Transactions Flashcards
Is it necessary for an organization to pay off its accounts payable all at once?
No. Each time a payment is made, Cash (an asset) and Accounts Payable are (a liability) are reduced by corresponding amounts until the Accounts Payable are cleared.
What is accounts payable?
It is a current liability if the amount can be expected to be paid off in the current year.
What is one of accountings central concepts in terms of the fundamental equation?
That the fundamental equation must always balance. The net effect of any transaction on the fundamental equation must be zero. This is also known as double-entry bookkeeping.
What are the two simple questions I can ask myself to answer the effects of different transactions?
- ) Did the organization deliver a good or service? Did it receive a good or service?
- ) Did the organization make a payment? Did it receive a payment?
What are the effects of revenues and expenses on net assets?
- Revenues increase net assets
- Expenses decrease net assets
Can an organization have a high operating margin and a low total margin?
Yes, but the operating margin should always be high.
Fundamental Equation of Accounting
Assets = Liabilities + Net Assets
What are the bases of accounting?
- ) Cash Basis
- ) Accrual Basis of Accounting
- ) Modified Accrual
Accrual Basis of Accounting
=
Modified Accrual Basis of Accounting
=
Assets
=
Liabilities
=
Net Assets =
Net Assets = Revenues - Expenses
Liquidity (Mathmatically)
Current Assets > Current Assets
Solvency
= Long Term Assets > Long Term Liabilities
In-Kind revenues are…
a core part of many non-profits’ financial operation, they’re also difficult to measure and sometimes contentious.
Are marketable securities the same as short-term investments?
Yes.
What are the statements used to analyze Non-Profits?
- ) Financial Position
- ) Activities
- ) Functional Expenses
- ) Cash Flows
- ) Notes
Statement of Financial Position
=
Statement of Activities
=
Statements of Functional Expenses
=
Statements of Cash Flows
?
For a Non Profit, how would you measure growth of net assets?
By looking at the Net Asset Growth Ratio (NAG)
Profit / (Net Assets)
Do liquidity and solvency affect each other?
Yes, liquidity and solvency are interrelated.
What does profitability affect?
Profitability affects both liquidity and solvency.
Debt Service =
Decrease Cash, an Asset then = Principal (Reduces a liability) + Interest (Expense which decreases net assets)
Overall, debt service is an expenditure.
“Committed to Providing” signals…
Increase pledges receivable
Paying off principal means…
paying off long terms debt. Long term debt is a liability.
When you pay off principal then you reduce…
long term debt, which is a liability.
The portion of loan payments for interest is…
an expense and therefore reduces net assets.
Bad Debt causes…
net assets to go down.
When can an entity be profitable but cash poor? (Reading the Cash Flow Statements)
If the accounts receivable is large because
- ) If other assets go up then cash goes down.
- ) If other assets go down than cash goes up.
- ) If liabilities increase then cash increases.
Change in Cash (For Cash Flow Statement) =
(Change in Liabilities) - (Change in other Assets) + (Change in Net Assets)
Earned income is always…
unrestricted
Liquidity…(long hand)
helps to measure a nonprofit’s ability to continue in operations in the short term
Solvency…(long hand)
- ) Basic definition is whether net assets are positive.
2. ) Represents a prediction of long term viability.
