Financial Management for Human Service Administrators

Financial Management for Human Service Administrators

Profit and Nonprofit Organizations

Profit organizations aims to maximize profits and forward it to shareholders and owners. Profit organizations are have to pay taxes on their net income and have to prepare their balance sheet for every quarter. Owner's equity is listed in the balance sheet of the company, comprising of assets and liabilities, impacting directly on the common and preferred stocks. The income statement is also prepared for every quarter listing company's revenues, expenses, losses and gains. These financial statements impact the organizations value and share price giving shareholders legal right to these income statement.

Nonprofit organizations fulfill society needs and have no owners. They are concerned in raising revenues, greater than the costs but are not aiming to maximize profits. Nonprofit organizations are not tax exempted and need to prepare companies statement of financial positions, focusing on assets and liabilities. They don't need to compile income statement but they have to prepare statement of activities each quarter.

Importance of Audit in Non Profit Sectors

Audit is important in the organizations for the following reasons (Privett & Erhun, 2011):

Good governance and effective management

Transparency in financial statements

To design internal controls and operating policies

Detecting inefficiencies in policies and operations

Detecting fraud

Exercise 4.1

T-Accounts

(a) July 1, 20XX— Received unrestricted donation check in the amount of $15,000 from the Multnomah County Department of Health and Human Services.

Cash

Debit Credit

$15,000

Revenue

Debit Credit



$15,000

(b) July 19, 20XX—Paid Great Northwest Insurance Company $9,000 for six more months of fire and liability insurance coverage.

Prepaid Insurance

Debit Credit



$9,000

Cash

Debit Credit



$ 9,000

(c) July 15, 20XX—Paid Portland Arts & Crafts Company $3,000 for additional arts and crafts supplies.

Arts and Craft Supplies

Debit Credit



$3,000

Cash

Debit Credit



$ 3,000

(d) July 15, 20XX transferred temporarily restricted funds in the amount of $3,000 from investments to pay for additional arts and crafts supplies.

Cash

Debit Credit



$ 3,000

Investment

Debit Credit



$ 3,000

(e) July 30, 20XX—Paid Oregon Sporting Goods $5,000 for additional recreational equipment.

Debited Expenses $5,000Credited Cash $5,000

Expenses

Debit Credit



$ 5,000

Cash

Debit Credit



$ 5,000

(f) December 31, 20XX—Received fees from parents in the amount of $40,000.

Cash

Debit Credit



$ 40,000

Revenue

Debit Credit



$ 40,000

(g) December 31, 20XX. To account for $1,750 in fees from parents earned in the first six months of operations, but collected in the second six months.

Cash

Debit Credit



$ 1,750

Accounts Recievable

Debit Credit



$ 1,750

(h) December 31, 20XX—To account for $3,000 in parent fees earned in the second six months of operations, but not yet collected.

Accounts Recievable

Debit Credit



$ 3,000

Revenue

Debit Credit



$ 3,000

(i) December 31, 20XX—To account for expenses (John's Deli) in the amount of $1,500 incurred during the first six months of operations, but paid in the second six months.

Accounts Payable

Debit Credit



$ 1,500

Cash

Debit Credit



$ 1,500

(j) December 31, 20XX—Paid Portland Gas & Electric Company $7,500 for utilities.

Expense

Debit Credit



$ 7,500

Cash

Debit Credit



$ 7,500

(k) December 31, 20XX—Paid salaries and employee-related expenses in the amount of $55,000.

Expense

Debit Credit



$ 55,000

Cash

Debit Credit



$ 55,000

(l) December 31, 20XX—Paid Pacific Bell Telephone Company $750 for telephone services.

Expense

Debit Credit



$ 750

Cash

Debit Credit



$ 750

(m) December 31, 20XX—To expense prepaid insurance ...