Chapter 9-2: Non-profit accounting Part 2 Flashcards Preview

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Flashcards in Chapter 9-2: Non-profit accounting Part 2 Deck (44):
1

What are the three categories used in the Statement of Cash Flows for non-profits?

What are the classifications used in Government cash flows (only used in proprietary funds: internal service, enterprise funds)?

Non-profit cash flows
-----------------------------
Operating Cash flow
Investing Cash flow
Financing cash flow

Government - Proprietary funds cash flows
------------------------------------------------------
Operating
Investment
Capital financing
Non-capital financing

Note: capital financing and non-capital financing is never used in non-governmental, non-profit cash flows.

2

Non-profits statement of cash flows:

What gets reported on the Operating Cash Flows?

Operating Cash flows:

Applicable agency transfers

Direct method: classification/category by major gross receipts:
a) Unrestricted cash contribution
b) Program income
c) Interest income
4) Interest/dividend income

Receipts on UNRESTRICTED RESOURCES by government body designated to buy long-term assets.

Indirect method >> reconcile

3

Non-profits statement of cash flows:

What gets reported on the Investing Cash Flows?

Investing Cash flows:

a) buy/sell fixed assets
b) Investment in equipment
3) Use asset sale proceeds only to buy equipment

4

Non-profits statement of cash flows:

What gets reported on the Financing Cash Flows?

Financing Cash Flows:

a) Borrow money from banks/creditors
b) Donor-implicated money to buy asset, income endowment.
>> Other words Donated money where it can only be used for certain items
3) Split interest agreement, dividend interest only on re-investment

5

Hospital Accounting (non-profit):

What items gets reported on the Hospital's Statement of Activities (income statement)?

Revenues
>> Patient service revenue
>> Other operating revenue
>> Non-operating revenue

Expenses
>> Program expenses
>> Support Services
>>> Management and general
>>> Fund-raising

6

What is the formula to calculate

Net patient service revenue?

Gross patient service revenue
- Charity care (included in gross patient service revenue)
- Contractual Adjustments for third party payments
- Policy Discounts
+ Premium revenues for capitation agreements
---------------------------------------------------
= Net patient service revenue

7

Name 5 of the items that is reported as other operating revenue for Hospitals.

School tuition
Education program revenues
Donated supplies and equipment that is involved with Hospital's main operations
Specific Purpose Grants
revenues from auxiliary activities
Cafeteria revenue
Parking fees
Gift shop revenues
Medical transcription fees

8

Name 5 of items that are reported in Non-operating revenue and support gains and losses.

Unrestricted investment interest and dividend income
Unrestricted gifts and bequests
Unrestricted grants
Unrestricted income from endowment funds
Unrestricted income from board designated funds
Donated Services

9

What is the journal to record donated supplies / inventory to Non-profit health care providers?

Dr. Supplies inventory
Cr. Unrestricted contribution - other operating revenue

or

Dr. Supplies expense
Cr. Unrestricted contributions - other operating revenue

10

Name 5 of the items reported as Hospital Expenses.

Hospital expenses:
a) Nursing expenses
b) other professional services
c) General service expense
d) Administrative service expense
e) Bad Debts
f) Depreciation
g) interest expense

11

What is the health care organization's performance indicator?

It reports results of operations of a health care organization.

12

What's not included in calculator the health care organization's performance indicator and must be reported separately and BENEATH the performance indicator?

Not include:

1) Equity transfers
2) Receive restricted contributions
3) Contributions of (and assets released from donor restrictions related to) LONG-LIVE ASSETS
4) Unrealized gains and Unrealized losses on Non-donor-restricted and Non-law restricted investments, except those that are considered Trading securities (other than trading securities)
5) Donor-restricted or law-restricted Investment Returns
6) GAAP-related items, such as:
--a. Extraordinary items
--b. Discontinued operations
--c. Accounting changes

13

What are the items used to calculate health care organization's performance indicator?

Statement of activities'

[Operating Revenue + Realized gains] / [Operating expenses + unrealized loss]
= health care org's perf. indic

Also includes: Premium revenue from capitation agreement

14

What are the 4 financial statements for Health care organizations i.e. non-profit non-government hospital?

Balance sheet (or Statement of Financial Position)
Statement of Operations or Statement of Activities (income statement)
State of Cash flows (shows Operating, investing, financing cash flows)

And

Statement of changes in net assets: shows changes in unrestricted, temporary, and permanent net assets.

15

Under what type of net assets are "restricted support (contribution)" reported?

Temporary restricted net assets

16

What are the rules to recognize Donated service as contribution revenue and expenses?

1) Create or enhance a non-financial asset

2) Require a special skill that Donor has and it is something that can be purchased outside the non-profit organization.

3) $$ value on the donated service is measured easily

Example: Cannot report contribution service on a Tax Preparer donating his service helping with Transportation supplies.
Can report contribution service on a Specialist transport that transports supplies.

17

CPA Exam Question tip:

When a non-profit has reported a new increased fair value of unrestricted, equity securities in addition to dividends received,

>> how to report this transaction to the Net assets?

Dividends received
+ New increased fair value on the equity securities
--------------------------------------------------------------
Total increase in the Net assets

Example:
Equity security received $200,000
Change in fair value + 10,000
---------------------------------------------------------
= equity security new fair value $210,000
+ Dividends received + 20,000
----------------------------------------------------------
= Total increase in net assets $230,000

18

CPA Exam Question tip:

When a non-profit has reported a new decrease fair value of unrestricted, equity securities in addition to dividends received,

>> how to report this transaction to the Net assets?

Dividends received
+ New increased fair value on the equity securities
--------------------------------------------------------------
Total increase in the Net assets

Example:
Equity security received $200,000
Change in fair value - 10,000
---------------------------------------------------------
= equity security new fair value $190,000
+ Dividends received + 20,000
----------------------------------------------------------
= Total increase in net assets $210,000

19

What are the contra-revenues in calculating the net patient service revenue for Hospital / health care organization?

Net patient service revenue's

Contra-revenues are:

a) Charity care
b) Contractual adjustments
c) Policy Discounts

Example of calculation (FYI):
Gross patient revenue
- Charity care (if it's in gross patient revenue)
- Contractual adjustments (like with 3rd parties)
- Policy discounts (like discounts for employees)
-----------
= Net Patient Service Revenue

20

There three types to Temporary restricted net assets, what are they?

a) restricted by purpose: only use this money for cancer research, youth education, homeless shelter

b) restricted by time: only use this money after a certain date.

c) restricted by acquisition of plant >> other words, only use this money after ACQUIRING LAND or FACILITY IS BUILT.

21

Not-for-profit (non-profit) and Government accounting have in common is the use of "net assets" in their financial reporting,

However there is a difference.
What is this difference?

Not-for-profit accounting
1) permanent restricted
2) temporary restricted
3) Unrestricted

Government accounting
1) Invested
2) Restricted
3) Unrestricted

22

Exchange transactions:

Reciprocal transfers in which each party receives and sacrifices something of approximately ___ ___ are termed ____ transactions.

Cost of premiums (e.g. calendars, coffee mugs, tote bags, etc.) given to POTENTIAL DONORS as part of a fund-raising appeal is classified as ______ expense.

Cost of premiums given to acknowledge donations is clarified ____ expense.

The difference between fair value of dues or other purchases and the amount transferred is classified as a ____.

Exchange transactions are classified as _____revenues and net assets even in circumstances in which resource providers place _____ on the use of the resources.

equal value, exchange

fund-raising

fund-raising

contribution

unrestricted, limitations

23

What is the formula on exchange transaction contribution?

Amount Transferred
- Fair value dues / purchase
--------------------------------------
= Contribution revenue

24

There are two types of contribution revenue, what are they?

Unrestricted contribution

Restricted contribution

25

What are the journal entries to

Report unrestricted net assets (with implied time restriction)

when receive cash on this unrestricted net asset

Journal entry - Report unrestricted net assets (with implied time)

Dr. Pledge Receivable
Cr. Allowance for doubtful accounts
Cr. Contributed revenue - temporary restricted

Journal entry - collecting cash on this unrestricted net asset - pledge receivable

Dr. Cash - temporary restricted
Cr. Pledge receivable - temporary restricted

Dr. Satisfaction of time restriction - temporarily restricted
Cr. Cash - temporary restricted

Journal entry - immediate re-classification on satisfying time requirements

Dr. Cash - unrestricted
Cr. Satisfaction time restriction - temporary restricted

26

What are the journal entries to

Report restricted net assets (from donor required restrictions on how to use the money)

when receive cash on this restricted net asset

Journal entry - Report restricted net assets (from donor required restrictions on how to use the money)

Dr. Pledge Receivable
Cr. Allowance for doubtful accounts
Cr. Restricted revenue - temporary restricted net assets

Journal entry - collecting cash on this unrestricted net asset - pledge receivable

Dr. Reclassification - Satisfaction of restriction
Cr. Cash / restricted net assets

Journal entry - re-classify to Unrestricted

Dr. Cash / Unrestricted net assets
Cr. Re-classification - Satisfaction of restriction

Dr. Operating Expense
Cr. Cash / unrestricted net assets

27

What are the non-profit accounting rules on Variance power?

Non-profit has variance power = has the power to use the donor's contribution in anyway the non-profit wants.

This results in
Restricted Revenues and increase restricted net assets

Non-profit has NO variance power = show received donor's contribution as LIABILITY (i.e. Refundable advance).

28

What is unrestricted current funds?

(Fund accounting used in Non-profits)

Unrestricted current funds = Governing board has discretionary control in assigning funds to report non-profits' main activities

This fund = unrestricted net assets

It's simliar to Quasi-restricted net assets (which is reproted as unrestricted net assets).

29

What is restricted current funds?

(Fund accounting used in Non-profits)

Restricted current funds = Limitation on funds by outside parties that determines how the non-profit should use this funds to run their main operations/activities.

this Funds = temporary restricted net

30

What is plant fund?

(Fund accounting used in Non-profits)

Plant fund = hold $$ amount investments in plant or resources available for plant and equipment, building.

Fund balances here = any classification of net assets.
It can unrestricted net assets
or temporary
or even restricted net assets

31

What is Loan funds?

(Fund accounting used in Non-profits)

Loan funds = account for loans given to students, employees, or other constituents and resources available for these purposes.

Fund balance = $$ amounts available to lend loans to.
Can be any type of net assets like
It can unrestricted net assets
or temporary
or even restricted net assets

32

What is endowment funds?

(Fund accounting used in Non-profits)

Endowment funds = account for assets where the income is only used on non-profit's main activities/operations.

Any classification and are generally titled as:

Permanent endowment (permanent restricted)
Term endowment (temporary restricted)
Quasi-endowment (unrestricted net assets)

33

Non-profit accounting:

What are the journal entries to handle the following situations:

a) Donated asset that is directly to the Non-profit and it's only for the non-profit's main operations and no one else. And the $$ amount on this is is significant.

b) Donated materials to the non-profit, but the Non-profit cannot use it. The non-profit must pass it along to the beneficiary outside the non-profit.

a)

Dr. Asset @ FV on Date of Receipt
Cr. Contribution - support @ FV on Date of Receipt

b)

Dr. Expense
Cr. Unrestricted - Supplies

34

When donated items are sold at greater than FV, the amount received in _____ of FV is considered _____ _____ .

When donated items are sold at greater than FV, the amount received in EXCESS of FV is considered CONTRIBUTION REVENUE.

35

Non-profit beneficiary accounting:

What is the main rule on this?

Record on the Beneficiaries' right to receive assets received by the non-profit (the recipient).

36

How to recognize the beneficiary's right to the assets held in the non-profit?

Recognize as one of the following:

a) Interest in the net assets of recipient (non-profit)
b) Beneficial interest
c) Receivable and Contribution Revenue

37

What is the Journal Entry to handle:

Financially interrelated organizations between a Non-profit and the Beneficiary organization??

Dr. Asset
Cr. Equity Transaction (on statement of activities)

Note: The beneficiary's interest in the Non-profit's (recipient) net assets is adjusted to beneficiary's share of the change (via beneficiary ratio (%) x $$$ amount)

38

What is the rule on the recognized beneficiary interest form pool of assets?


What is the journal entry?

Measure / re-measure present assets at the new Fair value via Discount rate method or other techniques.

The reason for this is that a pool of assets shows only one total $$ amount. But, need to use some technique to measure the new value of this pool of assets at a later date/time or over time

Journal entry
-----------------------
Dr. Beneficial interest
Cr. Contribution revenue

39

What is the journal entry where the Beneficiary recognize a receivable and contribution revenue when it's no longer involved with recognition of net assets?

Dr. Receivable
Cr. Contribution revenue

40

Fund accounting in non-profits

What are annuity and life income funds?

Annuity and life income funds = Split interest funds.

This is where non-profit organizations have beneficiary interest in annuity and life income funds as per donor's agreement.

However, the non-profit is not the sole/main only beneficiary of these funds since there are beneficiaries that receives a portion of these Annuity and Life income funds (split interest funds).

Classification = can be either
Unrestricted (depending on how donated with the annuity/life income fund)
Temporary restricted (depending on how donated with the annuity/life income fund)
Permanent restricted (depending on how donated with the annuity/life income fund)

41

Fund accounting in non-profits

What are agency funds?

Non-profits have these Agency Funds that holds $$ amounts that are transferred to third parties.

Non-profits have no discretion or control over these Agency Funds to be used in anyway that the Non-profit desired.

Also: Agency transactions
NOT under any classification (unrestricted, temporary, permanent restricted)

Only reported as a liability.

42

Non-profit Recipient accounting:

What are the 3 conditions to meet in order to recognized transferred assets to a recipient non-profit as Equity?

1) Resource provider (donor) specifies itself or an affiliate (another org) as a beneficiary

2) Resource provider (donor) and recipient (non-profit) are FINANCIALLY INTER-RELATED

3) Resource provider does NOT expect payment of the transferred assets (or a return of the transferred assets).

43

What are the rules for Resource Provider (donor) accounting?

1) Resource Provider to the recipient non-profit is the sole beneficiary of net assets and funds.
Therefore: reports equity transaction as interest in the recipient organization's net assets.

2) Resource Provider that says that this affiliate is to be the beneficiary >> resource provider reports Equity transaction as Separate line item on its Statement of Activities

a) Affiliate will report an interest in the recipient (non-profit) organization

b) Recipient organization (non-profit) reports an EQUITY TRANSACTION as a separate line item in its Statement of Activities.


44

What are the disclosure rules where

>> resource providers (organizations) transfer assets to recipient orgs (non-profits) and
>> Assigned themselves or an Affiliate as beneficiary???

Resource providers (assigned as beneficiaries or assigned Affiliate as beneficiary)

1) Identify the recipient organization (non-profit)

2) Grant variance power or not granted variance power to the Recipient org (non-profit)

If granted variance power, what are the terms on the variance power

3) Terms lay out that says which assets will be given to the Resource Provider

4) Aggregate amount in Statement of Financial Position (Balance Sheet)

As transfers
Recognize the transfer as:
>> Interest in Net Asset
>> Another asset (refundable advance or other)

Orgs disclosing the Ratio on Fund-raising expenses to Amounts raised will also disclose methodology used to compute the ratio.

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