Module 22 Flashcards
(27 cards)
How are assets divided for Not-for-profit entities?
Net assets are divided into three classes; unrestricted, temporarily restricted, and permanently restricted. Fund classifications are not reported, unless the information can be shown as subdivisions of three major classes. To be restricted, resources must be restricted by donors or grantors; internally designated resources are unrestricted. Only contributed resources may be restricted.
How are permanently restricted resources treated?
They are include (1) certain assets, such as artwork, that must be maintained or used in a certain way, (2) endowments, which represent resources that must be invested permanently with income to be used fore either restricted or unrestricted purposes, and (3) land, when the land must be held in perpetuity.
What are temporarily restricted resources?
They are unexpended resources that are to be used for a particular purpose, at a time in the future, or are to be invested for a period of time (A term endowment). Temporarily restricted resources might also be used for the acquisition or receipt of a gift of plant and would represent the un-depreciated amount. As the plan is depreciated the amount depreciated would be reclassified from temporary restricted net assets to unrestricted net assets and shown as a deduction from unrestricted revenues, gains, and other support on the statement of activities. Alternatively, plant may be initially recorded as unrestricted.
What are unrestricted resources?
these include all other resources including unrestricted contributions, the net amount from providing services, unrestricted income from investments, etc. Resources are presumed to be unrestricted, unless evidence exists that donor-imposed restrictions exist. As mentioned above undepreciated plant may be included a unrestricted or temporarily restricted.
What are the statements required for Not-For-Profit entities?
1) Statement of Financial Position
2) Statement of Activities,
3) Statement of Cash Flows.
Note disclosures
Voluntary health and welfare organizations are required to report a statement of functional expenses
What does the statement of financial position report?
It reports assets, liabilities, and net assets. Organization-wide totals must be provided for assets, liabilities and net assets, and net assets must be broken down between unrestricted, temporarily restricted, and permanently restricted.
What does the statement of activities report?
The statement of activities reports revenues, expenses, gains, losses, and reclassification (Between classes of net assets). Organization wide totals must be provided. Separate revenues, expenses, gains, losses, and reclassification for each class may or may not be reported, but the changes in net assets for each class must be reported.
How are Revenues, expenses and gains reported?
Revenues, expenses, gains, and losses are reported on the full accrual basis. A Revenue is presumed to be unrestricted unless donor-imposed restrictions apply, either permanent or temporary. A presumption is made, in the absence of contrary information, that a given expense would be restricted resources first, rather than unrestricted resources. Revenues and expense should be reported at gross amounts; gains and losses are often reported net. Investment gains and losses may be reported net.
How are contributions recorded?
Unconditional contributions are to be recorded as assets (contributions receivable) and as revenues (contribution revenue) However, a donor-imposed condition causes a not-for-profit organization to not recognize either a receivable or a revenue. A donor-imposed condition specifies a future or uncertain event whose occurrence or failure to occur gives the promisor a right of return of the assets transferred or releases the promisor from its obligation to transfer the asset promised.
How are Multiyear contributions reported?
Multiyear contributions receivable would be recorded at the present value of the future collections. Moneys to be collected in future ears would be presumed to be temporarily restricted revenues (based on time collections) and then reclassified in the year of receipt. The difference between the previously recorded temporarily restricted revenue at present value amounts and the current value would be recorded as contribution revenue, not interest. All contributions are to be recorded at fair market value as of the date of the contributon.
How are contributions treated in comparison to exchange revenues.?
The Not-for-Profit guide indicates criteria that indicate when an increase in net assets is a contribution and when it is the exchange revenue; the most important rule is that if nothing is given by the not-for-profit organization in exchange in a transaction, that important rule is that if nothing is given by the not-for-profit organization in exchange in a transaction, that transaction would be considered a contribution. Contributions are recognized as addition to any of the net asset classifications. Exchange revenues are increases in unrestricted net assets and are recognized in accordance with GAAP as applied to business enterprises.
How are Not-For-Profit who are intermediaries records treated?
The intermediary or agent would not recognize a contribution , Unless the intermediary or agent not-for-profit organization is granted variance power to redirect the resources, or unless it is financially interrelated, the receipt of resources would be offset with the recognition of a liability to the recipient organization. If variance power exists the recipient organization would recognize contribution revenue
Accounting standards also require that the recipient organization recognize a revenue when the intermediary or agent recognizes a liability. When the intermediary or agent and the beneficiary are financially interrelated, the intermediary or agent would recognize contribution revenue; The beneficiary would recognize its interest in the net assets of the intermediary or agent.
How are expenses recorded for non profits?
They are to be reported by function either in the statement or in the notes. The fasb does no prescribe functional classifications but does describe functions as program and supporting. Major program classifications should be shown. Supporting activities include management and general, fund raising, and membership development. Other classifications may be included, such as operating income, but are not required except for health care entities. All expenses are reported as decreases in unrestricted net assets.
How is plant recoreded for non profits?
Plant is recorded either as temporarily restricted or unrestricted, and depreciated. Depreciation is to be charged for exhaustible fixed assets.
What are “Collections” and what is the proper treatment for them in Not-For-Profit Accounting?
Collections are works of art, historical treasures, and similar assets that are capitalized unless they meet all of the following conditions:
1) They are held for public exhibition, education, or research in furtherance of public service rather than financial gain
2) They are protected, kept encumbered, cared for, and preserved
3) They are subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.
If not capitalized, revenues would not be recognized for donated collections. Extensive note disclosure regarding accession, disposal, etc are required.
How are investment is deby securities treated?
Investments in debt and equity securities that have readily determinable air values (except equity securities accounted for under the equity method and investments in consolidated subsidiaries) are to be reported at fair value in the statement of net assets. Unlike accounting standards for business enterprises, all unrealized gains and losses are to be reflected in the statement of activities along with realized gains and losses, in the approproate net asset class.
How are contributed services treated?
Contributed Services, when recognized, are recognized as both revenue and expense. However, contributed services should be recognized only when the services (1) create or enhance non-financial assets, or (2) require specialized skills, are provided by individuals possessing those skills, and would typically be purchased if not provided by donation.
How are expenses reported?
All expenses are reported as unrestricted. Expenses using resources that are temporarily restricted, including depreciation of plan, would be matched by a reclassification of resource from temporarily restricted to unrestricted net assets.
What is the reclassification category for not-for-profit accounting?
for the statement of activities the reclassification’s, or “net assets released from restrictions” These generally include (1) satisfaction of program restrictions ( a purpose restricting by a donor), (2) satisfaction of equipment acquisition restrictions (depreciation of assets classified as temporarily restricted), (3) satisfaction of time restriction (donor actual or implied restriction as to when funds be used), and (4) expiration of term endowment.
What does the Cash Flow statement look like for not-for-profits?
They are required, The three FASB categories (operating, investing, and financing) are to be used. Either the direct or indirect method can be used. The indirect method, or reconciliation schedule for the direct method, will reconcile the change in total net asset to the net cash used by operating activities. Restricted contributions for long-term purposes are reported as financing activities.
What note disclosures are required?
required for all items required for GAAP that are relevant to non profits. In addition the following is required
1) policy disclosures related to choices related to restricted contributions received and expended in the same period, and to the recording of plant as temporarily restricted and unrestricted
2) more detailed information regarding the nature of temporarily and permanently restricted resources.
What are split-interest agreements?
they represent arrangements whereby both a donor (or beneficiary_ and a not-for-profit organization receive benefits, often at different times in a multi-year arrangement.
The general rule is that the not-for-profit will record revenues in an amount equal to the present value of the anticipated receipts.
How is fund-raising treated?
FASB requires that fund-raising expense be reported either on the face of the financial statements, or in the notes When an activity, such as a mailing, might involve fund-raising and either progrom or management and general activities, it is presumed to be fund-raising unless all three criteria exist
1) PURPOSE - The activity has more than one purpose, as evidenced by whether compensation or fees for performing the activity are based strictly on the amount raised or on the performance of some program and/or management and general activity
2) AUDIENCE - If the audience is selected on the basis of its likelihood to contribute to the not-for-profit, this criterion is not met.
3) CONTENT - In order for this criterion to be met, the mailing or event must include a call to action other than raising money. For example, a mailing form the american cancer society might call for recipients to have regular check-ups, to exercise, to eat the right kinds of food, etc.
If they don’t meet the three criteria, they are presented as a part of management and general activities.
What are the few differences in private colleges and University’s?
1- Student tuition and fees are reported net of those scholarships and fellowships that are provided no in return for compensation.
2- Student graduate assistant ships and other amounts given as tuition, that are given in return for services provided by the institution are charged as expenses, to the department and function where the services are provided.
3- Operation and maintenance of physical plant is not to be reported as a functional expense. They are to be allocated to other functions
