Unlike for-profit businesses, not-for-profit or nonprofit organizations do not have owners. Nonprofits have as their primary mission to fill a need in society rather than to earn profits for owners. As a result of these differences, nonprofits issue a statement of activities instead of an income statement.
Nonprofits issue a balance sheet, but it is usually referred to as the statement of financial position. The third section of this statement-which is the difference between the amount of assets and liabilities-has the heading of net assets instead of stockholders' equity.
Since donors may stipulate some restrictions on their contributions, the financial statements issued by nonprofits must report separately the unrestricted, temporarily restricted, and permanently restricted contributions and net assets.
Nonprofits are required to report their expenses by function. This means that expenses are reported according to the programs provided and by supporting services such as fundraising, and management and general.
As with for-profit businesses, the financial statements issued by nonprofits are to include a statement of cash flows as well as notes to the financial statements.
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Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. Read more about the author.