Retained Earnings for Non-Profit Organization
Non-Profit Organization (NPO) is an entity that works for public interest without any intention to generate profit. NPO has a certain objective or mission to provide benefit to the public, and this objective must not be related to the profit or return to the top management. It is the main criteria that differentiate NPO from normal business entities.
Retained Earning is the accumulated profit/loss of the company. It present under the equity section in the balance sheet. For a new startup, the retained earning is zero at the beginning of the year. For the next year, retained earnings are the accumulated profit/loss less dividend to shareholders.
Retained Earning = Beginning balance + Profit/(Loss) – Dividend
As we can see retained earnings refer to profit-oriented entities. For the retained earning of NPO, please refer to the next section.
Retained Earning for Non-Profit Organization
We will not be able to find the word retained earning in NPO’s financial statement. The word accumulated fund is used instead of retained earnings.
An accumulated fund is the surplus cash when NPO receives cash more than the cash spends, similar to profit entities when the revenue greater than an expense.
It is similar for both profit entities and NPO in terms of presenting the asset and liabilities on the balance sheet. However, the difference is in the equity section, there will be shareholder’s equity and retained earnings for the profit organization. But there is no owner for NPO, the difference between asset and liabilities are “Net Asset”