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Nonprofit Business Essay

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Nonprofit businesses are unique in the fact that they don't have to pay sales tax on the items that they purchase most of the time. This doesn't mean that they have a blanket exemption that gives them protection against all forms of taxation though. Each state has its own requirements regarding when and how they are supposed to pay taxes on goods or services. It also doesn't prevent them from having to file a state or federal income tax return at the end of the year. But still, since they receive this benefit, they are scrutinized more closely than a for-profit business is. So it is crucial that those who are responsible for maintaining their books learn about the ins and outs of the specialized field of accounting that must be used for…show more content…
It also entitles them to put restrictions on how the money that they give will be used. Not every donor adds restrictions though. So accountants have to know how to classify all funds into the following accounts: Unrestricted Fund This account is used when a donor puts no restrictions on the way that their money is spent by the nonprofit business. Current Restricted Fund Some restrictions have been placed on the way that the money can be spent from the fund. Restricted Endowment Fund The nonprofit business can only use the excess from the original amount of money that was given. So in other words, the initial fund always stays the same in the endowment fund. If the nonprofit business wants to use it, they must find a way to make multiply the amount of it. Fixed Asset Fund This money can only be used to purchase fixed assets that are needed, such as a building or vehicle. Increased Attention to Net Revenue One of the main areas that the state and federal tax departments look at to see if a nonprofit business is true to its stated cause is the amount of its net revenue. The reason for this is that a nonprofit isn't supposed to be profitable. All of its earnings should break even with its expenses. This shows that it is using its funds as it receives them. So it is crucial that all nonprofit businesses keep a careful watch over the application of all of the income
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