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A not-for-profit organization is an entity that conducts operations for the benefit of its users

without a profit motive and has absence of ownership interests (Granof & Khumawala, 2013).
Not-for-profit organizations use budgets as a way of reporting their finances. Budgets are the
most important financial document that they will possess and is the source of fundamental
concern and discrepancy.
The question becomes if the church meets interperiod equity and if it has been accepted as
appropriate. Interperiod equity is the extent to which current-year revenues are sufficient to pay
for current-year services (as opposed to whether the costs of current-year services are being
shifted to future years or were paid in past years) (Granof & Khumawala, 2013).
Although the churchs revenues were sufficient to cover their operation expenditures, will the
congregation agree and are they able to physically pay for a new classroom building. In order
for the church leaders to secure a loan of that magnitude they must show the ability to repay the
loan that they are requesting. Investors will look into what the main source of revenue the
church has to see if it is within the limitations to help them repay their debt. Their outstanding
debt, if any, will also be looked at to see if it will interfere in the church making back the
appropriate payments.
By evaluating the document provided, it appears that the church is able to pay their
expenditures. Documentation show that they are able to obtain a substantial amount of revenues
and contributions. With the information provided I would not be reluctant to approve their
request for a loan unless it was made known that the congregation or investors did not approve or
want a new facility.
The basic financial information that I would like to review prior to making a loan decision
would be a balance sheet, statement of activity, statement of cash flow, and a statement of
functional expenses. While these reports are extremely important in terms of understanding the
churchs financial health and conveying that information to their board, I also find that these
types of reports will often be required by funders when applying for grants. Other reports,
depending on your organizations needs, can include government information returns, payroll tax
returns, reports to funders, management reports, budget monitoring reports, and analysis of
statements and investment reports. An annual report can help the church demonstrate their
accomplishments to current and future donors, cultivate new partnerships, and recognize
important people who may have helped them during the year.
The revenues from donations of a not-for-profit entity may increase from one year to the next,
but the change may be unaccompanied by a corresponding increase in the quantity, quality, or
cost of services provided (Granof & Khumawala, 2013). Donors expect the organization to raise
money, but fundraising accomplishments should not be celebrated in the annual report on the
same level as the mission-related accomplishments. Explain where the money donated came
from and what it will be used for.
Responsibility for an organizations financial reporting is shared among three parties
management, the board and the external auditor (A Guide to Financial Statements of Not-for-
Profit Organizations, 2013). Fund accounting essentially groups financial data together into
funds or accounts that share a similar purpose. This way, the organization has a better idea of
what resources it has available to complete a specific task. Not-for-profit organizations rely
heavily on fundraising and donations so it is imperative that they keep accurate documentation of
what funds they receive and how they distribute those same funds.
Likewise separation of function between duties is also important. No one person should be
both receiving and distributing or handling all the money brought in by the organization. This
will ensure that no unethical actions are going on within the organization, alleviates any
questions as to the duties and functions of the individuals involved. The confidence and
believability that a not for profit organization has in the church is just as important as the
financial statements and documentation it provides.
A not-for-profit recordkeeping system should generally include a summary of all transactions.
This summary is ordinarily written in the public charitys books or ledgers. The books or ledgers
must show all gross receipts, purchases, expenses, employment taxes, and assets. For most small
organizations, the checkbook might be the main source for entries in the books while larger
organizations would need more sophisticated ledgers and records. A public charity must keep
documentation that supports entries in these ledgers.
The organizations transactions such as contributions, purchases, sales, and payroll will
generate supporting documents. These documents such as grant applications and awards, sales
slips, paid bills, invoices, receipts, deposit slips, and canceled checks all contain information to
be recorded in accounting records. It is important to keep these documents because they support
the entries in books and the entries on tax and information returns. Public charities should keep
supporting documents organized by year and type of receipt or expense and they should be kept
in a safe and secure place.

(2013). Retrieved from A Guide to Financial Statements of Not-for-Profit Organizations:
Granof, M. H., & Khumawala, S. B. (2013). Government and Not-for-Profit Accounting
Concepts and Practices. Hoboken: John Wiley & Sons, Inc.