Accounting vs. Finance Functions

The board of directors of a nonprofit ultimately carries the responsibility for the financial performance of the organization. The chief executive, along with the help of senior management, provide board members with the necessary financial information to perform their job responsibilities.

Part of the board’s function is to approve a long-term (five to ten year) financial plan and a short-term (one-year) capital and operating budget. Board members must remain informed about the organization’s financial status. Each board member plays a different role when it comes to accounting functions and finance functions.

Accounting Functions for a Nonprofit

  • Identify and record all valid transactions
  • Classify financial transactions on a timely basis
  • Identify the time period in which these transactions occurred (accural accounting)
  • Value these financial transactions in an appropriate manner
  • Disclose these transactions in an adequate manner

Using the GAAP, the accounting functions are then presented for financial analysis in an understandable,  standardized form.

Finance Functions for a Nonprofit

The purpose of finance functions is to analyze the numbers presented from the accounting functions.  The key is to recognize financial trends that will assist the organization in the future. Ratios may be developed to assist in this process of analysis.

  • Collect
  • Analyze
  • Communicate accounting and statistics

From this analysis, the board will then set goals based on financial-ratio benchmarking. It will be the managemen’ts job to achieve these predetermined goals. The board must thoroughly understand the information behind each ratio in order to set realistic and authentic goals for the organization. The board must monitor the accuracy of the numbers reported according to GAAP.