Budgeting Basics and Beyond

Chapter 24. Budgeting for Nonprofit Organizations: Diverse Types^[]

^[] This chapter was written by Ping Lin, Associate Professor of Accounting, California State University at Long Beach.

This chapter is an overview of the budgeting process for nonprofit organizations and is intended to give a general picture. Most nonprofit entities are service organizations. Ordinarily, nonprofit organizations do not pay income, property, or sales taxes. Even so, planning is needed to accomplish goals in a productive, economical way.

Nonprofit organizations can be broken down into three major types. The first is comprised of voluntarily supported organizations, such as hospitals, churches, colleges, foundations, health and welfare agencies, and privately funded schools. The second type includes organizations supported through tax assessments, such as government units and state-supported schools. The third type operates primarily for the benefit of its supporters, such as cooperatives, country clubs, and other community-based organizations.

Budgets are widely employed by nonprofits. Budgets are usually required by regulatory authorities, e.g., legislatures, boards of trustees, and administrative agencies that monitor activities. Because nonprofits rarely produce products, they do not begin with a sales forecast. Instead, they provide services to their users and therefore must prepare a forecast of the services to be rendered during a specific planning horizon (typically one year) to establish a ...