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FAR > Not-For-Profit (F7 M3-M6) > Flashcards

Not-For-Profit (F7 M3-M6) Flashcards

1
Q

Characteristics

A
  • Defined by codification 958
  • revenues come from contribution
  • operating purpose does not include profit
  • ownership interests are unlike businesses
  • used by healthcare organizations, education institutions, voluntary health and welfare organizations (red cross) =, other private not for profit (cemetery, labor unions, museums)
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2
Q

Not for profit financial statement information

A

users want to know:

  • services provided
  • organizations ability to provide services
  • method used to discharge their responsibility

USES FULL ACCRUAL

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3
Q

Required financial statements

A
  • Statement of financial position (BS)
  • Statement of activities (IS)
  • Statement of Cash flows
  • Statement of functional expenses (for voluntary health and welfare organizations)
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4
Q

Statement of Financial Position

A
  • Balance Sheet
  • Assets, liabilities, and net assets (equity)

Net assets classified as either:

  1. unrestricted: may be expended at discretion of governing boards.
  2. temporarily restricted: have donor imposed stipulations which either expire by passage of time or can be fulfilled by actions.
  3. permanently restricted: limited by donor-imposed stipulations that never expire or satisfied by actions
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5
Q

Unrestricted net assets

A
  • not permanently or temporarily restricted

- internal board designated funds are considered restricted

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6
Q

Temporarily restricted

A
  • should not be displayed as a deficit
  • any over-expenditure of temporarily restricted net assets should be classified as a reduction of unrestricted net assets
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7
Q

Statement of Activities

A

-Income statement

reports:

  • revenues and expenses (shown gross)
  • gains/losses (shown net)
  • reclassification between classes
  • change in net assets = net income
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8
Q

Reclassification of Restrictions on Statement of Activities

A
  • Contributions with donor-imposed restrictions are recognized as either temporarily or permanently restricted net assets in year received
  • when it is satisfied, reclassified to to unrestricted. “released”
  • restrictions that are met within the same period as received may be recorded as unrestricted
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9
Q

Expense classification on Statement of Activities

A

-all expenses are reported as decrease in UNRESTRICTED net assets

categorized as:

  1. program service: program expense for activities which organization is chartered (universities=education/research ; union=labor negotiations/training)
  2. support service: everything not classified as program service (fundraising, management exp, membership development)
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10
Q

Statement of Cash flows

A

-Typically the same as commercial statements of cash flows.

OPERATING

  • applicable agency transactions
  • receipt of unrestricted resources
  • board designated revenue

INVESTING

  • proceeds from sale/purchase of works of art
  • proceeds from sale of assets whose sale proceeds were restricted to investment in equipment

FINANCING

  • includes restricted contributions whose use is limited to long-term purposes (increases in an endowment, annuity agreement)
  • disbursement in split-interest agreement
  • receipt of dividends/interest restricted to reinvestment
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11
Q

Statement of Functional Expense

A

-required for voluntary health and welfare organizations

INCLUDES

  • program services
  • support services

-must agree to expenses on statement of activities (IS)

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12
Q

Revenue from exchange transaction

A
  • recognized when realized and earned
  • earns resources for service performed
    ex: student tuitions, patient service revenue
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13
Q

Cash Contributions - Revenue Recognition

A
  • Contribution: unconditional transfer of cash which is voluntary and nonreciprocal
  • cash contributions recognized as revenue when received
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14
Q

Unconditional pledge Contributions - Revenue Recognition

A
  • recorded at FV when promise is made

- verbal or written

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15
Q

Conditional pledge Contribution - Revenue Recognition

A
  • Conditional promises: recognized when earned.
  • NOT synonymous with restriction. conditions are not satisfied by use of resources
  • good faith deposits are accounted for as a refundable advance (liability)

Dr. Cash
Cr. Refundable advance

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16
Q

Multi-Year Pledge Contribution - Revenue Recognition

A
  • recorded at NPV at date pledge is made

- future collections are considered temporarily restricted revenue and net assets (time)

17
Q

Split interest agreement

A
  • receives benefits shared with other beneficiaries
  • measured at FV
  • estimated based on PV o future distributions
  • displayed as temporarily restricted
18
Q

Donated Services

A

recorded as contribution AND expense at FV if:

  • specialized skills is required
  • needed by organization
  • easily measurable

Dr. Expense
Cr. Contributions - unrestricted

19
Q

Donated Collection Items

A

-includes works of art or historical treasures

NOT required if it meets all requirements:

  • part of collection held for public viewing (not investment or financial gain)
  • collection is cared for by organization
  • organization has policy that requires proceeds from the sale to be reinvested in other collection items

if not met then record as asset and revenue

20
Q

Donated materials

A

if significant, record at FV
Dr. Asset
Cr. Contribution - Support

If amount of material passes through organization to ultimate beneficiary (goodwill clothes) then don’t record. UNLESS SIGNIFICANT:
Dr. expense
Cr. Unrestricted contributions

21
Q

Gifts in kind

A
  • noncash distributions (investments)
  • recognize at FV when received
  • gain on sale is accounted for as an additional contribution
22
Q

Unconditional promise - revenue recognition

A

-reported at PV as restricted support (time restriction)

23
Q

Restricted contributions JE

A

Dr. Pledge receivable - temporarily restricted
Cr. Allowance for doubtful accounts
Cr. Contributions - temporarily restricted net assets

-After money is spent on restricted purpose:
Dr. reclassification - satisfaction of restriction
Cr. Restricted net assets

Dr. Unrestricted net assets
Cr. Reclassification - satisfaction of restriction
Dr. Operating expense
Cr. Unrestricted net assets

24
Q

Education institutions - revenue

A
  • revenue = increase in unrestricted net assets and all restricted resources expended during period
  • scholarships/tuitions waivers are considered as an expenditure of allowance REDUCING revenue

assessed student tuition and fees - canceled classes = gross revenue (unrestricted net assets)

25
Q

Health care organization - revenue

A
  1. patient service revenue
  2. other operating revenue
  3. nonoperating revenue and support gains and losses
26
Q

Patient Service Revenue

A
  • accrual basis at standard rates
  • charity care: services provided but never expected to result in cash flows should not be accounted as revenue

deductions from patient service revenue:

  • contractual adjustments for third party payments
  • policy discounts
  • administrative adjustments
  • bad debts associated with services billed prior to assessment of patient’s ability to pay
  • revenue paid periodically (monthly)
27
Q

Bad debt recognition for health care orgs

A

ONE OF TWO WAYS:

  1. operating expense if the failure to collect was anticipating
  2. deduction from revenue if failure was unexpected/never assessed by healthcare
28
Q

Other operating revenue

A 
tuition from schools
donated supplies
specific purpose grants
cafeteria revenue
parking fees
29
Q

Nonoperating revenue and Support gains and losses

A

unrestricted interest and dividend income
unrestricted grants
DONATED SERVICES

30
Q

Financially interrelated

A
  1. one org has ability to influence operating and financial decisions
  2. one org has ongoing economic interest
31
Q

Recipient Accounting: NOT financially interrelated, WITHOUT variance power

A
  • acts as agent
  • no benefit and no power
  • assets are recorded at FV
  • records as a LIABILITY and not a contribution if any are met:
    1. resource provider can change beneficiary
    2. provider’s asset transfer is conditional
    3. provider controls recipient org and specifies an unaffiliated beneficiary
    4. provider specifies itself as the beneficiary

Dr. Asset (FV)
Cr. Refundable advance liability

32
Q

Recipient Accounting: NOT financially interrelated, WITH variance power

A
  • acts as agent
  • no benefit but has power
  • assets are valued at FV
  • assets are recognized as contribution and expensed when distributed to beneficiary

Dr. Asset
Cr. Contribution

33
Q

Recipient Accounting: financially interrelated, WITH or WITHOUT variance power

A
  • assets are valued at FV

- assets are recognized as contribution and expensed when distributed to beneficiary

34
Q

Beneficiary accounting: Financially interrelated

A

Dr. Interest in recipient net assets

Cr. Change in interest in recipient net assets

35
Q

G/L of investment

A
  • recognized as increase/decrease in unrestricted net assets unless restricted
  • losses on permanently restricted net assets first reduce temp restricted net assets to the extent of temp restricted gain. any remaining loss reduces unrestricted (like OCI)

FAR (15 decks)

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