Goodwill Industries: Accounting in a Nonprofit

Goodwill Industries International Inc. consists of a network of 164 independent, community-based organizations located throughout the United States and Canada. The mission of this nonprofit 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 its nonprofit status, Goodwill establishments are, in many ways, run similar to for-profit businesses. One of these similarities involves the accounting function. Like for-profit firms, nonprofit 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 nonprofit organization as for a for-profit company, making it necessary for nonprofits to reassure stakeholders that they are using their funds legitimately. Additionally, donors want to know how much of their donations are going toward activities such as job creation and how much is going toward operational and administrative expenses. It sometimes surprises people that nonprofits use part of the funds they receive for operational costs. Yet such a perspective fails to see that nonprofits 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 administrative services. And we have whats called the bottom line, or other people call net profit. We have whats 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 nonprofit entity, its financials are known by the names statement of financial position and statement of activities. These financials have some differences compared to financial statements of for-profit companies. For instance, Goodwills statement of financial position does not have shareholders equity but, instead, has net assets. The organizations financials are audited, and stakeholders can find the firms information in Form 990 through Goodwills public website (Form 990 is the IRS form for nonprofits). Because Goodwill sells goods at its stores, the company must also figure in costs of goods sold. In fact, most of the organizations revenue comes from its store activities. In one year, the retail division or sale of donated goods and contributed goods generated $3.94 billion. The contracts division generated $666 million, which provides custodial, janitorial, and lawn maintenance service contracts to government agencies. Grants from foundations, corporations, individuals, and government account for $185 million. The fact that Goodwill is able to generate much of its own funding through store activities and contracts is important. Many nonprofits that rely solely on donated funds find it hard to be sustainable in the long run, particularly during economic downturns. Remember that even though nonprofits are different from for-profit companies, they must still make certain that their page 471 financial information is accurate. This requires nonprofit 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.

Question: 1. What are some similarities between the type of accounting preformed at Goodwill compared to accounting at for-profit companies?

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

3. How can goodwill use ratio analysis to improve its operations?