Accounting for Not-for-Profit Organizations

Question 1

What form do the F/S of a public college or university take?

Answer 1

they should follow the financial reporting model developed in GASB 34 for state and local government units

Question 2

What official guidelines do private NFP organizations follow?

What official guidelines do public NFPs follow?

Answer 2

private NFPs follow pronouncements of FASB

public NFPs follow pronouncements of GASB

Question 3

What is the reporting emphasis for the F/S of a private NFP organization?

Answer 3

reporting the entity as a whole

Question 4

What are the three required F/S of a private NFP organization?

Answer 4

Statement of financial position

Statement of activities

Statement of cash flows

Statement of functional expenses(voluntary health and welfare organizations only)

Question 5

On a statement of financial position for a private NFP, what are the three types of accounts that are presented?

Answer 5

assets

liabilities

net assets

Question 6

What kinds of assets and liabilities are reported on the statement of financial position of private NFP?

Answer 6

all assets and liabilities are reported

Question 7

The net assets section of a statement of financial position for a private NFP shows three balances. What are those three balances, and what do they represent?

Answer 7

unrestricted net assets - the amount of net assets held by the organization that have not been restricted in some manner by a donor or other outside party

temporarily restricted net assets - the amount of net assets held by the organization that has been restricted by an external donor for a specified use or a specified period of time

permanently restricted net assets - the amount of net assets held by the organization that has been restricted so that only the income subsequently earned can be spent, but the principal must be kept intact

Question 8

The board of a private NFP decides to restrict an amount of assets for a specified purpose. How is that restriction shown on a statement of financial position?

Answer 8

internally restricted, no change is shown in the amount of unrestricted net assets since there is no external restriction

Question 9

In general, what is presented by a private NFP in its statement of activities?

Answer 9

the statement of activities shows the changes during the year in the amount of unrestricted net assets, the amount of temporarily restricted net assets, and the amount of permanently restricted net assets.

Question 10

A private NFP receives three gifts. The first is for $10,000 and can be spent by the organization in any way that it chooses. The second is for $20,000 and must be spent to buy a new bus for the organization. The third is for $30,000 and must be invested with the income to be used to maintain the bus.

How are these gifts reported?

Answer 10

Cash shown on the statement of financial position increases by $60,000

on the statement of activities, the amount of unrestricted net assets increases by 10,000, temporarily restricted net assets increase by 20,000 and permanently restricted net assets increase by 30,000

Question 11

On a statement of activities, what balances are normally shown as increases to unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets?

Answer 11

on the statement of activities, contributions are shown as increased to the appropriate category of net assets

interest and gains follow the same pattern

Question 12

Investments are being held by a private NFP. The investments change in value. How is this reported?

Answer 12

a private NFP reports its investments at FV. changes are reported in the statement of activities as unrealized gains and losses

no distinction is made between trading securities and AFS securities.

Question 13

A private NFP receives $100 in membership dues from a donor,.

Is this inflow viewed as a contribution or as a revenue?

Answer 13

if members received substantive benefits for these dues, they should be recognized as revenue

Question 14

How does a private NFP report its expenses?

Answer 14

they are reported on the statement of activities only under the unrestricted net assets column

Question 15

A private NFP receives a gift of $100,000. The donor has specified that this money must be held and invested; only the income can be spent. Any income must be used by the organization to supplement salaries of its charity workers. In the current yer, $9,000 income is earned.

How is this income reported?

Answer 15

100,000 gift is an increase in permanently restricted net assets

9,000 is an temporarily restricted net asset increase until it is used for its specified purpose

Question 16

A private NFP reports a statement of activities with 3 sections. One is the revenues, contributions and other increases in unrestricted, temporarily restricted and permanently restricted net assets. the second is the expenses of the organization which is shown only as a reduction in unrestricted net assets.

What is the third section?

Answer 16

“net assets released from restriction”

shows temporarily restricted net assets that are expended as required or time restrictions have lapsed.

Question 17

A private NPF receives a $1,000 cash donation that must be used to supplement salaries of charity workers. During the year, $600 of this amount is spent properly.

How are these events reported by the organization?

Answer 17

1,000 increase in temporarily restricted net assets when gift is received

when the portion is expended cash is decreased by $600 and a reduction in unrestricted net assets is shown

also a $600 amount is shown as a “net asset released from restriction”

Question 18

A private NFP receives a $1,000 cash donation that must be used for equipment. During the year, $600 of this amount is spent properly.

How are these events reported by the organization?

Answer 18

1,000 increase in temporarily restricted net assets when gift is received

when the portion is expended cash is decreased by $600 and an increase in equipment is also shown

also a $600 amount is shown as a “net asset released from restriction”

Question 19

Equipment is purchased for $5,000 with temporarily restricted net assets. The asset has a 5 year life and no salvage value. At the time of purchase, a $5,000 switch is shown on the statement of activities from temporarily restricted net assets to unrestricted net assets.

What is an alternative way of making this switch?

Answer 19

If a time restriction is assumed for the asset the switch of $5,000 does not have to be made all at once. It can be made at the rate of $1,000 per year to match up with the depreciation expense being recognized. in that case, net assets released from restriction would be $1,000 each year for 5 years, with temporarily restricted net assets being reduced by that amount an unrestricted net assets being increased.

Question 20

A private NFP has to report a statement of cash flows. How does that statement differ from the statement of cash flows produced by a for profit entity?

Answer 20

there is no difference

Question 21

When is a pledge reported by a private NFP?

Answer 21

a pledge is reported when it is considered to be an unconditional promise.

Question 22

If recorded, how are pledges reported?

Answer 22

as receivables on the statement of financial position net of allowance for doubtful collections

Question 23

A private NFP receives a donation of investments. How is this reported?

Answer 23

at fair value on its statement of financial position

as an increase in the respective classification of net assets in the year of donation on the statement of activities

Question 24

A private NFP receives a donation of artwork or museum piece worth $10 million.

What are the options that the organization has in regards to reporting?

Answer 24

as an asset at FV with the corresponding increase in the correct classification of net assets

if certain criteria are met, the organization also has the option of not reporting the gift at all

Question 25

What are the criteria that must be met before a private NFP has the option of not reporting the gift of an artwork or museum piece?

Answer 25

must meet all three of the following criteria

used for research, education or exhibition

the item is protected and preserved

if item is ever sold, the money received will be used to acquire similar items

Question 26

A doctor provides $8,000 worth of services to a private NFP organization free of charge.

Should this donation be reported by the NFP?

Answer 26

donated services must be reported by a private NFP if they meet on of two criteria:

1. They enhance a nonfinancial asset
2. they require the donor to posses a specialized skill, in which the services would be bought if not donated

the work by the doctor would meet the second criteria and would be recognized by the private NFP

Question 27

A doctor provides $8,000 worth of services to a private NFP organization free of charge.

How is this donation reported?

Answer 27

the donation would be recognized as a contribution under the unrestricted net assets and offset by an equal expense under salary expense.

Question 28

A carpenter provides $8,000 worth of services to a private NFP organization free of charge in order to build a shed to house equipment.

Should this donation be reported by the NFP?

Answer 28

it would be reported as it enhances a nonfinancial asset one of the criteria for reporting the donation.

Question 29

A gives $1,000 to L(a private NFP) with the stipulation that the money be given to Beneficiary W.

When the gift is made to L, what reporting is required by each of the three parties?

Answer 29

A made a gift and should reduce cash and report a contribution expense.

L has the money but must remit it to W, so it reports an increase in cash and an increase in Payable - W.

W is to get the money, it will report a receivable from L and an increase to contribution revenue.

Question 30

A gives $1,000 to L(a private NFP) with the stipulation that the money be given to Beneficiary W within 6 months. During the interim period, A retains the right to change beneficiaries or to ask for the money back.

When the gift is made to L, what reporting is required by each of the three parties?

Answer 30

A still has control of the money, it reduces cash but increases an asset “money held by charity”

L increases its cash and increases a liability to A

W records nothing until the money is actually received.

Question 31

A gives $1,000 to L(a private NFP) with the stipulation that the money be given to Beneficiary W within 6 months. During the interim period, L has the right to change beneficiaries if another party appears to be more deserving of the gift.

When the gift is made to L, what reporting is required by each of the three parties?

Answer 31

A made a gift and should reduce cash and report a contribution expense.

L increases its cash and also contribution revenues

W records nothing until the money is actually received.

Question 32

One financial statement is required of voluntary health and welfare organizations but is optional for other types of private NFPs. What is this additional statement?

Answer 32

statement of functional expenses

Question 33

What is presented on a statement of functional expenses?

Answer 33

divides all expenses of the organization into the following two categories:

1. Program service expenses - having to do with the goals and objectives of the organization
2. Supporting service expenses- general and administrative expenses, as well as fund raising costs

Question 34

A private NFP prints and mails a fund-raising brochure. Under what condition can part of these costs be included as program service expenses rather than supporting service expenses?

Answer 34

if the brochure contains a specific call for action and if mailing is not directed solely at potential donors, a portion of the printing and mailing costs can be assigned to a program service cost

Question 35

How does a private college or university report scholarships that are given to students?

Answer 35

Scholarships are reported on the statement of activities, but are shown as direct reductions to tuition revenues. They are not reported as expenses but as a reduction in the related revenue.