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Specificities of Not-for-Profit Organizations (NFPs)

Accounting for Not-for-Profit Organizations (NFPs)

This article is of informative character only.

Not-for-Profit Organizations exist to serve a public or charitable purpose rather than to make a profit for owners or shareholders. Therefore, accounting for Not-for-Profit Organizations (NFPs) has its own set of specificities and differs in several ways from accounting for for-profit entities.

As potential profits in NFPs cannot be distributed among the stakeholders, it is the NFP’s responsibility to utilize such resources to support its primary mission. 

It is important to note that not all revenue of NFPs is tax exempt. Profits gained from activities other than the organization’s main mission are subject to the regular tax regime.

Common types of NFPs

  • civil associations including trade unions,
  • charitable organizations,
  • private foundations,
  • social welfare organizations,
  • political parties and movements.

That said, the key specificities of accounting in NFPs include:

Objective of NFP Accounting

One of the key roles is to provide information about the organization’s financial performance by communicating its flow of resources by category, expense allocation and its stewardship of resources.

Fund Accounting

Many NFPs use fund accounting, which involves segregating financial transactions into different funds based on their designated purposes. Common funds include the general fund, restricted funds, endowment funds, and special-purpose funds. Each fund has its own set of accounts and financial statements. Funds must be formed in accordance with the  substantive legal regulations.

Revenue Recognition

NFPs often rely on a variety of revenue sources, including donations, grants, and membership fees. Recognizing revenue can be complex because it depends on donor restrictions and conditions. 

Broadly, NFPs‘ revenues can be categorized as:

1. financial/non-financial,

2. provided with/without consideration or counter value,

3. provided by private/public sector,

Unrestricted, temporarily restricted, and permanently restricted categories are used to differentiate between the various types of funds.


Contributions or donations play a crucial role in NFP financing. They can be in the form of cash, non-liquid assets, or services. NFPs must distinguish between unconditional contributions and contributions with donor-imposed restrictions. The latter may need to be recognized as revenue when the stipulated conditions are met.

Expense allocation

NFPs often have a diverse range of programs and activities. Allocating expenses among these programs and ensuring they are reported accurately is required.

Financial Statements

NFPs typically produce financial statements including a Statement of Financial Position (balance sheet), Statement of Activities (similar to an income statement), Statement of Cash Flows, and Statement of Functional Expenses. These statements may be presented differently from those of for-profit entities.

Reporting Compliance

Depending on their legal structure, NFPs are subject to specific reporting requirements and standards. Compliance with these requirements is critical for maintaining tax-exempt status and receiving donor support.

Disclosure Requirements

NFPs must comply with specific disclosure requirements related to governance, related-party transactions, and other matters in order to provide donors and stakeholders with a clear picture of the operations.

NFP’s mission and activities should be clearly defined in its statute or articles of association. Depending on the diversity of the activities of NFPs, assessing the taxation of individual types of income achieved as part of their operations can be a complex task.

UP KABINET s.r.o. provides accounting and advisory services to a range of entities including not-for-profit organizations based in the Slovak Republic.


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