302664

Question 1

A statement of activities prepared by a nongovernmental not-for-profit organization is most similar to which of the following financial statements prepared by a for-profit entity?

Income statement

Statement of changes in stockholders’ equity

Balance sheet

Statement of cash flows

Answer 1

Income statement

A statement of activities most closely resembles an income statement. It covers a period of time (from date 1 to date 2) instead of being a point-in-time statement (at date 1) like a balance sheet. It is derived from changes in net assets. Increases in net assets are similar to revenues while decreases are similar to expenses, both of which can be found on the income statement.

Question 2

Not-for-Profit Entity

Answer 2

According to the FASB ASC Glossary, a not-for-profit entity is distinguished from a business entity by three characteristics: contribution of significant resources from providers who do not expect proportionate return, operating purposes other than to provide goods or services for profit, and absence of ownership interests like business enterprises. In addition, the IRS stipulates that no part of the organization’s net earnings can inure for the benefit of any specific person or persons.

FASB ASC Glossary

IRS Form 1023

AICPA Audit and Accounting Guide Not-for-Profit Entities, Section 15.09

Question 3

Statement of Activities

Answer 3

The complete set of financial statements for a not-for-profit entity includes a statement of activities, which is analogous to the income statement of a business entity. In governmental accounting, a statement of activities is required for government-wide financial reporting. The formats of the not-for-profit and the governmental statement of activities differ.

FASB ASC 958-205-45-4

GASB 2200.126

Question 4

2122.01

Answer 4

The statement of activities for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s income statement.

• Unlike the statement of financial position, the statement of activities is more of a period-of-time measurement of the NFP instead of a point-in time-measurement. The statement of activities provides important information about (1) the effects of transactions and other events and circumstances that change the amount and nature of net assets; (2) the relationships of those transactions and other events and circumstances to each other; and (3) how the NFP’s resources are used in providing various programs or services.
• The statement of activities reports revenues as “increases in net assets without donor restrictions,” unless the use of the assets received is limited by donor-imposed restrictions.
• NFPs are allowed but not required to have a self-defined operating measure on the statement of activities. For example, an NFP may break its statement of activities down into operating and nonoperating components. If an NFP chooses to do this, it is required to report the change in unrestricted net assets for the period on the statement of activities. If the use of the term operations is not apparent from the details provided on the face of the statement of activities, a note to the financial statements is included describing the nature of the reported measure of operations or the items excluded from operations.