C. GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES Flashcards

Question 1

Q

GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES (NFP)

What are they (3)?

Answer

A

1. STATEMENT OF FINANCIAL POSITION

2. STATEMENT OF ACTIVITIES

3. STATEMENT OF CASH FLOWS

Question 2

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_{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFITENTITIES}

STATEMENT OF FINANCIAL POSITION

What is it, and how is it broken down?

Answer

A

<ul><li>The statement of financial position is the ‘balance sheet’ for not for profit (NFP) organizations.</li><li>The main difference is the “net assets” portion instead of shareholders’ equity, since there are no shareholders in an NFP.</li><li>assets = liabilities + net assets.</li></ul>

Question 3

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_{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFITENTITIES}

STATEMENT OF FINANCIAL POSITION

Net assets section: Describe

Answer

A

The net assets section is broken out into two categories of net assets:

Net assets without donor restrictions These are assets that have no restrictions and that the NFP can use how they want.

Net assets with donor restrictions These are net assets with either a time restriction, purpose restriction, or even a permanent restriction.

All restrictions are set by the donor at the time of the donation.

Question 4

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_{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES}

STATEMENT OF ACTIVITIES: Describe

Answer

A

The statement of activities focuses on the changes in each group of net assets, so there are 3 main segments on the statement:

1. Changes in net assets without donor restrictions

a. Starts with “Revenues and gains”, this includes contributions, fees and investment gains free from donor restriction

b. Next is “net assets released from restriction”

c. Then “Expenses and losses”, which are broken out by program

d. Note that all expenses for the NFP will be listed in the unrestricted section

2. Changes in net assets with donor restrictions

3. Changes in permanently restricted net assets

Question 5

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_{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES}

STATEMENT OF ACTIVITIES: Other things to know

Answer

A

Unrealized gains and dividends from investments are included on the statement of activities for the year, and stay within the designation of the original investment, such as net assets with no donor restrictions or net assets with a donor restriction.

Example: ABC, a NFP, made an investment of $100,000 using funds with no donor restrictions in Beta corp stock. At the end of the year, the investment in Beta had a FMV of $120,000, and ABC received dividends of $5,000 from Beta.

As a result, ABC would include an increase in net assets with no donor restrictions of $25,000 for the year: The $20,000 increase in FMV + the $5,000 in dividends.

Question 6

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^{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES}

STATEMENT OF ACTIVITIES:

Reporting Expenses by Nature and Function

(Statement of Functional Expenses)

Answer

A

<ul><li>Previously the statement of functional expenses was only required by “voluntary health and welfare organizations”, but now every NFP is required to report expenses by nature and function.</li></ul>

<ul><li>This can be done 1) within the statement of activities, 2) as a schedule in the notes to the financial statements, or 3) as a separate financial statement.</li></ul>

<ul><li>By “nature and function”, it means that expenses are broken out to show what was spent on “program services” and “supporting services”.</li></ul>

<ul><li>Program services are expenses directly related to the programs that fulfill the mission of the NFP.</li></ul>

<ul><li>Supporting services are management and general expenses, and fund raising.</li></ul>

<ul><li>Note that any given expense can be allocated to both the program services and supporting services, such as the salary of employees, depending on their role with the NFP.</li></ul>

Question 7

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^{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES}

STATEMENT OF ACTIVITIES:

Updated Definition of a “Collection” and Use of Proceeds

Answer

A

A recent update changed that when an entity sells a “collection”, proceeds from the sale can be used to either acquire new items or directly care for existing items already in possession. Previously the proceeds could only be used to acquire additional collections.

“Collections” refers to groupings of art, historical treasures or similar items that are:

1) held for the public,

2) preserved and protected, and

3) when sold, the proceeds are reserved for specific uses.

Question 8

Q

^{GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES}

STATEMENT OF CASH FLOWS: Describe

Answer

A

The statement of cash flows for NFP is just like the statement of cash flows for regular businesses.

The changes in net assets is part of the operating activities section.

Unrestricted cash transactions will be reflected in the operating activities section, but any cash transactions with long-term restrictions appear in the financing section.

Also, dividends received on investments with long-term restrictions would also be included in the financing activities section.

The investing activities section contains the same types of transactions that would appear in the investing section of a regular statement of cash flows.

Just like regular statements of cash flows, these can be prepared under either the direct or indirect method.

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C. GENERAL-PURPOSE FINANCIAL STATEMENTS: NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES Flashcards

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