02.01 Not-for-profit overview

Question 1

What are examples of a not-for-profit organization?

Answer 1

Hospital and other health care entities*
Colleges, universities, and other educational organizations*
Voluntary health and welfare organizations
Other (e.g. social club, political parties, museums)
*exceptions - government run health care entities and public colleges follow GASB standards

Question 2

What standards do not-for-profit organizations follow?

Answer 2

FASB standards

Question 3

What does not-for-profit reporting focus on?

Answer 3

Not-for-profit reporting focuses on presenting basic information for the entity as a whole and emphasizes disclosure of the sources of resources and how they were expended.

Question 4

What are the three basic statements for NPOs?

Answer 4

Statement of financial position
Statement of activities
Statement of cash flows
Statement of functional expenses (either presented as a separate statement, on the statement of activities, or within the notes to the FS)

Question 5

What are the two types of support that NPOs receive?

Answer 5

Contributions and pledges

Question 6

What is a contribution?

Answer 6

Contributions are nonreciprocal receipts of assets or services. They are not exchange transactions. They are asymmetrical transactions in which one party relinquishes something of value to another party, but the other party provides nothing in return.

Question 7

What are the two types of contribution revenue?

Answer 7

Contributions without donor restrictions
Contributions with donor restrictions

Question 8

What are contributions without donor restrictions?

Answer 8

Contributions without donor restriction provide resources that are available for expenditure in the current period for any purpose.

Question 9

What are contributions with donor restrictions?

Answer 9

Contributions with donor restrictions fall into 4 main types:
1. resources restricted for specified operating purposes, known as “program” or “purpose” restrictions
2. resources available after a specified time has elapsed, known as “time restrictions”
3. resources restricted for acquisition or construction of capital assets, known as “capital restrictions”
4. resources not available for expenditure at any time (although the earnings on the resources may be expended), known as “endowments”

Question 10

Who makes the restriction on the contribution?

Answer 10

For a contribution to be classified as a contribution with donor restriction, the restriction on the contribution must be made by an external party (the donor).

Question 11

What can be contributed?

Answer 11

Cash, marketable securities, inventory, property, or services.

Question 12

When are donations of services recorded as contribution revenue?

Answer 12

If non-financial assets are created or enhanced, or the donated services require a person with specialized skills providing those specialized skills to an organization that normally would have paid for those specialized skills.

Question 13

True or false: in addition to being donor restricted or not donor restricted, contributions can also be conditional or unconditional.

Answer 13

True.

Question 14

What are conditional contributions?

Answer 14

Conditional contributions depend on the occurrence of some future, uncertain event.

Question 15

When is a conditional contribution recognized as revenue?

Answer 15

Revenue recognition occurs when the condition is met or the chance of not meeting the condition becomes remote. The not-for-profit should account for conditional contributions received (e.g. cash is deposited) as a refundable advance (liability) until the condition is met.

Question 16

What two factors are needed for a contribution to be considered conditional?

Answer 16

1. there is a barrier that must be overcome
2. the donor has a right to the return of assets transferred or a right to be released from their obligation to transfer assets.

Question 17

What is a pledge?

Answer 17

A promise to give.

Question 18

What are the two types of pledges?

Answer 18

Conditional and unconditional

Question 19

What is an unconditional pledge?

Answer 19

No action is required by the NPO to get the promised resources.
Recorded as revenue and pledge receivable when promise is made.

Question 20

What is a conditional pledge?

Answer 20

NPO must overcome donor-imposed barriers before getting the promised resources.
Not recognized until pledge conditions are satisfied.

Question 21

What accounting method are NPOs required to use for equity and debt investments?

Answer 21

Fair value accounting

Question 22

What is an endowment?

Answer 22

An endowment is an established fund of cash, securities, or other assets.
Permanent endowments come with the restriction to invest the principal and maintain it in perpetuity, whereas any investment income can be used for the organization’s general operations. The gain/loss on the investments of the endowment are reported as increases/decreases in net assets without donor restrictions.

Question 23

What do agents or trustees do?

Answer 23

An agent or trustee acts as an intermediary. These organizations collect contributions from donors and then give these contributions to beneficiaries selected by the donors.

Question 24

If the agent or trustee collects money for others, it is considered revenue if the agent or trustee does what?

Answer 24

Have variance power over the donation, or is financially related to or has an ongoing economic interest in the net assets of the beneficiary of the donation.

Question 25

What is variance power?

Answer 25

Variance power is the unilateral power to redirect the transferred assts to another beneficiary (other than the beneficiary initially intended by the donor).