FAR 1B2 SoA Flashcards
💰 How is a promise to contribute next year classified in the current year?
✅ Restricted contribution revenue
✅ Recognized immediately upon receipt of the promise
✅ Measured at net realizable value (NRV) if expected to be collected within a year
⚖️ How should contributed legal or outside services be classified?
✅ Unrestricted revenue
✅ Must be expensed at the same time
🎓 What are primary/program services in an NFP?
✅ Expenses directly related to the primary mission
✅ Examples: Education, research, healthcare
🏛️ What are supporting services in an NFP?
✅ Expenses not directly related to the mission
✅ Examples: Management & general expenses, fundraising costs
📈 What does “Changes in Net Assets” include?
✅ Original donation
✅ Increases from investment income
✅ Net appreciation of investments
✅ Less maintenance costs
🛠️ When are donated services recorded as revenue?
1️⃣ Create or enhance nonfinancial assets
2️⃣ Require specialized skills and are provided by professionals (e.g., doctors, accountants, engineers)
❌ Other donated services are NOT recognized
📑 Disclosure of non-recognized donated services is encouraged but not required
Is netting allowed for major ongoing NFP activities?
❌ No, netting revenues and expenditures from fundraising is not allowed
🔄 What is the difference between contribution revenue and exchange transactions?
✅ Contribution revenue: No direct value received in return
✅ Exchange transactions: Member dues that include services must be partially deducted from contribution revenue
📅 What is restricted support in an NFP?
✅ Pledged contributions for a specific purpose in future years
✅ If used in the current year, it is unrestricted support
📊 How are investment gains and losses recorded in an NFP?
✅ As unrestricted revenue, unless the donor specifies restrictions on the principal investment
📏 How should contribution revenues be measured?
✅ Present value (PV) or net realizable value (NRV) if collected within a year
🏦 How are grants to other organizations classified?
✅ As an expense in the statement of activities
📉 How are expenses reported in an NFP
✅ As decreases in net assets without donor restrictions
🎁 How are donated supplies recorded in an NFP?
✅ Initially as an asset
✅ Expensed at fair value as they are consumed
📜 When are unconditional promises recorded?
✅ In the period they are promised or received, whichever is earlier
✅ Timing of cash receipts (installments) does NOT affect recognition
🔄 What are split-interest agreements?
✅ Trusts where resources are shared with another beneficiary
🏦 What are the five types of split-interest agreements?
1️⃣ Perpetual trusts held by third parties
2️⃣ Charitable gift annuities
3️⃣ Charitable lead trusts
4️⃣ Pooled income funds
5️⃣ Charitable remainder trusts
⚖️ What defines a governmental entity?
✅ Bodies corporate and politic
✅ Entities with tax-levying power
🏛️ Are nongovernmental not-for-profits subject to federal taxation?
✅ No, they are tax-exempt
🔎 What are the three conditions for an NFP to classify joint activities outside of fundraising?
1️⃣ The activity serves a program function or management purpose
2️⃣ The audience was chosen based on criteria other than ability to donate
3️⃣ The activity motivates action beyond just contributing
🏗️ Must nongovernmental NFPs depreciate fixed assets?
✅ Yes, all fixed assets must be depreciated, except for land
🎁 How are donated assets recorded?
✅ At fair value on the donation date
📊 How must NFP expenses be reported?
✅ As changes in net assets without donor restrictions
When are conditional promises recognized as revenue?
✅ Only when all conditions are met
💰 When are contributions recognized as revenue in an NFP?
✅ In the period in which the unconditional promise to give is received
❌ Timing of cash collection does NOT affect recognition
🔄 Does the distinction between restricted and unrestricted pledges impact revenue recognition?
❌ No, both are recognized in full when the unconditional promise is made
✅ The distinction only impacts net assets (equity) in the financial statements
🔒 What is an example of restricted support?
✅ Contributions designated by donors for use next year to support operations
🏛️ What are the two expense categories in an NFP Statement of Activities?
✅ Program Services: Directly related to the mission
✅ Support Services: Administrative or fundraising-related
❌ No other categories exist
🎓 What are examples of Program Services expenses?
✅ Education (school, museum)
✅ Research (scientific foundation)
✅ Healthcare services (hospital)
✅ Environmental programs (conservation group)
✅ Food distribution (food bank)
🏦 What are examples of Support Services expenses?
✅ Fundraising (development, donor relations)
✅ Management & General (executive salaries, accounting, HR, office expenses)
✅ Administrative expenses (legal fees, board meetings, audit costs, insurance)
🔄 Examples of Program vs. Support Services
✅ Salaries:
Teacher’s salary in a nonprofit school → Program Service
CEO’s salary in a nonprofit school → Support Service (Management & General)
✅ Facility Costs:
Classroom rent for a nonprofit school → Program Service
Headquarters office rent → Support Service (Management & General)
✅ Marketing & Events:
Educational campaign about public health (if the NFP’s mission is public health awareness) → Program Service
Fundraising gala for donors → Support Service (Fundraising)
🏗️ How does depreciation impact an NFP’s financials?
✅ Reduces net assets (instead of net income like in for-profits)
📊 How is net income reported in an NFP?
✅ It is classified as “Net Assets”
✅ Divided into two categories: with donor restrictions & without donor restrictions
📝 How does the Statement of Activities (SoA) compare to a for-profit income statement?
✅ NFPs do not report net income; they report changes in net assets
✅ The SoA is split into two sections: Revenue & Expenses (with and without donor restrictions)
✅ Essentially, it is two full P&Ls in one statement
📉 How are expenses, including depreciation, classified in the SoA?
✅ Always reported under net assets without donor restrictions
💰 How are contribution revenues (support) recognized?
✅ Reported in the period they are unconditionally promised or received, whichever is earlier
📏 How are revenues measured in an NFP?
✅ At present value (PV) or net realizable value (NRV) for contributions expected to be received within a year
🔄 What does a change in net assets with donor restrictions include?
✅ Original donation
✅ Investment income & appreciation that is donor-restricted
✅ Decreases from resources spent for the restricted purpose
🏢 How do businesses classify contributions made to an NFP?
✅ As an expense of the period
✅ NFPs recognize expenses the same way, so contributions are treated as an expense
How should a nongovernmental NFP report donated supplies & services?
Donated services are recorded as revenue & expense if they:
✅ Create/enhance a nonfinancial asset 🏗️
✅ Require specialized skills that would otherwise need to be purchased 🎓⚖️
Consumed donated supplies are recorded as an expense 🏥📦
How is total expense calculated?
✅ Total Expenditures + Recognized Donated Services + Consumed Donated Supplies
📊 Example Calculation:
$630,000 (incurred expenses) + $40,000 (legal services) + $15,000 (supplies) = $685,000 total expenses
