Nonprofit Research Paper

About Nonprofits
A nonprofit, also known as a not-for-profit organization, is an entity that conducts operations to provide services without the motive of earning a profit. Nonprofits can be similar to for profit entities because they can have funding derived from exchange transactions. They can also have funding derived from non-exchange transactions similar to governmental entities. Nonprofits however do not have the authority to tax as do governmental entities. They therefore rely on voluntary contributions from the community. Nonprofits differ from for profit entities in several ways, rendering financial ratios commonly used in the for profit sector inappropriate for nonprofits. For instance, for nonprofits no relationship exists …show more content…
Interperiod equity is the concept that costs should not transfer to future periods or generations, which explains why net assets are sometimes low for nonprofits because as money comes in, the entity is obligated to spend those funds on services within a reasonable period as specified by the donor. Another way a nonprofit differs from a for profit entity is through its financial reporting. Nonprofits are required by the Financial Accounting Standards Board (FASB) to report three financial statements using the full accrual basis of accounting. These statements include: a Statement of Financial Position (similar to a Balance Sheet); a Statement of Activities (similar to an Income Statement); and a Statement of Cash Flows. The net assets for nonprofits must be categorized in three groups on the Statement of Financial Position based on donor-imposed restrictions as follows: unrestricted net assets; temporarily restricted net assets; and permanently restricted net assets. Temporarily restricted net assets can be used for a specified purpose as declared by a third party donor. Permanently restricted net assets on the other hand cannot be used for any expenses, though their investment income is available for expenses. These same revenue categories must be

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