CPA FAR NFP acctg Flashcards
NFP orgs Ex Red Cross, YMCA, The United Way
revenue is recognized as earned and expenses recognized as incurred
accrual accounting - similar but not eaxctly the same as for profit accounting
no owners and no stockholders
private colleges, hospital, museum, voluntary health and welfare orgs, labor unions, community theaters, day care centers, churches and temples
NFP and fund accounting
*fund accounting is NOT used for external reporting
*FASB rather than GASB
IMPORTANT: NFP required financial statements (3)
statement of activities (similar to I/S rev and exp)
statement of financial position (similar to B/S)
statement of cash flows
NFP not-for-profit accounting - uses net assets
A - L = Net assets
do not use terms equity or net position
In NFP accounting, the balance sheet equation assets minus liabilities=
equals net assets
a non-governmental NFP org statement of activities is similar to
Income statement for a for profit entity
It shows revenues, expenses and changes in net assets (net income)
Which of the following is NOT a required statement that must be reported by a private NFP org?
1. statement of financial position
2. statement of activities and changes in net assets
3. statement of unrestricted assets
4. statement of cash flows
- statement of unrestricted assets
Financial reporting of NFP is based on Net Assets Model
Net assets equals
excess of assets over liabilities
Net assets are classified as
- with donor restrictions
- without donor restrictions
if an external donor places no restriction when making a contribution to NFP = without donor restriction
Donate $100,000 to Nova University (private NFP) and restrict use of funds to building a parking garage =
net assets with restriction (external donor placed restriction)
donate $50,000 to Nova University to be used for general ops
net assets without restriction
Donate $30,000 to YMCA without restriction and immediately Board of Trustees at YMCA place a restriction on the money to be used for athletic equipment = board designated restrictions as
show all board designated restrictions (internal restriction) as
Without restriction
Cad Assoc, NFP org, received cash gift with the stipulation that the principal be held for at least 3 years.
How should the gift be recorded?
Net asset with restriction
time restriction from external donor
$400,000 gift received by Pisces Project, nongovernmental NFP org. Pisces BOD stipulated this gift must be invested for a period of four years with income to be used for general ops. How should the gift be reported?
unrestricted contribution
Only donors can restrict contributions not internal restriction (considered unrestricted)
Internal board designated funds = unrestricted
Only donors can restrict contributions
Internal board designated funds = unrestricted
Donor gives $10,000 to nongovernmental NFP org with instructions that it must be used to fund the org’s general ops expenses during the following fiscal year. The donation will increase the orgs
net assets with restriction
time restriction - external donor
this means a donor provides instructions that the funds can only be used for specified purpose or specified period of time= the funds are restricted until the point at which they are used
NFP college recd a building with no donor stipulations as to its use. What type of assets should be increased when the bldg is recd?
net assets without restriction
NFP playhouse: at YE, theater had assets $6,000,000 and recorded liabilities incl deferred revenues $100,000. How much is the net asset balance?
$4,000,000
net assets = A less L
deferred revenues = not component of net assets; they are a liability from cash collected in advance
YR 6, NFP college recd $600,000 to fund green energy research projects on campus. The donor stipulated that only interest earned on the contribution be used for the projects. Interest = $26,000/year. Net assets with donor restrictions for YR6?
$626,000
$600,000 plus interest income $26,000 = $626,000
$600,000 principal remains in perpetuity
$26,000 temp in nature
Current FY, nongovernmental NFP org recd contributions $100,000 and $15,000 was designated by donors for use in current year. $85,000 designated for next year. What amount should be reported as net assets with restriction for current year?
$85,000 net assets with restriction
no use restriction but there was a time constriction and $85,000 was restricted for use next year
nongovernmental NFP org should report separate dollar amounts for net assets according to which of the following classifications on statement of financial position?
with donor restriction or without donor restriction per FASB
Objectives of NFP financial reporting
- is mgmt performing well it its role as custodian of resources and their efficient and effective use?
- is the org in compliance with legal and contractual obligations?
statement of financial position (B/S)
assets
liabilities
net assets (residual interest)= no owners’ equity
A&L accounted for very much like for profit business
emphasis on org taken as a whole = no single indicator of performance
statement of financial position (B/S): two categories of net assets
-net assets without restriction - no external restriction exists and may be expended at the discretion of the governing body
-net assets with restriction- TIME or USE restriction from external donor as well as net assets restricted into perpetuity (income used and principal retained)
nongovernmental NFP uses which categories when reporting statement if financial position?
assets, liabilities and net assets
Statement of activities (I/S)
performance of the org during the period
required to report how both categories of net assets have changed during the period
Changes: Net assets with donor restriction or net assets without donor restriction
Increases: revenues, contributions, gains
nongovernmental NFP statement of activities is similar to for profit financial statement?
income statement
shows revenues for each fund category (unrestricted, perm restricted and temp restricted)
also, reports expenses and net assets released from restriction
What is the primary purpose of the statement of activities of nongovernmental NFP org?
report changes in net assets for the period (like a net income/loss)
reports revenue, expenses, gains and losses for the period as well as reclassification of net assets for the period
financial statements of a not-for-profit org
1. should focus on basic info for the org taken as a whole
2. should include board designated assets as net assets with restriction
Correct 1. should focus on basic info for the org taken as a whole
board designated assets = without restriction
Which of the following financial statements of NFP entity provides data regarding liquidity as of a specific date?
1. statement of activities
2. statement of cash flows
3. statement of unrestricted assets
4. statement of financial position
- statement of financial position (B/S)
liquidity = ability to meet current obligations as they become due
Revenues vs other support
revenue results from ongoing operations of the NFP org. Revenues are where the NFP earns resources in exchange for service performed.
Ex fees paid to enter theater or museum or college tuition or hospital patient care
charging patients for medical care at NFP hospital or charging visitors to park
Revenue from ongoing activities is always without restriction
Other support
typically represents donated resources
donation, contributions may be without restriction or with restriction (fees are always without restriction)
Contributions
are reported as increases in net assets without restriction unless the use of the assets is limited by donor imposed restriction
contributions may be without restriction or they may be with donor imposed restriction
Regarding NFP entity, which is correct?
1. Contribution support results from earnings from exchange transactions
2. fees or revenue includes donation which may be with or without restriction
Neither
earnings from exchange transaction = revenue not contribution
contributions to NFP include transactions which can be with or without restrictions
fees always without restriction
which of the following resources increases net assets with restriction on nongovernmental NFP voluntary health and welfare org?
1. donor contributions to fund a resident camp program
2. membership fees to fund general ops
Correct 1. donor contributions to fund a resident camp program (donor imposed restriction)
membership fees likely net assets without restriction
NFP recv $1,000,000 restricted by donor
different types of donor-imposed restrictions?
1. support for a particular operating activity
2. use in specific period
3. acquisition of long-lived assets
4. investment for a specified term
All!!
NFP: expenses
expenses not expenditures are always applied to net assets without restriction
depreciation is an expense
NFP: which is correct?
1. revenue from exchange transactions and expenses are reported as net assets without restriction unless restricted by the resource provider
2. support from contributions may be with or without restriction
Correct: 2. support from contributions may be with or without restriction (look to donor)
revenue from exchange transactions = always reported without restriction
Operating expenses for nongovernmental NFP org reported as:
decrease in net assets without restriction
operating expenses listed by program in statement of activities or listed separately if natural approach is used
program services
all expenses need to be broken down between program services and support
program services expenses include charges assoc with the activities for which the org is chartered
expenses- program
program expenses: core purpose
University: education and research would be a program expense for the university. Professor salaries and benefits
Hospital: Patient care and education would be a program expense. Doctor and nurse salaries
Union: Labor negotiating and training would be a program expense
Voluntary health and welfare: drug counselor salaries would be a program expense
support expenses
expenses not related to program services are called support services
support services include publicity costs, (membership development) management and general, and fundraising
not assoc with core purpose but support NFP
when reporting expenses by function, a NFP would first divide expense into two main categories, program expense and ?
support
support has three subcategories:
membership development, mgmt and general/admin, and fundraising
all expenses directly related to the org’s mission is referred to as:
program expenses
these are costs that directly relate to the org’s mission
Which of the following would a nongovernmental NFP education institution report as program services?
1. publicity costs
2. management salaries
3. fundraising exp
4. adjunct professor salaries
Correct: 4. adjunct professor salaries
these are support services:
1. publicity costs
2. management salaries
3. fundraising exp
For a NFP entity, which of the following is considered support expense?
1. fundraising expense
2. membership development cost
3. management and gen’l expenses
All!
support = all costs that are not a program expense
program expense for NFP?
1. mileage reimbursement for doc of NFP animal hospital who travels to treat sick animals.
2. employee benefits for PT professors at NFP college
Both!
nongovernmental NFP for research: classify as support services in statement of functional expense?
1. costs of equipment involved in research
2. salaries of staff researchers involved in research
3. salaries of fundraisers for funds used in research
4. costs of laboratory supplies used in research
support: 3. salaries of fundraisers for funds used in research
program (relates to corp’s research mission):
1. costs of equipment involved in research
2. salaries of staff researchers involved in research
4. costs of laboratory supplies used in research
nongovernmental NFP museum balances:
Education $300,000
Fundraising $250,000
Management and general $200,000
Research $50,000
Expenses for program services:
$350,000 (research and education)
education and research relate to the mission of the org
nongovernmental NFP education org:
incurred $10,000 in costs when it combined program functions with fundraising.
Cost allocations in statement of activities?
$6,000 program services
$4,000 fundraising
0 general services
Expenditures for NFP entity:
Printing of annual report $7,000
unsolicited merch to encourage contributions $2,000
what amount should be fundraising costs?
$2,000
printing of annual report is management and general
statement of activities: expenses
all expenses go in without restriction column
unconditional promise (pledge revenue)
is a contribution (pledge) and is recorded as revenue at its fair value when promise is made
may be written or verbal
verbal pledges= should be documented by the org as they may not be as easy to collect as written pledges
which of the following unconditional promises are recorded as revenue when the promise is made:
-written promise
-verbal promise
Both!
DR Pledge receivable
CR Contribution support revenue
conditional pledge
depends on future uncertain event
conditional pledges are not recorded as revenue until conditions have been substantially met o when the possibility that the condition will not be met is considered remote
conditional pledge: earned = revenue
cash recd in advance for conditional pledge
DR Cash
CR Liability-refundable advances
NFP entity: which of the following is considered revenue when the promise is made?
-conditional pledge
-unconditional pledge
-unconditional pledge = considered revenue when promise is made
Private NFP that recd $1,000,000 conditional promises from single source YR 5. When will the donor’s conditional pledge be considered unconditional?
when the possibility that the condition will NOT be met is remote
OR when conditions have been met substantially
Timing of revenue recognition for NFP is based on:
1. whether the promise is conditional or unconditional
2. whether or not the cash or other assets have been received
- whether the promise is conditional or unconditional
unconditional = recognized immediately
conditional = not recognized until condition is met substantially or possibility that condition will not be met is remote
conditional = refundable advance (liability)
conditional pledges are considered unconditional when
1. the possibility that the condition will not be met is remote
2. donor-imposed conditions have been met
Both!
Unrestricted revenue?
1. unconditional promise
2. conditional promise prior to satisfaction of condition
Neither
unconditional does not always equal unrestricted
restricted and unrestricted refer to:
-timing of revenue recognition
-net asset classes
Correct: -net asset classes
For NFP, conditional and unconditional refer to:
1. revenue recognition concept
2. net asset classes
Correct: 1. revenue recognition concept
Multi year pledges
recorded NPV= net present value at the date pledge is made
unconditional pledges collected over more than one year= reported pledges receivable
unconditional pledges collected over more than one year=
reported pledges receivable
discounted to their present value
future year collections of multi year pledges
are considered donor restricted due to time restriction
Recording of pledges
the amounts recorded for pledges are reduced by an allowance for uncollectible pledges similar to commercial accounting-full accrual accounting
the actual donation is not expected within one year, the reported balance should also be discounted to PV
allowance for uncollectible pledges
NFP would not recognize the full amount of the pledges as contribution revenue if some amounts are deemed uncollectible
NFP= no bad debt expense
NFP would recognize contribution revenue based on net realizable value, NRV
Donated services
*general rule = do not record UNLESS
the contributed services require specialized skills like doctors, lawyers, CPAs, electricians, roofers, craftsman = that would need to be purchased if not donated
recorded as exp and revenue
DR Expense
CR nonoperating revenue (unrestricted revenue)
=net zero on statement of activities
donated services: when to record (SOME)
specialized skills required for the contributed services that would need to be purchased if not donated
S-specialized skill
O- otherwise needed by org
M-measurable
E- easily valued
storm damaged roof of NFP, a homeless shelter
One supporter, a roofer, repaired the roof at no charge
statement of activities- repair of roof should be recorded as
increase in both expenses and contributions
recorded as exp and revenue
DR Expense
CR nonoperating revenue (unrestricted revenue)
nets to zero on statement of activities
storm damaged roof of NFP, a homeless shelter
One supporter, a roofer, repaired the roof at no charge
statement of activities- which is correct:
1. if the person who repaired the roof was NOT professional roofer, NFP would report nothing for donated services
2. if supporter who repaired was a professional roofer, NFP would report an increase in both revenue and expense
Both!
not professional = no recording
if professional = yes, record
NFP, religious org
storm broke glass windows
member of org, professional glazier= replaced windows at N/C
In the statement of activities:
be reported as both an increase in revenues/contributions and expenses
**since professional donated services that would otherwise need to be purchased:
DR Expense
CR non-operating revenue (unrestricted revenue)
Year 7, NFP recv the following support:
-cash contribution $375,000 used at BOD discretion
-promise to contribute $200,000 YR 8 from supporter who has made similar contrib in past
-contributed legal services $40,000 which would otherwise have to be purchased
amount of unrestricted revenue YR 7?
amount of unrestricted revenue YR 7? $415,000
restricted $200,000 until recd
nongovt NFP, animal shelter recv contributed services
-Vet provides volunteer animal care $8,000
-CPA prepares books for audit $4,500
-RN volunteers extra receptionist $3,000
-Teacher volunteer dog walker $2,000
What amount is contribution revenue?
What amount is contribution revenue? $12,500
(Vet and CPA= need their specialized skills and would have had to pay otherwise)
University NFP- telephone fundraising appeal
YR 1, untrained workers to make the calls
YR 2, alumni who has telemarketing firm offers to perform the task
value of services YR 1 $12,000
value of services YR 2 $13,000
Contributed revenue =
zero
telemarketing does not require specialized skill = would not be purchased if were not donated
Fixed assets
purchased fixed assets are carried at cost as required by GAAP
donated fixed assets are reported as fair value date of donation and depreciated
private NFP orgs record depreciation on long lived assets with a finite life
rule is followed regardless of whether the asset was bought/recorded at cost or donated/recorded at fair value
Depreciation
depreciation is recognized as an expense by al NFP orgs
all expense for NFP are recorded as without restriction
statement of activities for NFP, depreciation expense:
1. should be reported as an expense
2. be reported as an expenditure
3. not be reported in statement of activities
- should be reported as an expense
all expense for NFP are recorded as without restriction
G/L reported statement of activities
how should a nongovt NFP org report depreciation expense in its statement of activities?
decrease in net assets without restriction
NFP obtains a building with a value $1.3M.
Record depreciation expense?
depreciation expense is always required in connection with this building
private NFP orgs record depreciation on long lived assets with a finite life
rule is followed regardless of whether the asset was bought/recorded at cost or donated/recorded at fair value
Investments
for NFPs, marketable equity securities with readily determinable fair value and all investments in debt securities= measured at fair value in statement of financial position
Gains and losses on investments are reported in statement of activities as increases or decreases in net assets without restriction (unless use restricted by donor or law)
