What is A Non-Profit Organization

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Children Now

A Non-Profit Organization

Tonya Whitlock-Robinson

September 4, 00

Research Paper

Professor Malone

What is a nonprofit organization? A nonprofit is a tax-exempt organization that serves the public interest. The purpose of a nonprofit organization is to be charitable, educational, scientific, religious or literary. Nonprofit organizations do not declare a profit. They utilize all their revenue available, after paying normal operating expenses, to serve the public's interest. A nonprofit organization can be unincorporated or incorporated. An unincorporated nonprofit cannot be given federal tax-exempt status. When a nonprofit organization is incorporated, it has many similar characteristics with corporations that are for profit. The main difference is that nonprofit organizations do not have shareholders. When a nonprofit organization is given a tax-exempt status, it is exempt from paying federal income taxes. Most state and local taxes, property tax and tax on assets are also exempt. This is not always the case. Some states have different rules. Nonprofit organizations have paid and volunteer staff. They can have clients, can offer products and services, they have a need for revenue, they can advertise their business, and they also must be concerned with overall customer satisfaction. Customers can be those they assist or those who contribute donations to support their operation, programs and services. Nonprofit is still a business that must serve the public's interest. There is a perception that working for a nonprofit organization is limiting yourself as far as salary. This is true in most cases, but universities, hospitals, and large national charities are examples of organizations that can be "nonprofit" but have pay scales similar to any for-profit corporation. CEOs of major hospitals can earn as much as $500,000 to over $1,000,000 in salaries and bonuses. University presidents can make similar salaries. However, local training centers and food banks will be places where a lower salary will be supplemented by payment from personal satisfaction that you helped a person learn to read or a family to have enough food for each person to eat a decent meal.

Children Now is the type of organization that was just described. They are a research and action organization dedicated to assuring that children grow up in economically secure families, where parents can go to work and be confident that their children are supported by quality healthcare coverage, a positive media environment, a good education early on, and safe, enriching after school activities that they can participate in. Their programs reach parents, lawmakers, concerned citizens, business, media and community leaders. These various partnerships have brought about positive changes for children. Children Now was founded in 188. It has been a leader in developing new strategies and ways to move children up as a higher priority on the nation's agenda. Children Now is recognized for its policy expertise and its up-to-date information on the status of children, as well as its outstanding work with the media to improve the ways that new coverage of children is presented. Their accomplishments include a reform to the California's child support system and new children's health care benefits. They have had award-winning media campaigns that were designed to motivate and help individuals to make a difference for children; and higher quality coverage of children's issues in the media. This is being done by ongoing work and convening of media leaders. Recognized for its expertise in media as tool for change, Children Now designs its strategies to improve children's lives while at the same time helping America build a sustained commitment to putting children first. They are able to be an effective and independent voice for children because of the generous support from their many donors. Children Now is a private, 501 (c) nonprofit charity. They are financed through foundation grants, individual donations, and support from the corporate community.

Contributions are a significant revenue source for most non-profit organizations. Organizations like Children Now often refer to contributions as public support. The Statement of Financial Accounting Standards (SFAS) Numbers 116 & 117 tells how non-governmental nonprofits accounts for contributions, and how they present their financial statements. When the Financial Accounting Standards Board (FASB) introduced SFAS Numbers 116 & 117, it was the first time FASB issued statements regarding how nonprofit organizations should account for contributions and how these contributions are presented in financial statements. Specifically, SFAS 116 defines how donors and receivers account for donations. SFAS 117 further clarified generally accepted accounting principles with regard to how nonprofits report contribution information in financial statements. The intent of SFAS 116 & 117 is to enhance the relevance, understandability and comparability of nonprofits' financial statements. Donors, members, creditors, and others who provide resources to nonprofits primarily use these reports. The focus of SFAS 117 financial statement reporting is now on "net asset" classification. The new net assets class aggregate contributions with like donor-imposed restrictions, and are unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets are the portions of net assets not temporarily or permanently restricted. This category may include assets that previously were temporarily restricted, but the donor stipulation has been met. Temporarily restricted net assets are the portion of net assets whose use is limited by donor-imposed restrictions on the timing and/or purpose of use of the donated resources. Permanently restricted net assets are the portions of net assets whose use is limited by donor-imposed restrictions that are permanent in nature. That means restrictions that cannot be fulfilled by either passage of time or by actions of the organization. SFAS No. 116 requires contributions to be recognized as revenues in the period that they are received or unconditionally promised. Contributions are recognized at this point even if the use of the resources is restricted. Although SFAS 117 does not encourage or discourage further classifications such as operating and non-operating etc., if the organization uses such terms these classifications must, at a minimum, be included in a financial statement that reports the change of net assets for the period.

Children Now account for their revenues and expenditures by using a financial statement similar to the Statement of Revenues, Expenses, and Changes in Net Assets. This financial statement is prepared on an annual basis. Contributed Support, Other Revenue, and Expenditures are distinguished in the statement. In the statement below, Contributed support is presented in detail because there are relatively few contributors. Other Revenue and Expenditures are presented in a summary format. Had there had been many more significant types of contributors, they might have been reported in summary form as well and supported by a detailed schedule.

Children Now

Financial Statement

For the Year Ended December 1, 00

Contributed Support

Foundations $1,006,40

Individual Contributors 76,811

Board of Directors 51,500

Corporations 156,157

Total Public Support $1,1,408

Other Revenue

Interest & Dividends $ 46,57

Merchandise Sales & Miscellaneous 1,856

Total Other Revenue $ 48,4

Total Contributed Support & Other Revenue $1,,87

Expenditures

General & Administrative $ 446,16

Programs 1,46,56

Fundraising 54,487

Total Expenditures $,448,5

Changes in Net Assets ($1,108,54)

Net Assets at January 1, 00 $,47,0

Net Assets at December 1, 00 $,88,480

Expenditures result in decreases in unrestricted net assets. Expenditures must be disclosed by functional classification either in the Statement of Activities or in the footnotes

· Program Services generally include goods and services distributed to beneficiaries, customers, or members to fulfill the purpose of the mission of the organization.

· General and Administrative Activities include general oversight, business management, general record keeping, budgeting, finance and other management and administrative activities.

· Fund raising includes activities for publicizing and conducting fund-raising campaigns, maintaining donor mailing lists, conducting special fund preparing and distributing activities involved in the solicitation of contributions from individuals, foundations, government agencies, etc.

Classifying not-for-profit organizations as governmental or nongovernmental is essential because government not-for-profit organizations must apply SFAS Nos. 116, 117, 14 and other not-for-profit standards. Nongovernmental not-for-profit organizations are required to report in accordance with these SFAS. Also properly identifying the type of nonprofit organization is important because of the slight differences in the accounting and financial reporting principles that apply to each. The two types of organizations are Voluntary Health and Welfare Organizations (VHWOs) and Other Not-for-Profit Organizations (ONPOs).

Voluntary Health and Welfare Organizations are formed to provide various kinds of health, welfare, and community services financed by voluntary contributions from the public. VHWOs are tax-exempt, organized for the public benefit, supported largely by public contributions and operated on a not-for-profit basis. Voluntary Health and Welfare organizations are required to continue to report information about expenses by functional and natural classifications in matrix format in a separate financial statement.

The Other Not for Profit Organizations operates essentially as business enterprises for the direct economic benefit of their members or stockholders. These entities are required to report functional classifications and are encouraged, but are not required , to provide information about the natural classification of expenses.

Children Now would fall in the category of being a Voluntary Health and Welfare Organization. The reasons why are clear

· Their purpose- to meet the community health, welfare, and social service needs of children.

· Their voluntary nature there is no fee charged.

· Their relationship to resource providers people who contribute to Children Now are not the primary recipients of services or benefits that they offer.

Through innovative research and communication strategies, Children Now promote pioneering solutions to improve the lives of America's children. Their programs focus particular attention on the needs of children who are poor or at risk. The mission is to improve conditions for all children by making them the top priority across the nation.

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