One of the stickiest aspects of accounting for not-for-profit (NFP) entities involves allocations — how these entities account for where they spend the funds they receive.
For-profit businesses don't have to worry about this too much. If you have a pizza parlor, it doesn't matter if you use the profits from your pizza sales to pay the rent and the profits from your soda sales to pay the utilities (or vice versa). The customers don't care what you do with their money, as long as they get their pizza and their drinks.
It's not so simple at an NFP entity.
How You Got the Money Can Determine Where You Spend It
Many NFP entities receive funds that are earmarked for specific purposes. For example, let's say an organization receives a grant expressly to provide wheelchairs for the physically challenged. The organization can't use that funding to sponsor an event instead. They have to spend it on wheelchairs — and they need documentation to prove they did. (This is called "direct identification.")