Making Nonprofit Organizations
Nonprofit organizations are organizations that serve to improve the social connections that exist between members of society and the organization rather than to make a profit. The organizations are intended to improve the social structure by providing social services such as food, clothing, wellness, and environmental clean-up projects, among other things. Members or donors, like corporations involved in corporate social responsibility, fund the organizations. Just like any other legal entity operating in a state, Non-profit making organizations do file their Financial Statements, one indicating how the Revenue and the Expenses compare in a Financial Year and second, how the assets and liabilities compare (Britton & Waterston, 2013). As mentioned above, non-profit making organizations have a different way of portraying their information on some few aspects as it will be noted that, their income statement is rather named as Statement of excess or deficit income over expenses.
In my discussion
I have chosen to analyze Food and Agriculture Organizations Audited Financial Statements for the year 2012-2013.
Non-profit-making organizations are meant to operate by use of funds from donors, members, and well-wishers (Weil, 2017). Unlike other agencies, this type of entity concentrates on utilizing the revenue provided through financial contributions and the like. For instance, in my case study of Food and Agriculture Organization, there are two types of funds that have been reported. The resources are:
General and related funds
General and related funds are one of the funds where the organization receives funds to support the budgeted program for the year. In other terms, these are funds availed as support for the operation of the body on a day to day basis. In this case, the organization does not heavily push on having this income but the volunteers contribute without being compelled.
Specific funds are funds that are raised purposely on a sole goal’s achievement. The fund receipt is from a particular volunteer who is supporting a specific primary program. Programs are supported by different volunteers who are quite careful about what they want and want to see it complete. The programs in question maybe by providing financial support to farmers, creating an enabling farming environment, such as the construction of dams, empowering farmers through provision of financial services and the like. One of the examples of the specific fund in Food Agriculture and Organization is Trust and UNDP Funds.
Treatment of pledges and contributions
The organization calculates all the pledges and contributions, and they made part of the current assets and treated as debts are in profit-making firms only that it does not attract any bad debts provision and other obligations as trade debtors do.
Every entity in the world has bodies that are interested in both individual and communal levels and as such Non-profit-making organizations do not fall short of the involved groups (Britton & Waterston, 2013). The interested groups in such a case are termed as stakeholders. Some of the stakeholders act as watchdogs while others at the same time are legal abiders’ analysts. The different stakes are as discussed.
The government will always take note of what the organizations are doing since the institutions are not supposed to profit oriented. If the organizations tend to be profit-oriented the government may feel it is worth to withdraw its lifted taxes, and if the body is not legally binding in operation too, the government may revoke its license.
Voluntary contributors and Donors are the next stakeholders. Donations and contributions mainly fund the organization. The providers of the revenue would profoundly wish to know how their donation and contribution is used and as such, they make part of the stakeholders.
For Food and Agriculture Organization, it concentrates on showing how well they are managing the funds without overspending and as such their Cash flow tend to remain positive at any one point since the programs are all linked to a program that is funded. Unlike the private entities, where the organizations even show the capital gains and losses, in the Non-profit-making body, that is the unheard off item that misses across all the bodies in this category.
Items like working capital variation are taken to be a financing item whereas in another set of entities they are linked as operating items.
Financial Ratio Analysis
Financial ration analysis shows how an organization compares currently versus previously and also comparing one element in the financial statement in comparison to the other (Britton & Waterston, 2013). Example of ratio employed in such an entity relates to current ratio, efficiency ratio, etc. For instance in FAO(calculations based on Program and project basis) the following ratio it shows that in the financials 2010/2011 the excess revenue percentage was 3.54% while in the year 2012/2013 was 4.10%. Comparatively, a Financial Analysts will state that the entity operated better in 2010/2011 year in comparison to 2012/2013 since the organization in question is meant to exhaust the finances offered to them.
Britton, A., & Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice Hall.
Weil, R. L. (2017). Financial accounting: An introduction to concepts, methods and uses. Place of publication not identified: Cengage Learning.