30 - Non-Profit Accounting

Question 1

Which financial statements are required for not - for - profit organizations?

Answer 1

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Statement of Functional Expense (Volunteer Health Organizations Only)

Question 2

What are the major classifications found on a Statement of Financial Position?

Answer 2

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Assets
Permanently Restricted Assets
Temporarily Restricted Assets

Question 3

What are the major classifications in a Statement of Activities?

Answer 3

Similar to an Income Statement - organization - wide:

Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted

Question 4

What are the characteristics of a Statement of Cash Flows for not - for - profits? What are the major classifications?

Answer 4

Both direct and indirect methods are OK

Operating Activities - Unrestricted Revenues and Unrestricted Expenses

Investing Activities

Financing Activities - Endowments and restricted contributions

Question 5

Which organizations are required to present a Statement of Functional Expenses?

Answer 5

Volunteer Health Organizations

Question 6

Elements of Statement of Functional Expenses

Answer 6

Public Support
Revenues
Program expenses: Further the mission; research, community service, public health, education 
Support services 
 -G/A/M
 -Fundraising

Question 7

Which statements are required for non - governmental hospitals?

Answer 7

Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes

Question 8

Which basis of accounting is used for revenues and net assets?

Answer 8

Accrual basis of accounting is used

Only external parties can restrict the use of assets (permanent or temporary)

Assets earmarked internally by management are still classified as unrestricted

Question 9

What are the characteristics of unrestricted assets or revenue?

Answer 9

No restrictions or conditions placed on entity in order to use the resources

Note: assets earmarked internally by management are still unrestricted

Question 10

When are revenues on contributions recognized?

Answer 10

Revenues on contributions are recognized in the year received - not the year the contribution is spent and are recorded at Fair Value on the date received

Question 11

When are services rendered considered contributions?

Answer 11

If the organization would have otherwise paid for them

or

They increase the value of a non - monetary asset

Question 12

Is hospital charity care revenue?

Answer 12

NO.

It is disclosed in the notes to the financial statements only.

Question 13

How are unconditional pledges to contribute recorded?

Answer 13

Classified as revenue in the current year only - multi - year future contributions fall under Temporarily Restricted.

Question 14

Which revenues are expenses deducted from?

Answer 14

Expenses ONLY deducted from Unrestricted Revenues

Question 15

What are the characteristics of temporarily restricted assets/revenue?

Answer 15

Use is restricted to a future time - which could then convert to unrestricted - Class: Temp. Restricted Revenue

Unrestricted contributions promised (including multi - year contributions) - but not yet received are actually restricted by time and are therefore classified as Temporarily Restricted Assets - Multi - year contributions are recorded at the present value of the future contributions

Question 16

What are the characteristics of an endowment?

Answer 16

Use of investment is restricted - but income from investment could be either restricted or unrestricted

Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets

Otherwise - a memo entry is recorded

Question 17

When is the donation of an art collection recognized as a contribution or asset?

Answer 17

Not recognized as assets or contribution revenue if they are held of display or education’ or their sale results in the purchase of similar items

Question 18

When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first?

Answer 18

Temporarily restricted assets are used before Unrestricted assets.

Question 19

How is a refundable advance recorded by a not for profit?

Answer 19

Classified as a Liability

Promise to contribute assets pending on certain conditions being met

Becomes unconditional once the possibility that it won’t happen is remote

Question 20

How are investments recorded and valued in not - for - profit accounting?

Answer 20

Fair Value is mostly used

Exception - Equity method used when significant influence exists

Question 21

How are scholarships recorded?

Answer 21

As a reduction of revenue - netted against college’s tuition

Question 22

How is depreciation expense recorded by a not - for - profit?

Answer 22

Depreciation expense is allocated proportionately same as commercial expenses

Question 24

Patient Service Revenue

Answer 24

Accrual Basis
Gross billings before reductions for discounts to employees and insurance groups
(Excludes charity care)

Question 25

When is money collected for others, such as a foundation, considered revenue?

Answer 25

• variance of power over donation to redirect money
• beneficiary of the donation is financially related
• if neither are met, record as LIABILITY

Question 26

Net Patient Service Revenue

Answer 26

Reductions for discounts and contractual adjustments for 3rd payments
(But not bad debt expense, which is operating)