Differences Between Nonprofit and for Profit Organizations

What are the major accounting differences between nonprofit and for-profit organizations?

For-profit focuses on profit maximization and a nonprofit organization does not. For-profits base their accounting around quarterly income and nonprofits organize statements that revolve around the organization’s activities only. The objective of for-profit organizations is to capitalize on profits and forward these profits to the company's owners and shareholders while the nonprofit organizations objective is to provide society's needs. Non-profit organizations have no owners. Instead of maximizing profits, which means maximizing revenues while minimizing costs, they are more apprehensive with assuring the revenue is greater than costs. This makes sure that the nonprofit can still provide society's needs.

For-profit organizations must pay taxes on the organizations net income, but nonprofits do not if they are exempted from paying taxes. If a nonprofit's goal is to increase the welfare of society, governments tend to help this cause by minimizing the nonprofit's costs as much as possible. The for-profit organization formulates a balance sheet every quarter. According to Investopedia, “The balance sheet is a financial statement that sums up a company's assets, liabilities and shareholders' equity at a particular point in time.” A nonprofit does not use a balance sheet, because it has no owners. A nonprofit organization will collect a "statement of financial position," which focuses only on assets and liabilities.

A for-profit organization will also prepare an income statement each quarter. An income statement is a financial statement that processes a company's financial performance over a particular accounting period. It lists the company’s revenues, gains, expenses and losses. Nonprofit organizations do not prepare an income statement but instead prepare a statement of activities each quarter. This statement of activities lists the organization's...