I always thought non-profit and government accounting was hard but its not really, its the rules and regulations and financial reporting concepts that make it so convoluted…let me back up a little and explain some basic concepts.
Non-profit and governmental accounting is based on funds, each fund is like a mini-company within a large organization. Each fund or mini-company has to its own general ledger (chart of accounts) and provide individual revenue, expenses, income and balance sheets. Then each fund is added to a big spreadsheet in a separate column to report for the entity as a whole.
And each non-profit or government might also be running a little for-profit business as well to generate income for the larger company as a whole but that its treated just like another fund which has it own general ledger (chart of accounts) and provide individual revenue, expenses, income and balance sheets.
With me so far, each fund is it own little company.
Now for the financial reporting of all these funds (little companies) and here is where the convoluted mess occurs. The government funds are reported differently than the enterprise funds because the regulations say that since the sources of revenue are different (taxes vs fees), the purposes are different (well being of citizen vs generating income) and the budget is different (express of public policy vs internal mangement). Even more of a mess is that the financial statement are all named different things, statement of activites vs a profit and loss statement, statement of net asset vs a balance sheet, etc…
Now let me ask a question
The government gets money from taxes and then spends the money
The government runs an enterprise fund – charging for services and spends the money
A non-profit gets money from various donations or possible for fees and then spends the money
A for-profit business gets money for services and fees, then spends the money
Anyone seeing a trend here? Seriously its not rocket-science. Wouldn’t it be easier to show a financial statement that shows you where they got the money and how they spend it?
Just because the government may have many funds upon funds (remember little mini-companies within the big organization) doesn’t mean that it still can’t show you where it got the money and how it was spent.
Why make it so hard for the average person to read a financial statement? Are they hiding something? Kind of makes you wonder why financial regulations have to be so convoluted for a relatively simple concept: you get money, you spend it.