The Basics of Not‐for‐Profit Accounting and Financial Statements

Financial statements prepared by a not-for-profit organization and audited by an independent certified public accountant must be prepared in accordance with the provisions of the accounting standards issued by the Financial Accounting Standards Board (FASB) and distributed by the American Institute of Certified Public Accountants (AICPA). A not-for-profit organization should prepare the following internal statements: statement of financial position (balance sheet) and statement of activity (income statement). This chapter illustrates the various elements of a statement of financial position and statement of activity. The cash accounting method is relatively simple and is generally used by new or very small not-for-profit organizations. While somewhat more difficult than cash accounting, accrual accounting is more accurate and reliable. Controlled Vocabulary Terms accounting standards; balance sheet; Certified public accountant; Financial statement; income statement