ACCOUNTING TOOLS

Financial Analysts Need Sharper Accounting Tools

Financial Analysts Need Sharper Accounting Tools

Introduction

Much of the accounting for nonprofit organizations is the same as in for-profit businesses. By definition, accounting is a system of reporting useful information that makes a difference in decision making. For-profit or nonprofit, accounting is important for making effective decisions because accounting is the language of business. As explained earlier in the chapter, accounting rules called GAAP are established by the FASB. However, some special accounting rules apply specifically to nonprofit organizations. To demonstrate accountability and stewardship of monies given for different purposes, nonprofit organizations use a special accounting financial reporting method called fund accounting. Fund accounting is also used by state and local governments. In fund accounting, the reporting system is organized and accounted for through separate funds. Each fund is balanced and reported separately, as if it were a separate entity. One fund will report a source of revenue and how that revenue is spent. Fund accounting allows a nonprofit organization to report its restricted and unrestricted resources separately. In addition, any restricted resources earmarked for different purposes would also be reported in separate restricted funds. A new fund is established every time there is a unique accounting situation with a unique set of accounting rules (Strom, 2002, pp. 142).

Discussion

In today's era the need for stronger accounting tools has become a necessity for the financial analyst. In the today's situation of the market, competition is becoming more and more intense. Companies are hiring expert financial analyst to manage their cash and money so to gain maximum benefit from it. To achieve this result, financial analyst are looking for stronger accounting tools which will help them in making more strategic decisions depending on the accounting and financial situation of the company. Through proper accounting tools, the financial analyst can better determine the current accounts scenario of the company and keeping in mind this scenario they can efficiently make better decisions for the future of the company. GAAP does not specifically indicate what funds an organization should use. Instead, nonprofit leaders must select and use those funds that they deem appropriate in the circumstances. Some different types of funds that would be considered include (a) unrestricted, (b) designated, (c) temporarily restricted, (d) plant, (e) permanently restricted (endowment), (f) board designated, and (g) agency. An organization may have multiple funds under each type. For example, a separate temporarily ...