With Easter making its way out for 2009, many people are thinking about giving to those less fortunate. But when you decide to contribute to a non-profit, do you pour over their financials the same way you would a for-profit investment?
If not, it’s probably a good idea to start considering the change. After all, wouldn’t it be good to know exactly what your favorite charity has in mind for all of that money? While charities make their financials available for contributors (normally), their format is very different from the GAAP financial statements you’d expect from any SEC filer.
I wrote an article for Investopedia a little while back on decipering governmental and non-profit financial statements… You can read it here. Here’s an excerpt:
Just like governmental organizations, nonprofits aren’t in it for the money. They too use fund accounting and offer up financial statements for public consumption each year.
Nonprofits straddle the fence somewhere between the private sector and government. Because they are not out to make a profit, fund accounting provides the best accounting system for most nonprofit organizations. The same fundamental ideas apply for nonprofit accounting as governmental accounting – the goal is to have annual expenditures end up very close to annual revenues.
Nonprofits don’t publish CAFRs – instead, their reports will typically just be called a “Report of Consolidated Financial Statements”. Either way, the statements for both governmental and nonprofit organizations are very similar. Nonprofit financial statements often consist of…
For a breakdown on what those reports are actually called and where you can find them, read the article at Investopedia.