F6 NFP Accounting and Governmental Accounting Flashcards
What is endowment?
An endowment is a gift to a nonprofit organization to be used for a specific purpose. The term endowment is also used to refer to the total investable assets of a nonprofit institution like a university.
What does in-kind contribution to NFP mean?
How they are recorded?
In-kind donations include any and all non-monetary donations to nonprofits or causes. They refer to the transfer of any assets, usually goods or services, to your organization from an individual, company, or other nonprofit.
In-kind contributions are recorded at fair market value.
Revenue sources of NFP’s
Contributions
Grants
Service Fees
Fundraising events
Investment income
Donor restrictions various proof
Donor letters
Grant agreements
Other communications
Report expenses for NFP entities.
There are three primary ways to report these expenses:
1.Statement of Activities
2.Notes to the financial statements
3.or in a separate Statement of Functional Expenses
Functional expenses
They are divided into three main categories:
1.Program services (expenses directly related to the mission of the NFP)
2.Management and general (administrative expenses)
3.Fundraising
NFP’s Cash Inflows from Operating Activities
-Contributions and Donations
-Membership Dues
-Service Revenue
-Fundraising Event Receipts
-Grant Income
-Interest income or dividend income from investments
NFP’s Cash Outflows from Operating Activities
-Salaries & Wages
-Operating Expenses
-Payment to Suppliers
-Professional Fees
-Insurance Premiums
-Program Expenses
-Fundraising Expenses
-Grants and Aid Disbursed
Primary emphasis in accounting and reporting for governmental funds
The measurement focus prescribed by GASB standards for all governmental funds is the “flow of current financial resources” focus which measures sources, uses, and balances of current financial resources.
Nongovernmental not-for-profit organizations are required following external financial statements?
-Statement of financial position
-Statement of activities
-Statement of cash flows
Measurement at fair value
Donated securities are recorded at fair value when received. Contributions are measured at their fair value at the time of the gift; the securities are measured at fair value.
How NFP’s report investments in its financial statements?
NFP organizations report investments in debt securities and those equity securities that have readily determinable fair values at fair value in the statement of financial position with gains and losses reported in the statement of activities.
Donated services in NFP’s
Donated services should be booked as both an expense and as contribution revenue at fair value as long as the services create/enhance a nonfinancial asset or require specialized skills that the provider possesses that would otherwise have to be purchased by the organization. Given that the roofer in this example was a professional who fixed the roof at no cost, the roof repairs should be booked as an increase (debit) to expense and an increase (credit) to contributions from donated services (contributions—nonoperating revenue).
Donated shares for NFP
Donated shares of stock are measured at their fair value on the date of donation.
Modified basis of accounting
The CAPITAL PROJECTS fund uses the modified accrual basis of accounting. The capital projects fund is a GRaSPP fund which uses the modified accrual basis of accounting. Proprietary funds (SE) and fiduciary funds (CIPPOE) use the full accrual basis of accounting.
Accrual basis of accounting
Proprietary and fiduciary funds (SE CIPPOE) use the accrual basis of accounting in combination with the economic resources measurement focus to measure and present transactions.
Note: Enterprise funds are proprietary funds.
Which governmental unit uses the modified accrual basis of accounting?
Special revenue funds are governmental funds, which use the modified accrual basis of accounting.
For governmental fund types, which item is considered the primary measurement focus?
Current financial resources
Permanent fund
The permanent fund uses the same basis of accounting as the special revenue funds. Both the permanent fund and the special revenue fund are governmental funds (GRaSPP), that use modified accrual accounting (revenues are recorded when measurable and available).
Governmental Activities
Modified Accrual
Financial Resources Management Focus:
(GRaSPP)
General
Special Revenue
Debt Service
Capital Projects
Permanent
Proprietary
Accrual
Economic Resources Management Focus:
(SE)
Internal Service
Enterprise
Fiduciary
Accrual
Economic Resources Management Focus:
(CIPPOE)
-Custodial
-Investment Trust
-Private Purpose Trust
Pension and Other Employee Benefit Trust
Types of Governmental Funds
The 5 types of governmental funds are:
1)General Fund
2)Special Revenue Funds
3)Debt Service Funds
4)Capital Projects Funds
5)Permanent Funds
Agency transaction in not-for-profit
Funds received by a not-for-profit entity with a requirement to remit them to specified beneficiaries are recorded as an agency transaction, not as contribution revenue.
What is BEQUEST?
Bequests are gifts made as part of a will or trust and are one of the most popular and flexible ways to support the causes that are important to you and your family. A bequest can be to a person or a trust, or it can be a charitable bequest to a nonprofit organization such as the CDC Foundation.
Fund Structure
Governmental funds (GRaSPP):
- General
- Special Revenue
- Debt Service
- Capital Projects
Proprietary funds (SE):
- Internal Service
- Enterprise
Fiduciary funds (CIPPIOE):
- Custodial
- Investment
- Private Purpose
- Pension and Other Employment Benefit
Donated services
Donated services should be recorded as contribution revenue and expense at fair value if the services meet the following criteria:
-They create or enhance a nonfinancial asset.
-They require specialized skills that the provider possesses and would otherwise have been purchased by the organization.
Contributed services are, therefore, only recognized SOME of the time: when the service is Specialized, Otherwise needed, and Measured Easily.
Unconditional pledges that will be collected over more than one year
Reported as pledges receivable, valued at their present value.
Program service expenses
Program service expenses include charges associated with the activities for which the organization is chartered. Teacher salaries, for an educational organization, would be a program expense.
Not-for-profit organizations to be financially interrelated
Their relationship must share both characteristics: one organization must be able to influence the operating and financial decisions of the other and have an ongoing economic interest in the net assets of the other.
Net Assets
The net assets balance of the NFP equals its assets minus its liabilities (including deferred revenues).
Three primary ways to report expenses in nongovernmental, NFP entities.
1)Statement of Activities
2)Notes to the financial statements
3)Separate Statement of Functional Expenses
Functional Expenses in nongovernmental, NFP entities.
1)Program services (expenses directly related to the mission of NFP)
2)Management and general (Administrative expenses)
3)Fundraising
Cash Inflows from Operating Activities for nongovernmental, NFP entity.
- Contributions and Donations
- Membership Dues
- Service Revenue
- Fundraising Event Receipts
- Grant Income
- Investment Income
Cash Outflows from Operating Activities for nongovernmental, NFP entity.
- Salaries and Wages
- Operating Expenses
- Payment to Suppliers
- Professional Fees
- Insurance Premiums
- Program Expenses
- Fundraising Expenses
- Grants and Aid Disbursed
Cash Inflows from Investing Activities for nongovernmental, NFP entity.
- Sale of Investments
- Sale of PPE
- Receipts from Maturities of Investments
- Interest and Dividends Received
Cash Outflow from Investing Activities for nongovernmental, NFP entity.
- Purchase of Investments
- Capital Expenditures
- Loans Made to Others
- Payments for Construction or Improvement
Cash Inflows from Financing Activities for nongovernmental, NFP entity.
- Receipts from Long-Term Debt
- Contributions Restricted for Long-Term Purposes
- Proceeds from Issuance of Bonds or Similar Debt Instruments
- Endowment Contributions
Cash Outflows from Financing Activities for nongovernmental, NFP entity.
- Repayments of Long-Term Debt
- Payments for Lease Obligations
Notes to the Financial Statements for nongovernmental, NFP entity.
- Nature of Activities and Organization
- Summary of Significant Accounting Policies
- Donor Restrictions on Net Assets
- Information about Liquidity and Available of Resources
- Investment Policies and Strategies
- Fair Value Measurements
- Endowment Funds
- Expenses
- Commitments and Contingencies
- Related-Party Transactions
- Subsequent Events
- Accounting Changes and Error Corrections
- Tax Status
State and local government in US use two accounting principles
- Fund Accounting
- Government-wide financial statements
Accounting for Fund Reporting
Measurement Focus: Current Financial Resources Measurement Focus
Basis of Accounting: Modified Accrual Basis of Accounting
Accounting for Government-Wide Reporting
Measurement Focus: Economic Resources Measurement Focus
Basis of Accounting: Full Accrual Basis of Accounting
Primary fund types for State and Local Governments in the US
- Governmental Funds:
- General Funds
- Special Revenue Funds
- Debt Service Funds
- Capital Projects Funds
Basis of Accounting: Modified Accrual Basis
Measurement Focus: Current Financial Resources
- Proprietary Funds:
- Enterprise Funds
- Internal Service Funds
Basis of Accounting: Full Accrual Basis
Measurement Focus: Economic Resources
- Fiduciary Funds:
- Pension Trust Funds
- Investment Trust Funds
- Private-Purpose Trust Funds
- Custodial Funds
Basis of Accounting: Full Accrual Basis
Measurement Focus: Economic Resources
Functional expense categories for a nongovernmental not-for-profit organization are
Program Services
Support services
A nongovernmental not-for-profit organization should report depreciation expense in its statement of activities
It should be included as a decrease in net assets without donor restrictions.
A nongovernmental, not-for-profit organization received the donations of corporate stock during the year. What net value of investments will the organization report at the end of the year?
The corporate stock is equity that has a readily determinable fair value. As such, it should be measured at fair value at the year-end statement of financial position.
Supporting Activities in a non-government not-for-profit organization are treated as
Supporting activities generally include fundraising, administrative services, and membership development expenses.
Which of the following is the paramount objective of financial reporting by state and local governments?
Accountability
Governments do not measure net income or increase in wealth as businesses do, but are focused on providing efficient and effective delivery of services with public resources.
In the preparation of the statement of activities for a nongovernmental not-for-profit organization, all expenses are reported as decreases in which of the following net asset classes?
Net assets without donor restrictions
The required financial statements for a not-for-profit hospital are attached
Balance Sheet
Statement of Activities
Statement of Cash Flows
Conditions are associated with pledges or receipts provided to a not-for-profit organization in the event that there is (are):
Conditions are defined as measurable performance-related barriers or other barriers. These barriers are relative to either a promise to give or a donation received that are further associated with the donorʹs right to require a return of the donation from the recipient or right to rescind the promise to give. Both the barrier and right of return must exist to represent a condition. The existence of conditions relative to donation preclude the recognition of revenue for not-for-profit organizations.
The purpose of a statement of financial position for a nongovernmental not-for-profit entity is to provide relevant information about:
The assets, liabilities, and net assets, and about their relationships to one another at a moment in time.
The primary purpose of a not-for-profit organization’s statement of activities is to provide relevant information to its:
Resource providers
Which expenses should be reported as support services?
The expenses of not-for-profit organizations are typically classified within generic functions as either program or support services. Program services relate to the mission or service delivery objectives of the organization, whereas support services relate to costs that indirectly support the organization’s mission such as general and administrative costs, fundraising, membership development, etc.
At which of the following amounts should a nongovernmental not-for-profit organization report investments in debt securities?
Quoted market prices
How should a nongovernmental not-for-profit organization report depreciation expense in its statement of activities?
It should be included as a decrease in net assets without donor restrictions.
Financial statements that every non-profit organization is required to prepare
Statement of financial position
Statement of activities
Statemwnt of cash flows
Statement of functional expenses
