NFP

Question 1

How many financial stmts the NFP org need to prepare?

What are they?

What volunteering Heath and wealth org need to prepare additionally

Answer 1

1. Three
2. Financial stmt is financial position (BS)

Financial stmt of activities (IS)

Financial stmt of CF

3. For VHW org: stmt of functional expense

Question 2

What is included in financials of financial position?

Answer 2

Assets = same as normal FS. (Including restricted for investment) 
Liability = same as normal FS (including grant payable, refundable advances, annuity obligation) 

Other parts of the asset and liabilities the same as the for profit BS.

Net assets ( donor restricted ONLY) 
1) Unrestricted net asset -available to use (include the amount set by board)

2) Temp Restricted (purpose and time imposed) - donated by outside party and restricted to specific purpose ( interest from endowment)
3) Permanently restricted- donated by outside party principle is restricted, interest earnings might be restricted or unrestricted

Question 3

Categories of NFP

How many and what are they?

What accounting method it is using?

Answer 3

These categories follow FASB

1. Hospital and other health care entity (including for profit and not for profit), Exception: public (gov’t run) health care (GASB)
2. College and university edu orgs (including private)
   Exception: community college and state run (GASB)
3. VHWOs - promote research and edu in social and health related issues that might offer free of low cost service, receive find from donation or grant.
4. Other NFP (museum, unions, environmental action groups, churches)

Fully accrual accounting measures economic resource measurement focus.

Question 4

NFP financial stmt of financial activities items

How many sections and what are they?

Answer 4

Four

Changes in unrestricted assets

1) revenues and Gains (all unrestricted)
2) net assets released from restriction
3) expense and losses ( all unrestricted)
4) chances in net assets (=change in temp and perm)

Increase or decrease in net assets (=increase in unrestricted net assets +/- increase / decrease in temp NA +-increase /decrease of perm NA )

NA at beg
NA at end
Beg balance of net assets

Question 5

How many categories NFP expense can be grouped?

Answer 5

Programming expense
Expand spend to further the org’s mission (such as research, outreach, clinical care, edu)

Supporting expense

1) Mgmt and general -admin expense
2) fund raising - adv. and promotion and mailing all fund raising activities)

CPA question: what expense belong to what category**

Question 6

Net assets released from restriction, what kind of restrictions are there and what is the CPA Q in this area?

Answer 6

1. Satisfying program restriction - resource spent on intended purpose ( always recognize an expense)
2. Assets acquisition restriction - resource spent for intended assets acquisitions purpose (always increase assets)
3. Time restriction - time and event for the restriction had occurred

CPA Q to consider: effect on expense and assets account (restricted or unrestricted )

Question 7

Stmt of CF for NFP

Categories

What method to use?

Answer 7

Identical to for-profit

1. Cf from operating activities (all unrestricted revenues and expenses for operating, or revenue restricts for program restriction, including grants to other org)

Ie ( contribution receivable, refundable advances, grants payable, contribution restricted for LT invmt, net realized and unrealized gain/loss on LT invest and other normal items)

2. Cf from investing activities
   Same as normal cf
3. Cf from financing activities
   1) **contribution and investment restricted for long term purpose (acquisition of capital assets，endowment)

Ie (payment of …, investment and dividend restricted for investment …)

2) other financing activities including debt proceeds,repayment, lease payment, debt financing)

Question 8

When is Stmt of functional expense used?

What are included?

Answer 8

CPA Q: functional expense stmt is only required by VHWOs, but this recommended for all NFP org.

Include categories of program service and supporting service on top horizontally

All expense items vertically in the left side of the stmt record
Total expense before deprecation
+ depreciation expense
= total expense
- expense directly deducted from revenue
= total expense report by function (horizontal items)

Question 9

Issues: What is inexhaustible assets? How to record it?

Answer 9

Like art works, culture treasures, historical documents and property

All subject to special rule,
They care categorized as collections or Collectibles

Criterions need to meet as Collection: 1) held for public view, 2) protected and preserved 3) if sold, the proceeds has to use for acquire other collectibles **

Not capitalized when this type of assets are donated, no record of the transaction,
But if sold, no need to report on face of FS, but do need to disclose it! **

Question 10

Issues: How is NFP counts its investments, where to record the investment G/L?

Answer 10

NFP investment is treated as the same as for profit business, all record at FV.

The chances of investment is recognized in stmt is activities as unrealized G/L during the period.

Differences: NFP not break down debt securities into those common categories and NFP always record debt securities at FV! **

Question 11

Issues:Endowments

What is regular endowment?

What are other endowments?

Answer 11

Regular endowment is the permanent endowment that has earnings that can be non- expendable or expendable restricted.

The other types can be
1. quasi-endowment - amount set aside by board rather than outside party, principle must be retained, can only spend the earnings from the endowment. **

2. Term endowment - gifts and bequests that has to be invested or retained until certain event happen,classified as temp restricted asset.
3. Board designated fund- dubs can be spent for specific purpose and the principle can be spent. Classified as unrestricted net assets that he designated for …**

CPA Q: be careful on the distinguish meant of number one and three.

Question 12

Jeep to report endowment earnings?

Answer 12

Report as endowment income or investment income on the ACCRUAL basis: can be report as these three categories:
1) if no restriction, report as unrestricted

2) if have to spent on special purpose, temp restricted
3) If income can’t be spent, report as permanent restricted NA

Question 13

Donations and pledges and contribution

How to recognize contribution?

And what are the revenue classifications?

Answer 13

All unconditional contributions are recognized as contribution revenue, no matter it is cash or not.

Conditional contribution if the condition has met, recognized as revenue, if not, as contribution receivable. Classified as temp restricted.

Classification:
1. Unrestricted: resources are available for any purpose and at any time.

2. Temp restriction: can be spent in the current period, but have to meet some condition or event happens (program restricted, or capital restriction, or time restriction)
3. Permanently restricted ( must be made by external party): resource is not allowed to spend and classified as endowments

Question 14

What is the revenue restricted by board of directors (internal restriction), is it classified as temp or unrestricted?

Answer 14

ALWAY unrestricted! **

Question 15

Pledges

What is pledge?

How to record conditional and unconditional pledges and pleaded over multiple periods?

Answer 15

Pledge is the promise to contribute

Conditional:

Question 16

Pledges JE

Answer 16

Year 1:
At first year when receive the first pledge payment
Cash actual value received
P/R. Xx at rest amount
Contribution - unrestricted (amt received)
Contribution - temp restricted (PV of left amt)
Discount on PR. Discount amt when calculating PV

12/31/01
when recalculating the PV, if PV is higher than recorded, that means discount previously recorded need to be reversed from temp restricted

Year 2:
Receive pledge again, increase cash, decrease PR, and transfer contribution from temp restricted to unrestricted for the amt received. NOT the PV Amt

Year two end: recalculate PV again, same treatment as year one end.

Year 3 when all are received: the total revenue record is PV of originally received + PV adjustment 1 and 2.

Question 17

**Donated service and its accounting treatment

Highly tested in CPA

Answer 17

Donated service has to meet certain condition to be recognized as revenue

1) non financial assets are enhanced
2) special skill donated by the person possess that skill that would otherwise be purchased

JE: dr. Assets or expense
CR . contribution revenue

If donated building record at FV at date of donation, usually unrestricted assets
Dr building at FV
CR. Contribution revenue

Donated special skill service (i.e. Research)

If given service valued has a standard charge, and FV, ALWAYS record as FV

Dr. Research expense.
CR. Contribution revenue

Donate normal service
Not recognized

Question 18

Contribution held to distribute to a beneficiary

Answer 18

Donor donate to recipient for specific beneficiary, the org is act as agent, no revenue should be recognized, the assets

Question 19

Health Care Orgs ( HCO)

Hospital modify overall format of stmt of activities include what sections? What are they?

Answer 19

Operating and non operating sections

Operating revenue
-operating expenses
= operating income

+/- non operating G/L
= change in net assets

+ beg balance net assets
= end net assets

Operating sections

+Net patient service revenue
- provision for bad debt
= net patient service revenue

+ other operating revenues
+ premium revenue (capital fees)
= total operating revenue

Question 20

What is Patient service revenue and what are included?

** CPAQ: understand where revenues belong to, categories like PSR and other revenues (such as individuals donations, tuition from classes offered, cafeteria sales, gift shops, etc)

Answer 20

1. Patient charges directly related to patient room charge, doctors fees, medicines and medical supplies, etc.

Ancillary revenues are also included in PR that are related to radiology, X-Rays, etc.

Charity care - only disclose in note,NOT part of the PSR

Record the gross amt of PSR

Gross PSR
- charity service
= PSR

• contractual adj. (discount given)
  = net PSR

-bad debt (FASB require bad debt provision record)

= net PSR less bad debt

+ premium revenue
+ other revenue (not directly related to patient care, but related to the main operation do hospital)
= total revenue

Question 21

Non- operating revenues and gains include what?

Answer 21

Unrestricted cash and bequest donations ( mostly donated services) and unrestricted investment earnings (Including endowment income)

Donated materials: record as
Dr. assets or expense
Cr. Other operating revenues

If service was donated is the same criterion recognition as normal NFP.

Question 22

Formate for stmt of health care entity

Answer 22

Starts with

Net PSR
- provision for bad debt
= net PSR less bad debt

\+ premium revenue 
\+ other operating revenues
= total operating revenues 
- operating expense 
= income from operations

+/- non operating G/L
( unrestricted contribution, donated service, endowment income)
= total non operating G/L

= change in net assets
+ beg net assets
= end net assets

Question 23

Reporting for government HCO

What funds to report it?

What accounting stds to following?

What are the stmts required?

Answer 23

Report in proprietary funds using GASB

Stmt of net position

Stmt of rev, exp. And changes in net position

Stmt of CF (four types of CF categories)

Question 24

Government run College and universities

What stmts are required?

Answer 24

All follow GASB

Stmt of cf

Stmt of net position ( net investment in capital assets, restricted and unrestricted assets)

Stmt of revenue, expense and change in net position

Question 25

NFP financial stmts required

Answer 25

Follow FASB

Stmt of cf

Stmt of net position ( unrestricted, temp restricted and restricted)

Stmt of activities

Question 26

What are included in private college stmt of activities?

Answer 26

Revenue, gains and other supports
1. Tuitions and fees: Government grants and contracts, gifts and investment income

2. Auxiliary enterprise: other revenue and release from restriction

Expenditure

1. Edu general (instruct and research)
2. Scholarships and fellowships ( academic support, student service, institutional support, plant operation)
3. Auxiliary enterprise

= change in net assets
Net assets at beg of year

Question 27

What to be aware on tuition revenues?

Answer 27

Reports at net of scholarship allowances and uncollectible amt.

Scholarship allowance is stated tuition - payments made

Scholarship: amt paid by college directly for students

Tuition waiver: report as an expense for college

Tuition refund: deducted from student tuition and fees because it’s a refund due to students didn’t take the classes.

Tuition for academic period is two fiscal periods that need to report in two fiscal years affected.