  • Compliance:  Non-profits must adhere to specific accounting standards and regulations to maintain their tax-exempt status. This often involves filing Form 990 with the IRS.