Specifics of accounting for non-profit organisations

Čo v článku nájdete:

• What is the difference between accounting for non-profit and for-profit entities?
• The legal form of a non-profit organisation and its impact on accounting
• Single-entry and double-entry accounting for non-profit organisations
• Chart of accounts for non-profit organisations
• Expenses and income

Accounting for non-profit organisations differs from accounting for ordinary businesses in what it focuses on. The primary objective is not profit, but the transparent and responsible use of resources to fulfil the organisation’s mission.

Unlike businesses, non-profit accounting focuses not on maximising profit, but on tracking the earmarked use of resources, separating restricted and unrestricted funds, and clearly reporting costs according to individual activities.

What is the difference between accounting for non-profit and for-profit entities?

Although the basic accounting principles are the same for all accounting entities, the accounting of non-profit organisations differs from that of businesses in many respects.

For-profit entities are established to generate profit and increase value for their owners. Their accounting is therefore focused on tracking income, expenses and the result of operations, which is either profit or loss.

Non-profit organisations may also achieve a positive result, but it may not be distributed among founders or members. It must be used exclusively to support the organisation’s main activity.

There is also a difference in how funds are obtained. Non-profit organisations are often financed through donations, grants, subsidies and public resources earmarked for a specific purpose. Accounting must therefore enable precise tracking of how individual funds were used and whether the conditions set by the subsidy provider were met.

Another important aspect is the increased emphasis on transparency and oversight. Non-profit organisations are accountable not only to public authorities, but also to donors, members and the public.

The legal form of a non-profit organisation and its impact on accounting

Slovak legislation distinguishes several types of non-profit entities, each with its own specific features.

The most common forms include civic associations, foundations and non-profit organisations providing generally beneficial services. Each form has a different purpose, funding model and degree of regulation, which is directly reflected in its accounting.

The most widespread form of non-profit organisation in Slovakia is the civic association. Civic associations are mainly established to bring together people with a common interest and are often financed through membership fees, donations and grants. Depending on the amount of income and the nature of their activities, they may keep single-entry or double-entry accounts.

Foundations are specific in that they manage endowment assets, the income from which supports public-benefit objectives. Their accounting is generally more demanding because they must separately track the value of the endowment, its appreciation and the use of its income.

Non-profit organisations providing generally beneficial services are often financed from public resources. This brings increased requirements for recording income and expenses and complying with conditions imposed by subsidy providers.

The chosen legal form therefore determines not only the nature of a non-profit organisation’s activities, but also the scope of its accounting obligations, the level of oversight and the way its operations are reported.

Single-entry and double-entry accounting for non-profit organisations

In Slovakia, civic associations and non-profit organisations are required to keep accounts under Act No. 431/2002 Coll. on Accounting.

Under this Act, a non-profit organisation may keep:

Single-entry accounts if it:

• does not conduct business activities, and
• had income of no more than €200,000 in the previous year.

Double-entry accounts if it does not meet the conditions for single-entry accounting.

Single-entry accounting is particularly suitable for smaller non-profit organisations with lower income and a simple activity structure. Double-entry accounting tracks not only cash flows, but also the timing of expenses and income, assets and liabilities, and the creation of funds.

Chart of accounts for non-profit organisations

The main difference between the accounting of non-profit organisations and businesses lies in the chart of accounts.

The law requires non-profit organisations to prepare an accounting schedule in accordance with the applicable chart of accounts. Unlike businesses, the framework chart of accounts is also binding for non-profit accounting entities. Non-profit organisations therefore cannot create their own synthetic accounts and must use only the synthetic accounts precisely defined in the framework chart of accounts.

These are the account classes in the chart of accounts for non-profit organisations:

Fixed assets

A separate category is low-value tangible and intangible fixed assets whose acquisition cost does not exceed €1,700. In its internal rules, an organisation determines whether it will treat assets below this limit as fixed assets or include them directly in expenses.

Low-value assets may be depreciated in a single charge. Non-profit organisations often acquire fixed assets through donations, earmarked funds or subsidies. In such cases, the acquisition of the asset is recorded as deferred income, which is gradually released into income in line with the asset’s depreciation.

Inventory

Non-profit organisations may account for the acquisition and reduction of inventory in two ways — method A or method B. All non-profit accounting entities may use method A, and it is mandatory for organisations subject to an audit or undergoing liquidation or bankruptcy proceedings.

Settlement relationships

Receivables, liabilities, accruals and internal settlements are recorded in account class 3.

Specific receivables include:

• 315 — Other receivables: receivables from business relationships, complaints, claims for contributions or the return of provided funds.
• 346 — Subsidies and settlements with the state budget: records of state subsidies, advances, refunds and payments; subsidies for fixed assets are recorded gradually through deferred income.
• 348 — Subsidies and settlements with local government budgets: local subsidies, their advances, overpayments and returns; accounting is similar to account 346.
• 378 — Other receivables: for example, support from a state fund.

Expenses and income

Expenses and income are recorded in the period to which they relate in substance and time, and are classified according to the organisation’s needs and applicable regulations.

Specific expenses of non-profit organisations include:

• 546 — Donations: the voluntary and gratuitous transfer of fixed assets and inventory.
• 547 — Special expenses: material support for volunteers, travel, meals, accommodation, pocket money and other specific project expenses.
• 561 — Contributions to organisational units: contributions provided between organisational units.
• 562 — Contributions to other accounting entities: membership fees or other contributions.
• 563 — Contributions to individuals: contributions or claims for contributions to individuals.
• 567 — Public collection contributions: voluntary contributions to individuals or legal entities collected through a public collection.

As with expenses, income is recorded in the period to which it relates in substance and time, and is classified according to the organisation’s needs.

The most common types of income include:

• 62 — Activation: the value of volunteer work performed.
• 646 — Donations received: non-cash donations such as fixed assets or inventory.
• 647 — Special income: specific income from the main activity without a separate account.
• 648 — Statutory fees: late-payment interest and special fees.
• 656 — Income from funds: the use of funds to acquire current assets or cover operating expenses.
• 658 — Rental income: income from leasing assets.
• 661–664 — Contributions received: from organisational units, other organisations and individuals, including membership contributions.
• 665 — Contributions from the share of tax paid: under the law on the income of individuals and legal entities.
• 667 — Contributions received from public collections: voluntary contributions through a public collection.
• 691 — Subsidies: income from subsidies received.

Are you a non-profit organisation and need help with your accounting? You can contact us. Our team of professionals will be happy to help.