Nonprofit corporate finance deals with the funding sources, the fund-raising strategies, the capitalization structures of a nonprofit organization, and the tools or procedures used to make financial resource allocation decisions. The goal of nonprofit corporate finance should be to ensure that an organization is on a path for financial sustainability.

Fiscal Year

A fiscal year is a period that sets the beginning and the end of the annual budget and financial statements of an organization or a company. A fiscal year is different from a calendar year. A calendar year typically starts on January 1 and ends on December 31. However, a fiscal year is a corporation's or organization's annual period within which starts and ends a cycle of accounting transactions. Fiscal years will vary according to the constitution or bylaws of an organization. For example, an organization may decide to run a fiscal year based on the calendar year, thus having a fiscal year that starts on January 1 and ends on December 31. Another organization may decide to start its fiscal year on July 1 and end it on June 30. The board of another organization may adopt October 1 to September 30 or April 1 to March 31 as the fiscal year of their organization. Various factors may influence the adoption of a fiscal year by an organization. For example, an organization may adopt the fiscal year of its first or major funder. Another organization may adopt its country's or nation-state's fiscal year in order to facilitate accounting activities. In most cases, organizations adopt either the calendar or the fiscal year of a country. Table 8.1 presents a sample of fiscal years for selected countries.

TABLE 8.1 Sample of Fiscal Years for Selected Countries


Start Date

End Date


July 1

June 30


April 1

March 31


January 1

December 31


January 1

December 31


October 1

September 30

Hong Kong

April 1

March 31


April 1

March 31


April 1

March 31


January 1

December 31

South Africa

April 1

March 31

United Arab Emirates

January 1

December 31

United Kingdom

April 1

March 31

United States

July 1

June 30

Sources: Australia (indexmundi.com/australia/fiscal_year.html)

Canada (fin.gc.ca/purl/afr-eng.asp)

China (indexmundi.com/china/fiscal_year.html)

France (indexmundi.com/france/fiscal_year.html)

Haiti (indexmundi.com/haiti/fiscal_year.html)

Hong Kong (indexmundi.com/hong_kong/fiscal_year.html)

India (charteredclub.com/what-is-financial-year-fiscal-year-assessment-year-in-india/)

Japan (indexmundi.com/japan/fiscal_year.htmlapan)

Russia (indexmundi.com/russia/fiscal_year.html)

South Africa (indexmundi.com/south_africa/fiscal_year.html)

United Arab Emirates (indexmundi.com/united_arab_emirates/fiscal_year.html)

United Kingdom (indexmundi.com/united_arab_emirates/fiscal_year.html)

United States (conservapedia.com/Fiscal_year)

Generally Accepted Accounting Principles

Generally accepted accounting principles (GAAP) are the standards of accounting practices related to the conventions and rules that accountants must follow when recording financial information and preparing financial statements. The GAAP are set through various documents by

- The Financial Accounting Standard Board (FASB)

- The Governmental Accounting Standard Board (GASB)

- The Public Company Accounting Oversight Board (PCAOB)

More specifically, the GAAP include the basic accounting principles and guidelines, the detailed rules and standards issued by FASB and its predecessor the Accounting Principles Board (APB), and the generally accepted industry practices. The Securities and Exchange Commission (SEC) has made a decision to merge the GAAP principles with the International Financial Reporting Standards (IFRS). The IFRS include standards and rules for financial accounting that can be used and understood across national boundaries. The

TABLE 8.2 Summary of Accounting Assumptions, Principles, and Constraints Related to GAAP



Entity principle

Revenues and expenses should be kept separate from personal expenses, because a company or an organization is a separate entity from the owners.

Going concern

A business is assumed to be in operation indefinitely. It will be a red flag worth noting, if there are concerns that an organization may not survive beyond 12 months.


A stable currency is going to be the unit of record.

Time period

The economic activities of an enterprise can be divided into artificial time periods.




Companies must account and report based on acquisition costs rather than fair market value for most assets and liabilities.


Companies may record revenue only when it is realized and earned.


Expenses are recognized only when the service or the product actually makes its contribution to revenue.


The amount and kinds of information disclosed should be enough to make a judgment.




Financial statements provided by accountants should be based on objective evidence.


Accountants should focus on transactions that really matter, the ones that can affect the decisions of a reasonable individual.


Companies must use the same accounting principles and methods from period to period.


When choosing between two solutions, accountants must select the choice with the least favorable outcome.

Source: Wagner (2007).

IFRS are set by the International Accounting Standards Board (IASB), which is an independent accounting foundation based in London, England. Table 8.2 presents a summary of accounting assumptions, principles, and constraints related to GAAP.

Nonprofit Accounting

As previously explained, nonprofit organizations differ from for-profit entities in terms of ownership, taxation, sources of revenues, and use of profit. Given these factors, there are some differences between nonprofit and for-profit accounting about how to account for contributions, capitalizing and depreciating assets, cash use, and functional expense allocation.

Contributions: Contributions are unique to nonprofit organizations. Consequently, special procedures are established to account for contributions, such as pledges, donated materials, membership dues, revenues from special events, and restricted and unrestricted funds.

Capitalizing and depreciating assets: Depreciation for long-lasting assets (e.g., buildings, cars, and computers) of a nonprofit organization must be recorded as in for-profit accounting, except for historical buildings, zoo animals, library books, museum collections, and other similar items.

Cash use: Most nonprofit organizations record their revenues and expenses using cash-basis or modified cash-basis accounting. In other words, revenue is recorded only when the cash is received, and expense is recorded only when payment is made. Finally, nonprofit organizations are required to report program expenses and support expenses (e.g., management, and fund-raising).

Functional expense allocation: Nonprofit organizations are required to report program expenses (spent directly on programs) and support expenses (e.g., management, fund-raising).

< Prev   CONTENTS   Next >