For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
Balance sheets provide a snapshot of an organization’s financial health, listing assets, liabilities, and net assets. While both nonprofits and for-profits use balance sheets, there are some key differences between nonprofit and for-profit balance sheets to be aware of.
Overview of Nonprofit and For-Profit Balance Sheets
At their core, nonprofit and for-profit balance sheets contain the same components:
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Assets – Resources owned by the organization. This includes cash, accounts receivable, inventory, investments, property and equipment.
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Liabilities – Debts and obligations owed by the organization. This includes accounts payable, wages payable, taxes payable, loans, mortgages, bonds.
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Net Assets/Owner’s Equity – The difference between total assets and total liabilities, This represents the net worth of the organization
However, there are some important differences in how these components are structured and categorized on nonprofit vs for-profit balance sheets.
Key Differences Between Nonprofit and For-Profit Balance Sheets
1. Net Assets vs Owner’s Equity
On a for-profit balance sheet, the net worth of the company is referred to as “owner’s equity” or “shareholder’s equity.” This represents the residual claim on assets after liabilities are paid.
On a nonprofit balance sheet, net worth is referred to as “net assets” Net assets on a nonprofit balance sheet are further broken down into
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Unrestricted net assets – Net assets that are not subject to donor-imposed restrictions. Unrestricted net assets can be used for any purpose.
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Temporarily restricted net assets – Net assets subject to donor-imposed restrictions that will be met by actions of the nonprofit or by the passage of time.
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Permanently restricted net assets – Net assets subject to donor-imposed restrictions requiring that the assets be maintained permanently by the nonprofit.
This categorization of net assets is unique to nonprofit balance sheets.
2. Presentation of Revenue and Expenses
On a for-profit balance sheet, you will not find revenue and expense accounts. Revenue and expenses are reported on the income statement.
On a nonprofit balance sheet, changes in unrestricted, temporarily restricted, and permanently restricted net assets are presented. This ties the balance sheet to the nonprofit’s statement of activities, which reports all revenue and expenses.
3. Fixed Assets
Nonprofit and for-profit balance sheets both report fixed assets like property, equipment, and vehicles. However, nonprofits have some unique considerations:
- Fixed assets may be restricted for specific program purposes
- Some assets may need to be capitalized differently for nonprofits
- Nonprofits may hold term endowments invested in fixed assets
These factors can influence fixed asset presentation on a nonprofit balance sheet.
4. Inventory
For nonprofits that hold inventory for resale, like thrift stores, inventory is presented differently than on a for-profit balance sheet.
On a for-profit balance sheet, inventory is valued at cost. On a nonprofit balance sheet, donated inventory is valued at fair market value on the date of donation. This aligns with nonprofit revenue recognition principles.
5. Receivables
Nonprofit balance sheets contain some specialized receivables accounts not found on for-profit balance sheets:
- Grants receivable – Grants awarded but not yet received
- Pledges receivable – Unconditional promises to give by donors
- Contracts receivable – Amounts due under government or other contracts
6. Investments
Investments are categorized differently on nonprofit vs for-profit balance sheets:
- For-profit investments focus on operating/current versus non-current assets
- Nonprofit investments are segmented into board-designated, temporary, and permanent categories
This aligns with the net asset classifications on the nonprofit balance sheet.
While nonprofit and for-profit balance sheets contain the same basic components, there are important structural and categorization differences to understand. Nonprofit balance sheets align with the unique revenue streams, restrictions, and programs of these organizations. Being aware of the key differences empowers you to better understand the story behind the numbers.
Key Takeaways:
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Net assets on nonprofit balance sheets are split into unrestricted, temporarily restricted, and permanently restricted funds.
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Nonprofit balance sheets present changes in net assets tied to the statement of activities.
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Nonprofits have unique considerations for fixed assets, inventory, and investments.
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Nonprofit receivables include grants, pledges, and contracts not found on for-profit balance sheets.
By mastering the nuances of nonprofit balance sheet presentation, you can better assess the financial health and sustainability of these vital community organizations. A properly structured nonprofit balance sheet tells a story beyond just assets and liabilities.
Definition of Balance Sheet
The balance sheet is one of the main financial statements issued organizations. The balance sheet reports the organization’s assets, liabilities, and the difference between the amount of assets and liabilities as of the final instant of the accounting period. In the U.S., the amounts are based on generally accepted accounting principles (GAAP).
The ABC’s of Nonprofit Financial Statements – Ten Minute Talks
What is the difference between a nonprofit and a for-profit balance sheet?
When comparing a nonprofit organization’s balance sheet to a for-profit one, there are several key distinctions to consider. One major variance is that a nonprofit’s balance sheet is also known as a nonprofit statement of financial position.
Should a nonprofit read a balance sheet?
Reading a balance sheet provides critical, top-level financial information, but a nonprofit’s statement of activities, statement of functional expenses and cash flow statement must be evaluated together to see the full picture of the organization’s financial outlook.
What is a for-profit balance sheet?
A for-profit balance sheet is a document compiled by the accounting company. A balance sheet is one of four financial statements organizations prepare to share with their shareholders. These documents provide forecasting of the financial growth and direction of the company. These documents can persuade investors to invest in the company.
How does a nonprofit balance sheet work?
Accrual methods match expenses to revenue when it’s generated. In nonprofits, this comes up with events. Funds are related to the day of the event instead of when funds actually arrive. If your organization uses cash-based accounting, nonprofit balance sheets may not provide an accurate snapshot.
