Not-for-profit (nonbusiness)

Question 1

FABS SFAC 4 Objectives of Financial Reporting by Nonbusiness Organizations, observes 3 major distinguishing characteristics of non business organizations. What are they?

Answer 1

1. receipts of significant amounts of resources from resource providers who do not expect to receive either repayment or economic benefits proportionate to resources provided
2. operating purposes other than providing goods or services at a profit or profit equivalent
3. absence of defined ownership interests that cab be sold, transferred, or redeemed or that convey entitlement to a share of a residual distribution or resourced in the event of liquidation of the organization

Question 2

SFAC 4 states the 2 greatest dissimilarities between business and nonbusiness organizations arise in how they obtain resources. How do business enterprises obtain resources?

Answer 2

attempt to provide services and/or sell goods at prices that enable them to compensate all the parties providing resources, including owners. I.E. generate a profit

Question 3

SFAC 4 states the 2 greatest dissimilarities between business and nonbusiness organizations arise in how they obtain resources. How do nonbusiness enterprises obtain resources?

Answer 3

significant portion of their resources from donors, grantors, members, taxpayers and others who do not expect to receive an economic benefit proportional to the resources provided. Resources are often provided for charitable, humanitarian, religious or cultural reasons. Consists of volunteer work, contributed services and materials as well as money

Question 4

Nonbusiness organizations are not subject to direct competition and have no single indicator of performance such as profit, net income. What 2 performance indicators are used for nonbusiness organizations?

Answer 4

1. nature and relationship between inflows and outflows or resources
2. service efforts and accomplishments

Question 5

What are the 3 primary financial statements required for nongovernmental, nonprofit entities?

Answer 5

1. statement of position
2. statement of activities
3. statement of cash flow

Question 6

SFAC 4 indicates that financial reporting by nonbusiness organizations should provide useful information to present and potential resource providers and meet 7 objectives. What are these objectives?

Answer 6

1. provide useful information to present and potential resource providers and other users in making rational decisions about the allocation of resources to those organizations
2. to help assess the services that the organization provides and the ability to continue to provide those services
3. assessing how managers have discharged their stewardship responsibilities and about other aspects of their performance
4. information about the economic resources, obligations, and net resources and the effects of transactions, events and circumstances that change resources and interests in those resources
5. performance during a period
6. how it spends its cash or other liquid resources and about its borrowings
7. include explanations and interpretations to help users understand the financial information provided