NFP Accounting

Question 1

Which financial statements are required for not - for - profit organizations?

Answer 1

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Statement of Functional Expense (Volunteer Health Organizations Only)

Question 2

What are the major classifications found on a Statement of Financial Position?

Answer 2

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Assets
Permanently Restricted Assets
Temporarily Restricted Assets

Question 3

What are the major classifications in a Statement of Activities?

Answer 3

Similar to an Income Statement - organization - wide:

Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted

Question 4

What are the characteristics of a Statement of Cash Flows for not - for - profits? What are the major classifications?

Answer 4

Both direct and indirect methods are OK

Operating Activities - Unrestricted Revenues and Unrestricted Expenses

Investing Activities

Financing Activities - Endowments and restricted contributions

Question 5

Which organizations are required to present a Statement of Functional Expenses?

Answer 5

Volunteer Health Organizations

Question 6

Which statements are required for non - governmental hospitals?

Answer 6

Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes

Question 7

Which basis of accounting is used for revenues and net assets?

Answer 7

Accrual basis of accounting is used

Only external parties can restrict the use of assets (permanent or temporary)

Assets earmarked internally by management are still classified as unrestricted

Question 8

What are the characteristics of unrestricted assets or revenue?

Answer 8

No restrictions or conditions placed on entity in order to use the resources

Note: assets earmarked internally by management are still unrestricted

Question 9

When are revenues on contributions recognized?

Answer 9

Revenues on contributions are recognized in the year received - not the year the contribution is spent and are recorded at Fair Value on the date received

Question 10

When are services rendered considered contributions?

Answer 10

If the organization would have otherwise paid for them

or

They increase the value of a non - monetary asset

Question 11

Is hospital charity care revenue?

Answer 11

NO.

It is disclosed in the notes to the financial statements only.

Question 12

How are unconditional pledges to contribute recorded?

Answer 12

Classified as revenue in the current year only - multi - year future contributions fall under Temporarily Restricted.

Question 13

Which revenues are expenses deducted from?

Answer 13

Expenses ONLY deducted from Unrestricted Revenues - not Temporary or Permanently Restricted Revenues/Assets

Question 14

What are the characteristics of temporarily restricted assets/revenue?

Answer 14

Use is restricted to a future time - which could then convert to unrestricted - Class: Temp. Restricted Revenue

Unrestricted contributions promised (including multi - year contributions) - but not yet received are actually restricted by time and are therefore classified as Temporarily Restricted Assets - Multi - year contributions are recorded at the present value of the future contributions

Question 15

What are the characteristics of an endowment?

Answer 15

Use of investment is restricted - but income from investment could be either restricted or unrestricted

Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets

Otherwise - a memo entry is recorded

Question 16

When is the donation of an art collection recognized as a contribution or asset?

Answer 16

Not recognized as assets or contribution revenue if they are held of display or education’ or their sale results in the purchase of similar items

Question 17

When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first?

Answer 17

Temporarily restricted assets are used before Unrestricted assets.

Question 18

How is a refundable advance recorded by a not for profit?

Answer 18

Classified as a Liability

Promise to contribute assets pending on certain conditions being met

Becomes unconditional once the possibility that it won’t happen is remote

Question 19

How are investments recorded and valued in not - for - profit accounting?

Answer 19

Fair Value is mostly used

Exception - Equity method used when significant influence exists

Question 20

How are scholarships recorded?

Answer 20

As a reduction of revenue - netted against college’s tuition

Question 21

How is depreciation expense recorded by a not - for - profit?

Answer 21

Depreciation expense is allocated proportionately to various functions

Question 22

Expense Categories

Answer 22

The expense categories used by not-for-profit organizations generally fall under two main headings: program services and support services. Program services relate to functional expenses directly related to the mission of the organization. Support services summarize the functional expenses related to general and administrative costs, costs of membership development, and fundraising. Fundraising contemplates inducing potential donors to contribute to the entity. Membership activities involve seeking prospective members, ensuring current member satisfaction, etc. The $10,000 cost incurred to maintain a donor list for contributions is the only fundraising expense listed.

Soliciting prospective members is a membership development expense, not fundraising. Membership brochure costs are membership development. Soliciting membership dues are an administrative collection function.

Question 23

Famous, a non-governmental not-for-profit art museum, has elected not to capitalize its donated permanent collections. In Year 1, a bronze statue was stolen. The statue was not recovered and insurance proceeds of $35,000 were paid to Famous in Year 2. This transaction would be reported in:

Answer 23

Investing activities in the statement of cash flows should include proceeds from the sale of long lived assets or insurance proceeds associated with the loss of long lived assets. Entities that do not capitalize their permanent collections display insurance proceeds from lost, stolen or damaged items on the statement of activities in an appropriate change in net asset classification separate from revenues, expenses, gains, and losses.

Question 24

Some facts on Contributions

Answer 24

Contributions to a non-profit include transactions which are unconditional (not requiring a future event to occur), non-reciprocal, voluntary, and not of an ownership investment. Contribution revenue for Year 1 includes the $2,000 to be used for meals and the $500 payment above the FMV of the subscriptions. The $10,000 contribution requires a future event to take place (completion of the playroom) and is, thus, conditional and not included in contributions. Conditional receipts are displayed as refundable advances (a liability).

Question 25

Where does the following show on the SFC: Cash contributions of $200,000 to be restricted to acquisition of property.

Answer 25

increases in financing activities

Question 26

When should donated services be recognized:

Answer 26

Donated services are recognized if the services received either (1) create or enhance non-financial assets, or (2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Both of these conditions are met. The roofer’s specialized skills were needed to repair the roof that would have been repaired otherwise.

Expense $ XXX
Contributions $ XXX

Question 27

The Jones family lost its home in a fire. On December 25, Year 1, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit organization, to purchase furniture for the Jones family. During January Year 2, Amer purchased this furniture for the Jones family. How should Amer report the receipt of the money in its Year 1 financial statements?

Answer 27

The Amer Benevolent Society received a donation from a philanthropist for the benefit of a specific beneficiary and the Amer Benevolent Society has no variance power (discretion) relative to the use of the contribution. Receipt of this cash is not a contribution received, it is a liability.

Question 28

Which of the following normally would be included in other operating revenues of a hospital?

Answer 28

The three most generally used revenue classifications for a hospital are patient services revenues, other operating revenues, and non-operating revenues. Other operating revenues are those generated by operations other than patient services. Revenues from educational programs would be classified as other operating revenues. Non-operating revenues represent incidental earnings not related to the ongoing and central operations of the hospital. Unrestricted gifts would be classified as non-operating revenues.

Question 29

Classification for Expenses

Answer 29

The three functional classifications for expenses incurred by a non-profit organization are: program services, management and general costs, and fund-raising and other supporting services. When common costs are incurred, they should be allocated to the appropriate classifications. Since Cancer Educators’ $10,000 common costs were for program functions and fund-raising functions, the costs should be allocated to those two classifications only.

Question 30

Which fund may account for a university’s internally designated fund, the income from which will be used for a specified purpose?

Answer 30

Quasi-endowment funds account for assets that have been internally designated by the institution for a specific purpose. Quasi-endowment funds would be displayed as unrestricted net assets on externally published financial statements.

Other Funds:
Endowment funds are funds for which outside donors have stipulated that the principal is to be maintained intact in perpetuity. Endowment funds would be reported externally as permanently restricted net assets.

Term endowment funds are funds for which outside donors have stipulated that the principal is to be maintained intact for a specified term or until the happening of some event. Term endowment funds would be reported externally as temporarily restricted net assets.

The restricted current fund accounts for current assets that are outside donor-restricted for a specific purpose. Restricted current funds are externally reported as temporarily restricted net assets.

Question 31

What amount should be classified as fund-raising costs in the society’s activity statement?

Answer 31

Unsolicited merchandise sent to encourage contributions

Fund-raising expenses are incurred to induce contributions. Of the expenses listed, only the unsolicited merchandise sent to encourage contributions qualifies as fundraising. The printing of the annual report and the cost of an audit would be reported under Supporting services-management and general expenses.

Question 32

In addition to the statement of activities, which of the following financial statements should not-for-profit hospitals prepare?

Answer 32

The required financial statements for a not-for-profit hospital are a balance sheet, a statement of activities, and a statement of cash flows.

Question 33

In the balance sheet of a not-for-profit hospital, marketable equity securities should be reported at

Answer 33

Fair value with gains and losses reported in the statement of activities

Marketable equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the statement of financial position. Gains and losses on investments are reported in the statement of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or law.

Question 34

A nongovernmental not-for-profit organization borrowed $5,000, which it used to purchase a truck. In which section of the organization’s statement of cash flows should the transaction be reported?

Answer 34

In cash inflow from financing activities and cash outflow from investing activities.

Question 35

Donated Services

Answer 35

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 non-financial asset.

•
They require specialized skills that the provider possesses and would otherwise have been purchased by the organization

Question 36

Statement of Functional Expenses

Answer 36

The statement of functional expenses is required for voluntary health and welfare organizations but is optional for all others. The best example of a voluntary health and welfare organization of the three choices given is a shelter for the homeless, the organization that likely receives most of its operating income from general donations and is organized to improve the overall health and welfare of a specific segment of society.