Compare and Contrast the Culture, Mission, and Vision of Profit and Nonprofit Organizations - Research Paper Example

Compare and Contrast the Culture, Mission, and Vision of Profit and Nonprofit Organizations Introduction Accounting method can be defined as a process by which expenses and income are reported for the purpose of taxation. Again this can be said that it is a set of rules and regulations which help to determine how and when expenses and income are recorded. There are certain guidelines which are followed by every organization for preparing and maintaining the financial records. Two major accounting methods are used for the record keeping purpose. These methods are cash basis and accrual basis. Business owners should decide which method will be suitable for maintaining financial records in their business and they are generally selecting the method on the basis of the nature of business. In cash basis accounting method financial information is recorded according to real time cash flow. Again under the accrual basis system, revenue is recorded when it is earned rather that when the payment is received. Profitable organizations maintain their financial records by following a standard accounting system but this system may not be followed by a non profitable organization as their nature of work is different than the profitable organization. In this regard this can be said that both types of organization will never follow similar type of accounting method for the business activities. This report will compare and contrast the accounting methods which are applied in profitable and non profitable organization. The accountants of one profitable and one non profitable organization are providing the information about the accounting standard followed by those companies in their interview session. Here the profitable organization is Apple Inc which is an American multinational company which manufactures computer software, consumer electronics, personal computers and online services. The example of non profitable organization is Virginia Community Capital, Inc. It is a nonprofit banking entity and community development financial institution. This organization provides innovative investment solutions and loan for economic developmental projects and affordable housing in the Commonwealth of Virginia. Difference between Profit and Non Profit Organization Huge differences can be observed in case of accounting system for nonprofit and profitable organization. In case of profitable organization this can be said that this kind of business has started for providing benefits to the business owners and shareholders of the company. For this reason profit is one of the major goals of these businesses and company has to pay tax on the amount of profit. But in case nonprofit organization this can be said that such entity has been formed for providing benefits to the community, society and world. These organizations do not have to pay tax on their income but they can invest their income on their ongoing projects only. They never use the amount of earned money for gaining any kind of personal interest (Banerjee, 2009). Obviously nonprofit organization can make profit but it will be used only for their operational activities such as foundation or helping any other nonprofit organization. In case of winding up of business, the differences are also significant in these businesses. When a for-profit company wants to move out from business then its assets are liquidated among its stakeholders and owners of the business. But in case of nonprofit organization this scenario is not similar as profitable organization. Nonprofit organization will liquidate its assets among other non profitable organizations but owners of this organization cannot take the remaining assets for their own purpose (Carmichael and Graham, 2012). Again most of the for-profit organization prepare balance sheet at every quarter in a financial year. In case of Apple Inc. this can be said that the management of this company is concentrating to achieve the high percentage of profit at each and every year and to analyze the growth path they are preparing balance sheet at each and every quarter. The balance sheet shows the position of owner’s equity which has a strong and direct impact on the company’s common and preferred stock. This impact is strong because position of owner’s equity consist of the value of assets which the company owns and along with that the value of liabilities that the company has to pay. But in case of nonprofit organization such as Virginia Community Capital, Inc. this can be said that no balance sheet is required for keeping financial records of the organization. This company prepares ‘Statement of Financial Position’ which is not focused on the owner’s equity as there is no particular owner of this organization. The above mentioned statement only keeps the records of liabilities and assets of this company. This statement provides the amount of net assets which is nothing but the difference between assets and liabilities. Accountant of this organization will analyze the amount of net assets for accessing the financial size of nonprofit organization (Deegan, 2009). In case of income statement this can be said that this statement is prepared by the accountants of Apple Inc in every quarter of financial year and this statement indicates the amount of revenue, all the expenses, losses and gains of the business. The main purpose for preparing income statement at each quarter is to analyze the position of the company’s financial performance at each quarter and it also indicates the growth path of the business. Management can understand how much efforts are required to achieve the financial targets at the end of the year and according to that analysis they can take corrective steps for conducting more efficient business activities. Preparation of income statement also impact on the value of the company and its share prices. But in case of Virginia Community Capital, Inc. detailed income statement is not required but a statement is required which shows the expenses, revenues and net gains of the organization (Kimmel, Weygandt and Kieso, 2010). Mission, Vision and Organizational Culture Vision statements of Apple Inc are – The management of this company believes that the company will produce the great and best electronic products on the basis of their continuous innovative work. The company also believes in cross pollination and deep collaboration and this strategy will help to invent innovative ideas that cannot be done by any other rival companies in the global market. Mission statements of this company are – Apple leads the revolution in case of digital music by implementing its iTunes and iPod online stores. This company has reinvented mobile phones by implementing App store and iPhone and recently introduced magical iPad which will lead the future mobile media and computing device industry. Again this company designs best personal computers in the world along with iWork, iLife and other professional software. Discussing about the culture of this company it can be analyzed that all the necessary components are available which are helpful to create a good and healthy organizational culture within a business entity. These components are people, place, vision, values and practices. Apple mainly focuses on the self motivated work culture with unique ideas and innovations. The employees work harder and they do not face the problem of interferences of their boss at each and every step of their work. The unique organizational structure of Apple Inc allows the company to react more quickly in case of any changes than its competitors and this strategy is helping to gain more sustainable growth in this business. Mission of Virginia Community Capital, Inc. is to offer flexible and innovative financial products for supporting the community development ventures and increasing the job opportunities. Again this organization is providing loan capital to low and middle income communities. Visions of this organization are – create a community development organization which will be famous for its technical ability, inclusive culture, responsiveness and creativity; create such kind of operating environment where core costs will be fully self supportive by themselves and income can be utilized in other nonprofit activities; create and develop such kind of financial products which will be helpful for community development program in Commonwealth. In case of organizational culture this can be said that job roles of the employees are very flexible in nature. Fund accounting and SFAS Accounting Fund accounting can be defined as an accounting system which is primarily used by the government and nonprofit organization. Virginia Community Capital, Inc. is using this method to keep record of how their money was spent, rather than how this money was earned. This system helps to keep records of the collection of funds of this organization and focus on the purposes of each fund, ranging from operating expenses to many other activities of this organization. Again this organization maintains five categories of fund in their financial activities. These funds are – current fund (restricted), current fund (unrestricted), custodian fund, land, building & equipment fund and endowment funds. Custodian funds are held and disburse according to the instruction of donor (Neave, 2009). SFAS or the Statement of Financial Accounting Standard describes the standard of professional financial practices and procedures which is applied by Apple Inc in their financial activities. By using the above mentioned standard the company can maintain the transparency in their corporate accounting practices. Again the company is follows the guidelines which are described in the SFAS. It can increase the interest of the investors. Shareholders can depend on the accounting procedure of this company and thus the company can gain remarkable reputation in the international market. This will help to achieve further growth in the business field. Ethical Accounting Standards In this case it can be said that accounts of Apple Inc are prepared after following SFAS and GAAP principles. There are few limitations for maintaining accounts by using this procedure. SFAS does not allow the users to forecast the future situation in a mechanical way and ignore the geographic segment wise data which are relevant in the accounting procedure. In case of GAAP it is very much rule based standard which is difficult to use in the practical field. It considers historical costs only in case of asset valuation (Jeffrey, 2012). Virginia Community Capital, Inc. maintains fund accounting procedure which has also some limitations. This system does not provide the detailed picture of the financial condition of this organization. So accountant may not be able to understand the actual sources of income and the heads of expenses. Common Sources of Fraud Discussing about the sources of fraud this can be said the for-profit organizations face payroll fraud. Again this can be said that few circumstances will allow the employees to carry out misappropriation of cash and other organizational or financial assets. Pressure is another reason for occurrence of financial fraud cases and unethical mind and behavior of employees also allow for performing malpractices in the business organization. If the control on the financial system of the organization is not strong by nature then this kind of chances will arise in the business activities which may hamper the reputation of the company in the market. In case of Apple Inc there are very few chances of risks related to fraud cases in the organization as the company maintains very strong control on its financial practices (Weil, Schipper and Francis, 2012). Management maintains high confidentiality in this regard. Again the employees of this company are very much happy with the work culture of this organization and most of them are engaged in their innovative and more productive work. Healthy competitive atmosphere within organization helps to prevent chances of fraud cases. But in some fields the management of this company is unable to prevent malpractices. For example Apple Inc is not able to stop ongoing iTune charge scam and they should implement close monitoring system in credit card settlement for fraudulent iTune charges. In case of nonprofit organization such as Virginia Community Capital, Inc. this can be said that asset misappropriation, misrepresenting the portion of donation, failing to comply with donor provided restrictions, charging unnecessary costs to increase the ratio of expenses etc. Role of Accountants Accountant of Apple Inc has to perform several tasks to protect the financial interest of the company. At first he has to collect and maintain all the financial data which are relevant with business activities. After that proper and detailed analysis of those financial data is required to understand the condition of the business. Then he should prepare the required financial statements on quarterly and yearly basis. The accountant of this company is also responsible for ensuring that all the financial reporting deadlines are met both externally and internally. This will help to increase the interest level of investors. The accountant also provides advice in some factors. For example- if there is high cost involved for making iPad of this company then accountant can inform to the production team and after getting such information production and R&D team will think to produce the same item at comparatively lower cost. In case of nonprofit organization such as Virginia Community Capital, Inc. the accountant will keep the record of income, assets and expenses of the organization. He will be liable for utilizing the monetary fund at proper causes and those causes should be related to the benefit and growth of the community and society. Summary At the part of summary this can be mentioned that both the accountants of for-profit and non-profit organization maintain their respective accounting standard and these standards are selected according to the nature of business. The accounting procedures are also different from these two types of organization. In the above mentioned report this can be found that Virginia Community Capital, Inc. maintains fund accounting system whereas Apple Inc maintains SFAS accounting method by keeping records of their financial transaction. Again sources of frauds are also different in these two companies. In a sentence this can be said that both the companies are doing their best practices in case of their accounting procedure to achieve growth in their respected fields. References Banerjee, A. (2009). Financial Accounting. New Delhi: Excel Books India. Carmichael, D. and Graham, L. (2012). Accountants Handbook, Financial Accounting and General Topics. Beijing: John Wiley & Sons. Deegan, C. (2009). Financial accounting theory (3rd ed.). North Ryde: McGraw-Hill Irwin. Jeffrey, C. (2012). Research on Professional Responsibility and Ethics in Accounting. England: Emerald Group Publishing. Kimmel, P., Weygandt, J. and Kieso, D. (2010). Financial Accounting: Tools for Business Decision Making. Beijing: John Wiley & Sons. Neave, E. (2009). Modern Financial Systems: Theory and Applications. Beijing: John Wiley & Sons. Weil, R., Schipper, K. and Francis, J. (2012). Financial Accounting: An Introduction to Concepts, Methods and Uses. Boston: Cengage Learning. Read More