Reading Accounting

Kofoworola Olowu

Accounting: 561

Reading Observation week 2

05/25/2010

Week 2 Reading

During week 2 reading for chapter 15, I came across this topic which is Nonprofit Organization. Nonprofit Organizations does not seek profits like profit-seeking organizations. There are two different types of nonprofit organizations mention in chapter 15 which are government agencies and charitable organizations. These two organizations used balance sheets and income statements but do not measure income and also no owners’ equity because they have no owners. Nonprofit hospitals and universities have a “statement of activities” or a “statement of revenues, expenses, and changes in net assets” instead of an income statement. Also they use their balance sheet as a category of “net assets” instead of “owners’ equity” to measure the difference between assets and liabilities. Instead of the term balance sheet, many nonprofit organizations use the term statement for net assets. During the past years, nonprofit organizations resisted of using accrual accounting instead, they stick with cash basis. They are working on this issue because they are facing more pressure everyday has to developing accurate measures of performance and they want to increase using accrual accounting. I also learnt that accrual accounting as a proving to be useful to nearly all types of organizations. The basic concepts of assets, liabilities, revenues, and expenses apply to all organization, whether they are Utilizes, Symphony Orchestras, Private, Public, American Asian, and so forth. I came across two terms that I really did not know there definitions, Accrual basis is a process of accounting that recognizes the impact of transactions on the financial statements in the time periods when revenues are expenses occur instead of when the company pays or receives. The second is source document which means explicit evidence of transactions, such as sales slips, purchase invoices, and employee time records....