F6 - M3 - Non for profit revenue rec

Question 1

What are the attributes of contributions?

Answer 1

Can be cash, service, or other asset

Unconditional - No strings attached

Must be a transfer of cash and/ other assets - Collection must be certain, you know you will get the cash.

Title must pass - Asset is going from current owner to new owner

Must be voluntary - No obligation to donate, has to be voluntary.

Must be nonreciprocal - The donor gets nothing in exchange.

Question 2

What can unconditional contributions be reported as?

Answer 2

Reported as either an increase to net assets without donor restrictions; or

Donor restrictions support in the period received.

Can be recognized as an asset, reduction of a liability, or an expense, depending on the form of the benefits received.

Question 3

What are conditional contributions, how is that different from restricted donations?

Answer 3

Conditional contributions, you have not recognized the money yet. They are dependent on the non profit performing some action to get that money. Say, if the donor said, if you help these children find homes, I will give you 50,000 dollars. Unless you help those kids, you are not getting the money.

Under restricted, you got the money, you just have to use them for a specific purpose, but they cannot take it back. That is the big difference.

Question 4

What are some other barriers that can indicate a condition?

Answer 4

Specific level of service

Specific outputs or outcomes

Matching

Outside event

Question 5

Donations that are non cash are measured at what for contributions?

Answer 5

Fair Value

Question 6

What is a pledge, what is a conditional and unconditional pledge?

Answer 6

A pledge is a promise to contribute.

Unconditional - This is when someone says they will give a certain amount of money, in the next however many days. No strings attached, this is an unconditional pledge.

Conditional pledge - This is a pledge that depends on some future event occurring.

Question 7

Let’s say that a company gives a conditional promise for a certain amount of money, and to prove they are not bluffing, they give a portion right away. How would the journal entry look like for this?

Answer 7

So if they conditionally pledge 100,000 and they give 10,000 upfront, that 10,000 they can pull back and say, you know what, we don’t want to do this anymore, give it back. Under a conditional pledge, they have the right. For that reason, they would want to record a liability when they get the money, since they customer can take it back. The entry is as follows:

DR: Cash

CR: Refundable advance

Question 8

What are multi-year pledges, and how do they work?

Answer 8

Multi year pledges are pledges where the donor, says they will pay the pledge but they will pay in installments. They pledge 50,000, and they will give 10,000 per year for the next five years.

This amount will be restricted since there is a time condition met on these, and they will need to be discounted for time value of money. You will calculate the present value, and the current amount collected will be contribution revenue.

Question 9

What is the placed in service approach, and how does this work?

Answer 9

This approach is when someone donates a building to a non profit and there is a restrictions, see the two examples below:

If someone donates a building and says to the donee, you can use the buidling for whatever you want, that is unrestricted donation.

If the donor says, you have to use the building for this purpose, and if you do not, we will give the building to the city, then the donee will capitalize the building, and record a restricted net asset. If they used the building for the intended use, then they will depreciate out of restricted net assets and record a depreciation expense.

Question 10

What is a split interest agreement?

Answer 10

Where the non profit splits some of the benefits with another beneficiary. It is split.

These are restricted net assets since the beneficiary normally gets the benefits first, and then the non profit gets what is left.

Question 11

How are donated services recognized by non profits?

Answer 11

Because services are hard to measure you normally do not, but there are exceptions where this will be needed. The acronym SOME helps with this.

S - Specialized skill is required and possessed by the donor - Such as legal and accounting.

O - Otherwise needed by the organization - This is a service that the organization needed, not something that was provided to them but they did not need.

M - Measure the amount that was provided

E - Easily, we can measure it some what easily.

Question 12

If SOME is met, what is the entry for the donated service?

Answer 12

DR: Expense or asset

CR: Contributions - without donor restrictions

Question 13

When donated collection items are received by the non profit, that is not required to be recorded if what conditions are met?

Answer 13

1.) The item has to be part of a collection which is held for:

Public viewing

Exhibition

Education

Research

2.) Has to be cared for, preserved, someone is taking care of it.

3.) The organization has a policy that requires that any proceeds from the sale of the donated items to be;

reinvested in other items

Used to support the existing collections.

Question 14

What happens if you don’t meet the requirements to not record a collection? Can you pick and choose what you want to record?

Answer 14

You would debit the asset, and credit contribution revenue.

No, if your policy is to capitalize all the donations then you have to do it to all. You cannot pick which ones you want to cap, and which ones you want to leave off your books.

Question 15

When someone donates materials, should that be recorded?

Answer 15

It depends, if the items is not material in terms of value then no, but if it is significant then yes.

You would just need to be able to measure the value of the asset, and debit the asset, and credit contribution revenue.

Question 16

If the materials that were donated are going to be passed through to a beneficary, do you need to record that? What does that mean?

Answer 16

For example, someone donates lumber to a non profit, and the non profit is going to give that lumber to someone else to build a home. In that case, you would not need to record anything, unless it is very significant, and high in value. If it is, you would record the entry below.

DR: Expense
CR: Contribtuion rev

The reason it is an expense instead of an asset, is due to the fact that you do not own the asset, you are just passing it through.

Question 17

What is the process if donated materials are sold by the non profit at greater than fair value?

Answer 17

The non profit would then record the amount received in excess as additional contribution.

Think about a place like goodwill. You donate your clothes and they sell them. If they sell it for greater than fair value, then they would have to record an additional contribution.

Question 18

For donations that have a time restriction, how are those recorded and are they restricted?

Answer 18

If someone promises to pay in a future date, than those contributions would be restricted, since they have a time element to them.

If they are going to get them in less than one year, then we use the NBV.

If they are going to get after one year, then we would want to use discount rate to calculate the present value.

Question 19

What is the entry for pledges that are made to the non profit?

Answer 19

DR: Pledge receivable - with donor restrictions

CR: Allowance for doubtful accounts

CR: Contributions - with donor restriction

Remember, pledges they agree to pay at a future date so they are restricted. Also the allowance is netted with contributions which is different compared to for profits. For profit accounting, you record bad debt expense.

Question 20

What is the journal entry when you collect on the pledge receivable?

Answer 20

Here is the comprehensive list, but the entry at the bottom is what is occurring. This entry is just trying to show how the accounts move between accounts.

DR: Cash - with donor restriction
CR: Pledge receivable - with donor restriction
DR: Satisfaction of time restriction - with donor restriction
CR: Cash - with donor restriction

DR: Cash - without donor restriction
CR: Satisfaction of time restriction - with donor restriction

What is happening is:

DR: Cash - without donor restriction
CR: Pledge receivable - with donor restriction

Question 21

If a pledge has a restriction on it, now you have a time restriction and a performance restriction. What is the journal entry to when the money is spent on the restricted purprose?

Answer 21

When the receivable is collected and the money is spent on the restricted purpose, here is the simplified entry.

DR: Operating Exp
CR: Cash - with donor restrictions.

Question 22

For fundraising, how is the contribution revenue recorded if the non profit gives the donor some premium for donating? For example, they give a pen if you donate 50 dollars to their fundraiser?

Answer 22

You net the cost of the premium amount with the contribution received. So the entry would look like this.

Total contribution received - fair value of premium = Contribution revenue.

Question 23

What is an exchange transaction for non profits?

Answer 23

This is when a non profit gets some compensation for services they perform. This is more like for profit entities.

Revenues are recognized when earned, and increase to net assets without donor restrictions.

Question 24

For education institutions, what is reduced from tuition and fees income to get gross revenue from tuition and fees?

Answer 24

Assessed student tuition and fees

• Canceled classes

= Gross revenue from tuition and fees

Question 25

For health care organizations, what are the two ways bad debts can be treated? When would you use one over the other?

Answer 25

Operating expense - This is when a health care organization anticipates earning money from a patient, but at the end of the day, the patient didn’t pay and the health care organization was not able to collect. This is treated as bad debt like for profits. A separate expense on the statement of activities.

Deduction from revenue - This is when the health care organization, never really looked at collectability, or expected to obtain that amount. This would be netted with revenue.

Question 26

What is the formula you can use to calculate patient service revenue?

Answer 26

Gross patient revenue - Charitable services = Patient service revenue