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What is a nonprofit organization?

Author:
Harold Averkamp, CPA, MBA

A nonprofit organization is an organization without commercial owners and which addresses the needs of society. Nonprofit organizations are also known as not-for-profits, NFP’s or simply as nonprofits. Nonprofit organizations are likely to be involved in areas such as religious, education, health, social services, arts, etc.

Nonprofit organizations may apply to be exempt from federal income taxes. Donors’ contributions to nonprofit organizations may or may not be charitable deductions. For more information regarding these issues see Publication 557 at IRS.gov.

A nonprofit organization’s financial reporting includes a statement of financial position, a statement of activities, a statement of functional expenses, and a statement of cash flows. Some nonprofits are required to file IRS Form 990 or Form 990-EZ. Since nonprofits do not have commercial owners, the difference between the amounts of assets and liabilities is reported as net assets (instead of owner’s or stockholders’ equity). The net assets are presented as: without donor restrictions or with donor restrictions.

The typical sources of a nonprofit’s revenues are donor contributions, program fees, dues, fundraising events, grants, and investment income. Expenses are presented as program activities or supporting activities (management and general, and fundraising).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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