Not-for-Profit (CH. 9)

Question 1

What basis of accounting is used for Not-for-Profit organizations?

Answer 1

Uses FASB & full accrual accounting

Question 2

What are the required Financial Statements for Not-for-Profit Orgs?

Answer 2

Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Statement of Functional Expenses

Question 3

What’s a contribution?

Answer 3

Generally, the difference between the fair value of purchases and the amount transferred is classified as a contribution

Question 4

When are cash contributions and unconditional pledges recognized as revenue?

Answer 4

Cash contributions and unconditional pledges are recognized as contribution revenue in the year in which the cash or pledge is received.

Question 5

How are losses on the investments of a donor restricted endowment fund treated?

Answer 5

Generally, losses on the investments of a donor-restricted endowment fund (permanently restricted net assets for external reporting purposes) serve to reduce temporarily restricted net assets to the extent that donor-imposed temporary restrictions on net appreciation (cumulative losses minus gains) of the fund have not been met before the loss occurs. Any remaining loss reduces unrestricted net asset

Question 6

What are the required finically statements for Not-for-Profit entities?

Answer 6

Rule: Not-for-profit corporations are required to produce the following financial statements:

Statement of Financial Position
Statement of Activities
Statement of Cash Flows

Not-for-profit corporations are generally encouraged, but not required, to produce a Statement of Functional Expenses. Voluntary Health and Welfare organizations, a subset of all not-for-profit entities, are required to present a Statement of Functional Expenses.

Question 7

How are board discretionary funds treated?

Answer 7

As unrestricted revenue

Question 8

How are donated/ contributed services treated?

Answer 8

Contributed services are unrestricted. To be restricted, the donation must be restricted by the donors, creditors, grantors or laws or regulations.

Question 9

How are unconditional promises treated?

Answer 9

A promise to contribute is restricted until conditions (collection) or eligibility requirements (date, etc.) have been satisfied.

Question 10

What are the criteria for recognizing donated services?

SOME

Answer 10

The services creates or enhances non financial assets or:

• Specialized skill was required to deliver the service
• Otherwise needed service (would’ve been purchased by the org. Anyways)
• Measured Easily

Question 11

When are restricted donations released from restriction?

Answer 11

Restricted donations are released from restriction when conditions or eligibility requirements have been satisfied.

Question 12

When are not-for-profit organizations considered interrelated organizations?

Answer 12

In order for not-for-profit organizations to be financially interrelated as defined by FASB ASC 958-605, their relationship must share both characteristics: one organization must be able to influence the operating and financial decisions of the other AND have an ongoing economic interest in the net assets of the other.

Question 13

How is donated property recognized?

Answer 13

Donated property is recorded at its fair market value and is recognized as support.

Question 14

What are the expense categories used by not for profit entities?

Answer 14

program services and support services

Question 15

What are program services?

Answer 15

Program services relate to functional expenses directly related to the mission of the organization

Question 16

What are support services?

Answer 16

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.

Question 17

What are examples of contributions to not-for-profit organizations?

Answer 17

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.

Question 18

How are conditional transactions treated in not-for-profit orgs?

Answer 18

conditional and not included in contributions. Conditional receipts are displayed as refundable advances (a liability).

Question 19

What are quasi-endowment funds?

Answer 19

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.

Question 20

How are donated goods treated?

Answer 20

Donated goods are recorded on the books of a not-for-profit organization. Goods that represent part of the ongoing central operations of the entity are reported as other operating revenue and ultimately operating expenses

Question 21

What are the 3 functional classifications for expenses incurred by a nonprofit organization?

Answer 21

Program services, management and general cost, and supporting services (i.e fundraising)

Question 22

How are donations/contribution of services recorded by not-for-profit organizations?

Answer 22

Contributions of services are recognized as earnings if (1) the service creates or enhances non-financial assets and (2) if the service require special skills and was delivered by a person having those skills, (3)Otherwise needed service would be purchased by the organization anyways, (4)Measured easily

Question 23

What is the journal entry for donated services?

Answer 23

Dr. Expense

Cr. Contributions

Question 24

What are the 3 most generally used revenue classifications for a hospital?

Answer 24

Patient service revenue (ie. patient services & other rev.)

Other operating revenue (ie. tuition form schools, educational programs, donated supplies & equipment, and specific purpose grants)

Non-operating revenue (ie. gains and or/losses including unrestricted interest and dividend income from investment activities, unrestricted grants, donated services, etc)

Question 25

How does non-profits record depreciation?

Answer 25

Non-profits record depreciation on fixed assets. Depreciation is reported as an element of expense in the organization’s statement of activities.

Question 26

What does guidance included in FASB ASC 958, Financial Statements for Not-for-Profits Organizations focus on?

Answer 26

Primarily focuses on basic information for the organization as a whole

Question 27

What are the required financial statements for a not-for-profit hospital?

Answer 27

balance sheet,

a statement of activities,

a statement of cash flows.

Question 28

How do you calculate net assets?

Answer 28

assets minus - liabilities (including deferred revenues).

Deferred revenues are not a component of net assets and would be included in the liability total

Question 29

How are marketable securities recorded?

Answer 29

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.

Recorded at balance sheet date