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Financial Statement Of Not-For-Profit Organizations

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A budget is a plan that identifies the resources necessary to achieve program services and goals that are aligned with an organization’s mission and vision. Once created, the budget should be used as guide to help manage and control revenues and expenses. This is done by estimating costs and projecting them for the future. Budgets are projected and do not reflect actual amounts whereas, financial statements show actual numbers collected by an accounting system. Budget line items should be aligned with the financial statements. The full operating budget should match a chart of accounts so an effective comparison between the two can be made. Divergences between budget items and accounting items can create budget deficits, internal confusion, …show more content…

117, Financial Statement of Not-for-Profit Organizations (SFAS 117) issued by the FASB, requires nonprofit organization expenses be reported in three categories: 1. Program 2. Management and general, and 3. Fundraising. Program Expenses (direct) are defined (in paragraph 27 of SFAS 117) as, "the activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the organization exists. These expenses are directly related to the rendering of program services, such as the costs of food, client expenses, and shelter and salaries for program directors and staff. Management and general expenses (indirect) expenses are administrative in nature. These expenses are used to operate an organization as a whole. These costs may include utilities, printing, consumable office supplies and rent. These expenses may not be directly related to one service, activity or product. Fundraising expenses are the costs it takes to secure revenue, grants, contracts, and put on special events. By comparing the budgets to the financial statements, you can see how a program or organization is progressing (or not) from one year to the next. Program effectiveness can be measured by using expense ratio

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