When it comes to the world of business, all organizations and entities must have legal, regulated means of organizing their monetary movements, or fund accounting, despite their ultimate goals often being very different. Our friends in the for-profit business world look to maximize their profit and revenue streams. The do-gooders in non-profit seek to accomplish a goal within set parameters, and governments make plans to satiate and organize the masses lest they fall to the 1906 quote by Alfred Henry Lewis: “There are only nine meals between mankind and anarchy.” And all of them must have ways to report their finances and their actions.
This article, however, will be staying away from the business side and focusing exclusively on Government and Non-Profit Fund Accounting.
Explain fund accounting like I am taking a high school business class:
Fund accounting is the way governments and non-profits prove they are using their money well. The organizations ask for money with a promise to be responsible with it, and on that promise, people give them the requested money. But promises need proof, and so those people who gave money will come back and ask to see how their money is being used. The fund accounting is that proof. The way the proof must be presented is overseen by specific government organizations, being the Government Accounting Standards Board (GASB), and the Financial Accounting Standards Board (FASB).
Explain fund accounting like I am in the industry:
The term “fund” describes or relates to the different ledgers and checkbooks that governments and non-profits utilize to track, analyze, and report on monetary levels for individual and specific costs and expenses. As both governments and non-profits exist as entities sustained through a basis of donations, grants, and other varieties of allocated resources, there exists the expectation and requirement of proper, organized accountability.
Each fund represents a separate, and unique fiscal entity related to a designated activity and objective that encapsulates all related financial resources, liabilities, and residual equities or balances. As such, government and non-profit entities utilize fund accounting for the proper and controlled reporting of their resources, which is required by the GASB and the FASB.
What is the Difference Between Government and Non-Profit Fund Accounting? Not much.
Ok, so there are a few key differences you will want to be aware of:
As previously stated, non-profits will report to the FASB while governments report to the GASB. Both of these boards oversee the regulations and guidelines of how governments and non-profits develop their fund accounting reports, however the GASB has 97 specifically tailored guidelines for the various focuses of government agencies. Let me say that again, the GASB has 97 different standards, but keep in mind that these are constantly and consistently under review and prone to change.
The FASB defines a single method of fund accounting reporting for non-profits, and while it is ever evolving, the changes and system itself is completely transparent, ensuring it is easier to understand for a seasoned veteran of fund accounting.
The actual reports themselves are a second key difference between non-profit and government fund accounting.
Government bodies follow the GASB as well as the Generally Accepted Accounting Principles (or GAAP), in order to form the COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR). This nightmarish sounding document is the absolute culmination of all manner of revenue gain, financial statements, and budget comparison, in order to analyze a total financial status. This document typically includes financials statements and records from past years and is typically used for both government-wide financial accountability as well as for specific funds.
Meanwhile, non-profits are laughing as they are not required to publish CAFRs, but they are required to submit financial reports for Boards of Directors, Investors, and the like. These must be straightforward, clear, concise, and easy to read. This report is known as the REPORT OF CONSOLIDATED FINANCIAL STATEMENTS. (eh, it just doesn’t sound as scary). This is predominately used for much of the same purpose as the CAFR. It checks things such as budget vs. goal, revenue, cash handling, and resource allocation.
All in all, there are three primary financial statements that non-profits and governments will use in their fund reporting. Two of these are identical: the Statement of Activities, and the Statement of Cash Flows. The third, however, varies depending on the type of entity.
Governments will find themselves reporting a Statement of Net Position, and Non- Profits will end up reporting a Statement of Financial Position. These reports are used to show how the assets and resources used will end up affecting the focus of each entity. For governments, it affects the noble taxpayer, whereas a non-profit affects whoever is receiving the good or service, which could be almost literally anything, seeing how many kinds there are out there.
So now you know what non-profit and government fund accounting is, how they are different, and how to give any high schooler a brief definition! But the question becomes, what do you do now?
Well we can think of no better next step than to see how Xledger can help you, no matter what kind of organization you find yourself a part of. As you just learned, different organizations encounter different challenges, but
Xledger’s adaptable software provides one solution for any problem and is adaptable to you and your needs.