2500: Not-for-Profit Accounting & Reporting Flashcards
What are the three categories of net assets reported for not-for-profit entities and how are they imposed?
- Unrestricted
- Temporarily restricted
- Permanently restricted
Terminology, including “net asset” is encouraged but not required. Alternatives must be clear with meaningful captions.
Other useful information may also be presented.
Restriction is imposed by donors/grantors not directors or management or others
How is an equipment purchase with a restricted gift from the prior year reported on the Statement of Activities?
Reclassification from temporarily restricted net assets to unrestricted net assets.
Equipment is also reported on Statement of Financial Position
When are assets released from restriction?
Once resources are used according to donor limitations.
How does a contribution to an NFP for long-term purposes (i.e. construction of a new building) appear on its statement of cash flows?
It is reported as cash flow from Financing activities (not operating or investing).
How does investment income restricted by donor to an NFP for long-term purposes (i.e. contribution of a new building) appear on its statement of cash flows?
It is reported as cash flow from financing activities (not investing or operating).
How are NFPs required to report expenses?
by functional classification in the statement of activities or
notes
health/welfare orgs must provide separate functional expense matrix with natural classification
How is a donated depreciable asset accounted for if there is a time restriction per the donor or organizational accounting policy?
The asset is recorded as temporarily restricted and depreciated over its useful life. The residual value of the asset after depreciation remains temporarily restricted.
Asset DR
Contributions – Temp Rest CR
Functional (Depreciation) Expense DR
Accum Depr – Asset CR
Reclass from Cont -- Temp Rest DR Reclass to Cont -- Unrest CR*
*Report “net assets released from restrictions” on the statement of activities.
How does an NFP account for a permanent endowment?
Each source of funds (original, gain, loss, dividend, interest) is evaluated separately according to donor’s wishes and relevant law. Depreciation expense (and all expenses) must be reported as changes in unrestricted net assets.
Unless contravened by donor or law, net losses reduce temporarily restricted net assets to the extent of prior gains/earnings then reduce unrestricted net assets.
If donor/law requires that principal cannot fall below original contribution value, excess expenses and losses over revenues is shown as a reductions in unrestricted net assets.
How are expenses recorded for NFP?
As changes in unrestricted net assets
Classified as program services expense (by function for mission) or supporting services (mgmt & gen/fundraising)
How can NFP recognize unconditional promises to give?
May recognize net realizable value by recording any portion expected to be uncollectible in Allowance for Uncollectible Contributions.
May not recognize an expense on uncollectible contributions.
May recognize at fair value on date of promise even if collection is years in the future.
May recognize at present value
When are permanently restrcited net assets increased?
NFP
When the principal of a contribution is not to be spent.
Required external financial statements for NFP
statement of financial position (BS)
statement of activities (IS)
statement of cash flows
How are contributions receivable accounted for?
NFP
Contributions are unconditional and are recognized:
- at present value of estimated cash flows
- net realizable value if collectible within a year (optional)
Conditional promises are not contributions receivable until conditions are met (unconditional) or the likelihood of their not being met becomes remote.
How does NFP account for items in collection if not capitalized?
criteria for “collection”:
held for exhibition
protected/preserved
policy of sales only to acquire other collection items
Report by including a line item on the face of FS that constitues a note/disclosure regarding the permanent collection.
Capitalize = Asset & Equity
How is a conditional contribution recorded?
As a refundable advance