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What are some differences between the type of accounting performed at Goodwill compared to accounting at for-profit companies?

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Goodwill Industries International Inc. consists of a network of 164 independent, community based organizations located throughout Canada and the United States. The mission of this non-profit is to enhance the lives of individuals, families, and communities through learning and the power of work." Local Goodwill stores sell donated goods and then donate the proceeds to fund job training programs, placement services, education, and more. Despite their non-profit status, the way Goodwill establishments are run is very similar to for-profit businesses. One of these similarities involves the accounting function. Like for-profit firms, non-profit organizations like Goodwill must provide detailed information about how they are using the donations that are provided to them. Indeed, fraud can occur just as easily at a non-profit organization as at a for-profit company, making it necessary for non-profits to reassure stakeholders that they are using their funds legitimately. Additionally, donors want to know how much of their donation is going toward activities such as job creation and how much is going toward operational and administrative expenses. It sometimes surprises people that non-profits use part of the funds they receive for operational costs. Yet such a perspective fails to see that non-profits must also pay for electricity, rent, wages, and other services. "We have revenue and support for the revenue pieces, and then we have direct and indirect expenses for our program services, and then we have G and A, general services. And we have what's called the bottom line, or other people call net profit. We have what's called net change in assets. The concept is pretty much the same as far as accounting," says Jeff McCaw, CFO of Goodwill. Goodwill creates the equivalent of a balance sheet and income statement. Yet because Goodwill is a non-profit entity, its financials are known as the statement of financial position and the statement of activities. These financials have some differences compared to financial statements of for-profit companies. For instance, Goodwill's statement of financial position does not include shareholder's equity but instead, has net assets. The organization's financials are audited, and stakeholders can find the firm's information in the T3010 Registered Charity Information Return through Goodwill's public website (T3010 is the CRA form for non-profits). Because Goodwill sells goods at its stores, the company must also figure in costs of goods sold. In fact, most of the organization's revenue comes from its store activities. In one year, for Goodwill International, the retail division's sale of donated and contributed goods generated $3.94 billion. The contracts division, which provides custodial, janitorial, and lawn maintenance service contracts to government agencies, generated $666 million. Grants from foundations, corporations, individuals, and government accounted for $185 million. The fact that Goodwill is able to generate much of its own funding through store activities and contracts is important. Many non- profits that rely solely on donated funds find it hard to be sustainable in the long run, particularly during economic downturns. Page 383 Remember that even though non-profits are different from for-profit companies, they must still make certain that their financial information is accurate. This requires non- profit accountants to be meticulous and thorough in gathering and analyzing information. Like all accountants, accountants at Goodwill record transactions in journals and then carefully review the information before it is recorded in the general ledger. The organization uses trial balances to ensure that everything balances out, as well as advanced software to record transactions, reconcile any discrepancies, and provide an idea of how much cash the organization has on hand. Finally, Goodwill uses ratio analysis to determine the financial health of the company. For instance, the common ratio allows Goodwill to determine how much revenue it brings in for every dollar it spends on costs. The organization also uses ratio analysis to compare its results to similar organizations. It is important for Goodwill to identify the best performers in its field so that it can generate ideas and even form partnerships with other organizations. By using accounting to identify how best to use its resources, Goodwill is advancing its mission of helping others. 10