Monday, October 8, 2012

9 Accounting Principles For Nonprofit Executives

Nonprofit executives, generally, are not the best at accounting, but they still need to know the basics in order to get their organizations on the right fiscal track. Even the basics can take a while to learn, however, and an executive’s time is precious.

In his book "The Entrepreneurial Nonprofit Executive," Thomas A. McLaughlin comes to the rescue of executives that are struggling with basic accounting practices. He listed nine principle they must memorize if they are to have the knowledge necessary to keep organizational finances stable. The principle are:

  • The principle of the entity: Accounting records are kept for a single, definable entity. Accounting energy should focus ultimately on the corporation as whole, not just individual projects.
  • Money measurement: Accounting deals only with things that can be measured in terms of money.
  • The dual aspect nature of accounting: An organization’s assets, or things of value, must always equal the organization’s liabilities plus its equities, or claims of ownership.
  • The going concern concept: Always assume that the entity will continue to exist indefinitely unless there is some evidence to the contrary.
  • The cost concept: Whenever an organization buys something substantial, that asset is listed at its cost.
  • Conservatism: Deliberately take the most cautious approach possible by accepting as real any decreases in equity as soon as they are reasonably possible, while accepting increases only when they are certain.
  • Materiality: Good accounting deals only with matters having some significance in the overall scheme of things.
  • Realization concept: Whenever an organization delivers a service, it is entitled to say that it is owed some money of that service.
  • Matching concept: The idea that costs associated with the revenues in any given accounting period are expenses of that period.

1 comment:

Rachel Matteson said...

Although there are shortcut topics on accounting, it is still difficult to understand if you don't have a background on accounting.