BSHS 373 - Week 3

Individual Assignment: Accounting Short-Answer Questions

Resource: Financial Management for Human Service Administrators

Write 200- to 300-word responses to the following questions:

What are the major accounting differences between nonprofit and for-profit organizations?

Why are audits becoming increasingly important in the nonprofit sector? Cite at least three reasons.

Complete Exercises 4.1–4.3 in Ch. 4 of Financial Management for Human Service Administrator

July 1, 20XX–December 31, 20XX

(a).July 1, 20XX— Received unrestricted donation check in the amount of $15,000 from the Multnomah County Department of Health and Human Services.

Debited Cash $15,000
Credited Revenue $15,000

(b) July 19, 20XX—Paid Great Northwest Insurance Company $9,000 for six more months of fire and liability insurance coverage.

Debited Prepaid Insurance $ 9,000
Credited Cash $ 9,000

(c) July 15, 20XX—Paid Portland Arts & Crafts Company $3,000 for additional arts and crafts supplies.

Debited Arts & Crafts Supplies $ 3,000
Credited Cash $ 3,000

(d) July 15, 20XX—transferred temporarily restricted funds in the amount of $3,000 from investments to pay for additional arts and crafts supplies.

Debited Investments $3,000
Credited Cash $3,000

(e) July 30, 20XX—Paid Oregon Sporting Goods $5,000 for additional recreational equipment.

Debited Expense $ 5,000
Credited Cash $5,000

(f) December 31, 20XX—Received fees from parents in the amount of $40,000.

Debited Cash $40,000
Credited Revenue $40,000

(g) December 31, 20XX—To account for $1,750 in fees from parents earned in the first six months of operations, but collected in the second six months.

Debited Expense $ 1,750
Credited Accounts Payable $ 1,750

(h) December 31, 20XX—To account for $3,000 in parent fees earned in the second six months of operations, but not yet collected.

Debited Accounts Receivable $ 3,000
Credited Revenue $3,000

(I) December 31, 20XX—To account for expenses (John’s Deli) in the amount of $1,500 incurred during the first six months of operations, but paid in the second six months.
Debited Expense $ 1,500
Credited Accounts Payable $ 1,500

(j) December 31, 20XX—Paid Portland Gas & Electric Company $7,500 for utilities.

Debited Expense $7,500
Credited Cash $7,500

(k) December 31, 20XX—Paid salaries and employee-related expenses in the amount of $55,000.

Debited Expense $55,000
Credited Cash $55,000

(l) December 31, 20XX—Paid Pacific Bell Telephone Company $750 for telephone services.

Debited Expense $750
Credited Cash $750

(m) December 31, 20XX—To expense prepaid insurance in the amount of $9,000.

Debited Expense $ 9,000
Credited Prepaid Insurance $ 9,000

(n) December 31, 20XX—To expense arts and crafts supplies in the amount of $2,000.

Debited Expense $ 2,000
Credited Arts and Crafts Supplies $ 2,000

Cash

|Debit |Credit |
|$ 9,000 |$15,000 |
|$ 3,000 |$40,000 |
|$ 3,000 |$3,000 |
|$5,000 |$58,000 |
|$7,500 | |
|$7,500 | |
|$750 | |
|$64,500 | |
|$100,250 | |
|-$58,000 | |
|$42,250 | |
| | |

Prepaid Insurance

| |$ 9,000 |
| |$ 9,000 |

Arts and Crafts Supplies

|$ 500 |$ 2,000 |
|$ 5,000 |$ 3,000 |
|$4,500 |$5,000 |

Accounts Receivable

|$ 1,750 |$3,000 |
|$ 3,000 | |
|$ 1,250 | |

Revenue

|$0 |$15,000 |
| |$40,000 |
| |$3,000 |
| |$58,000 |

Net Assets

| |$75,250 |

Investments

|$10,000 | |
|$3,000 | |
|$13,000 | |

Accounts Payable

| |$ 1,500 |
| |$ 1,750 |
| |$ 1,500 |
| |$4,750 |

Expense

|$0 |$5,000 |
| |$ 1,750 |
| |$ 1,500 |
| |$7,500 |
| |$55,000 |
| |$750 |
| |$ 9,000 |
| |$ 2,000 |
| |$82,500 |

Cash $ 42,250
Arts and crafts supplies 4,500
Accounts receivable 1,250
Revenue $58,000
Investments 13,000
Accounts payable 4,750
Expenses 82,500

$143,500 $62,752

What are the major accounting differences between nonprofit and for-profit organizations?

The main accounting differences between nonprofit and for-profit organization is that the procedure of accounting of nonprofit organizations is on cash basis only is accepted and for-profit companies’ accrual basis is generally applied. Accrual basis of accounting is recognizing revenue when it is earned and recognizing expenses when it is incurred notwithstanding before the expense is paid. When a company pays the bills, the bills are already recorded as liabilities and money that is collected or still to be collected are recorded as an asset already. The accrual basis of accounting reflects an accurate financial state than that of a cash basis. For financial reporting in accordance with generally accepted accounting principles, the accrual basis of accounting must be used and as required by law. As for profit companies are seemly more aware of the requisites to prepare and manage budgets as control techniques. It is very complicated for a company to for practical purposes to manage a budget not recording on an accrual basis. A cash-basis company may be demanding for the reason that payment of expenses may delay for a long period after incurring the liabilities (2010). Nonprofit organization uses cash basis since it is less complex and takes not as much of time to adjust. The amounts of transactions of for-profit companies are more numerous. Additionally to cash receipts and disbursements transactions, there are as well transactions relevant to revenue, costs of sales, interest income and expenses, payrolls, fixed assets. In the computerized and incorporated setting, the accounting function is connected to the company’s operations, such as inventory management, HR, and cost control. Non-profit organizations the fundamental to their transactions is cash receipts. The accountants record the journals of historical financial transactions. There are typically receipts journal, disbursements or expenditures journal, and petty cash (Martin, 2000).

Why are audits becoming increasingly important in the nonprofit sector?

Different companies keep in mind on the corporate duty by giving back to the community, including donating cash to nonprofit organizations. Hence, profit companies are as well concerned if the funds are properly managed. Different nonprofit organizations are funded by the governments and utilized the governments’ subsidy to fund their activities. In fact, the control executed is deficient in capability: the nonprofit organizations are not for all time funded for a particular objective on an factual basis, many of them continue to be funded from one year to another with no systematic audit of the transactions that were executed; the civil servants are not many or qualified adequately to analyze cautiously the records handed over by the nonprofit organizations and the various ministries do not exchange a sufficient amount of their proficiency. The audits are turning into an interest since the accurateness of the data particularized on the federal reporting forms for the nonprofit organizations for the reason that the inconsistencies of various categories and for the reason that audits of nonprofit organizations has become a rising infrequency (2000). On the other hand by conducting audits, will facilitate to recognize the weaknesses in the organizations’ internal controls and recommend matter for amends. The accessibility of audit reports will add to the people confidence in the nonprofit organizations.

References

(2010) Advantages of the Accrual Basis of Accounting. Retrieved from http://ecowarde.com/advantages-of-the-accrual-basis-of-accounting.html

The Hauser Center for Nonprofit Organizations and (2000). Strategic Positioning and the

Financing of. Retrieved from

http://www.hks.harvard.edu/hauser/PDF_XLS/workingpapers/workingpaper_2.pdf

Martin, L. L. (2001). Financial management for human service administrators. Needham Heights, MA: Allyn and Bacon.