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
---------------
        Unrestricted Assets 
        Permanently Restricted Assets
        Temporarily Restricted Assets

Question 3

What are the 4 required elements in a Statement of Activities?

Answer 3

Change in total net assets
Change in unrestricted net assets
Change in temporarily restricted net assets
Change in permanently restricted net assets

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 a not-for-profit 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 cash contributions recognized?

Answer 9

Revenues on cash 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

Is hospital charity care revenue?

Answer 10

NO.

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

Question 11

How are unconditional, conditional, and multi-year pledges to contribute recorded?

Answer 11

Unconditional - Recorded at FV when received

Conditional - Recognition occurs when future event occurs (when condition is met)

Multi-Year - Recorded at Net PV at the date the pledge is made, with future collections considered temporarily restricted (by time)

Question 12

Which revenues are expenses deducted from?

Answer 12

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

Question 13

What are the characteristics of temporarily restricted assets/revenue?

Answer 13

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 14

What are the characteristics of an endowment?

Answer 14

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 15

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

Answer 15

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 16

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

Answer 16

Temporarily restricted assets are used before Unrestricted assets.

Question 17

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

Answer 17

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 18

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

Answer 18

Fair Value is mostly used

Exception - Equity method used when significant influence exists

Question 19

How are scholarships recorded?

Answer 19

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

Question 20

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

Answer 20

Depreciation expense is allocated proportionately to various functions

Question 21

Name the functional classification of expenses commonly used in not-for-profit organizations

Answer 21

• Program Expenses (Education, research,etc - expenses that carry out the entity’s mission)
• Support Expenses ( Fundraising expenses; Management and General)

Question 22

When are donated services allowed to be recognized as revenue and expenses for a not-for-profit organization?

How are they recorded (at what value)?

Answer 22

The service must meet the following:

• Specialized skill was required to deliver the service
• The service would have been purchased instead
• Can be measured easily

Recorded as revenue at FV on date of receipt

Question 23

How are debt securities recorded for a Not-For-Profit?

Answer 23

All debt securities are recorded at FV

Question 24

For a university, identify common unrestricted revenues

Answer 24

Student tuition and fees, at gross
Gov’t aid, grants
Gifts and private grants
Endowment income

Question 25

How is patient service revenue recorded?

Answer 25

Recorded on the gross basis using established rates.

Provisions for contractual adjustments and discounts are then deducted to arrive at net service revenue

The allowance for uncollectibles is treated as an expense for the period during which the services are provided.

Question 26

What type of investments can a not-for-profit entity pool to maximize their gains? What does the entity have to do if they pool these investments?

Answer 26

Not-for-profit entities can pool “restricted” investments only

They must allocate gains or losses from investments on a pro rata basis based on the market value of the original investments in the pool.

Question 27

What are the main differences between a cash flow for a for-profit vs. vot-for-profit entity?

Answer 27

Not-For- Profit entities Cash Flows:

a. The indirect method of reporting cash flows from operating activities reconciles the change in net assets (rather than net income) to cash flows from operating activities.
b. Cash flows for contributions and investment earnings that are restricted for either plant or endowment purposes are reported as financing activities.

Question 28

What is the difference between restricted contributions and conditional promises?

When can each be recognized?

Answer 28

Restricted contributions - can only be used to fund specific activities per the donor’s stipulations. They are recognized as revenue when received or promised. They are recognized as temporarily restricted revenue until used.

Conditional Promises - not recognized as revenue until all conditions are met

Question 29

A not-for-profit entity received $1,500 for subscriptions to a monthly child care magazine with a fair market value to subscribers of $1,000 - how is this transaction recognized?

Answer 29

$1,000 = payment for subscription
$500 =    (excess over FV) contribution revenue

Remember: contribution revenue is reduced by the FV of the consideration given by the donor