Chapter 9-2: Nonprofit Accounting Part 1 Flashcards Preview

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Flashcards in Chapter 9-2: Nonprofit Accounting Part 1 Deck (34):

What accounting items can increase the temporary restricted net assets when the non-profit receives money to create an permanent endowment fund?

1) Interest income earned from the endowment
2) Investment income that is created from the endowment
3) The increase amount in the fair value of the endowment (ex: $3 million receive to create endowment; $3 million invested; and the investments new fair value is $3,010,000 where the $10,000 is the increase amount. And this $10,000 increase amount is reported in Temporary restricted fund).

FYI - endowment is the permanent restricted net assets.


What are the 3 most common categories of expenses that reported on a "Statement of Functional Expenses"

1) Program Services
2) Management and General
3) Fund-raising


Define each of the following expenses in a non-governmental non-profit:

Program services

Management and General


1) Program services = expenses spent to fulfill the mission of a non-profit.

2) Management and general = administrative expenses. This may include (but not always)

3) Fund-raising = costs to raise funds for the non-profits like costs spent on advertisement to induce donors to donate money. Unsolicited merchandise sent to encourage contributions.


The expense categories used by not-for-profit organizations generally fall under two main headings:

_____ _____ and ____ ______

program services and support services.


What is the difference between program services and support services?

Program Services: expenses made to fulfill the non-profit's mission.

Support services: Membership development expenses, Fund-raising expenses, administrative expenses.


What is the rule on the contribution revenue when a non-profit receives an item at this specified $$ amount and its fair value is at a different amount?

The FMV of the donated item (the exchange part of the
transaction) must not be considered in determining the amount of the Contribution Revenue.

Therefore do this calculation:
$$ on donated item receive
- $$ FMV
= Difference

And it's this Difference that is the Contribution Revenue.


What is the difference between

Functional Classification - expenses


Natural Classification - expenses?

Functional Classification - expenses = divide a group of expenses under a specific Function.
E.g: Program services = function classification to group expenses to meet/fulfill Non-profit's purpose.

Natural expense classification = (e.g., salaries, rent, utilities).


When is contribution revenue recognized?

Cash contributions and unconditional pledges are recognized as Contribution Revenue in the year in which the CASH or PLEDGE is received.


Not-for-profit corporations are required to produce the what financial statements???

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

And Statement of Functional Expenses (only for Voluntary Health and Welfare organizations).


What is the rule on when to Recognize Donated Services?

Donated services are recognized if the services received either

(1) create or enhance non-financial assets,


(2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.


What is the Journal Entry to record Donated Services?

Dr. Expense
Cr. Contribution


When receive interest income from an endowment, how is receiving interest income recorded on the non-profit's balance sheet?

It's recorded on

Balance Sheet:
as Cash (current asset)

FYI - Journal entry to receive this interest income from the endowment:
Dr. Cash
Cr. Temporary Restricted net Assets


When receive funds to create an endowment and the endowment money is in the form of securities:

What is the journal entry for this?
What account is being used for this transaction on the Balance Sheet?

Journal Entry:

Dr. Restricted Cash (long-term asset; non-current asset)
Cr. Permanent Restricted Assets

Balance Sheet
Restricted Cash

Permanent Restricted Assets


Statement of Activities that presents changes
in which of the following:

a) Unrestricted net assets
b) Temporarily restricted net assets
c) Permanently restricted net assets
d) All of the above

Statement of Activities that presents changes

all of these:
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets


How should the Non-profit report the receipt of the money by a donor that's only used to help another person?

Please explain why.

As a liability.

Explanation: this because Non-profit has no variance power (discretion) relative to the use of the contribution.

a) This received donated cash is NOT contribution received
b) it's not a revenue


What are the 3 rules to NOT recognize contributions of works of art, historical treasures, and similar assets??

An entity need not recognize contributions of works of art, historical treasures, and similar assets if the
donated items are added to collections that meet all of the following conditions:

1. Are held for public exhibition, education, or research in furtherance of public service rather than financial gain.

2. Are PROTECTED, kept unencumbered, cared for, and preserved.

3. Are subject to an organizational policy that requires the PROCEEDS from SALE of collection items to be used to ACQUIRE other items for collections.


What are the three most generally used revenue classifications for a hospital?

They are:

patient services revenues,
Other operating revenues,
and non-operating revenues.


What is the difference between

Other operating revenues
Non-operating revenues

for a hospital?

Other operating revenues are those generated by operations THAT are not patient services revenues.

a) Revenues from educational programs
b) Sale proceeds on meals to people in the cafeteria

Non-operating revenues = represent incidental earnings NOT related (has nothing to deal with) the Hospital's ongoing and central operations.

Example: Unrestricted gifts would be classified as non-operating revenues.


FASB ASC 958, Financial Statements of Not-for-Profit Organizations, focuses on what???

Not-for-profit reporting guidance included in FASB ASC 958 primarily focuses on:

basic information for the organization as a whole.


What is Quasi-endowment fund??

Quasi-endowment funds account for assets that have been INTERNALLY designated by the institution (board) for a specific purpose.


If a non-profit receives a bequest of a certain $$ amount (like $1 mil, $2 mil, $5 mil), that is going to be matured in a certain year (like Yr 2, yr 3, etc), then this $$ amount is reported in which net assets:

Unrestricted net assets
Temporary restricted net assets
Permanent restricted net assets

Temporary restricted net assets


What does temporary restricted assets and permanent restricted net assets have in common?

Both are Restricted funds are restricted as to use by the donor, grantor, or other source of the resources. They are externally restricted funds.


If the non-profit has volunteers do the non-profits special event and this non-profit only gave volunteers special items for their participation at estimate $$ value, is this included in the non-profit's wages and expense account?

Answer: No.

This is because the volunteer help no matter it's at estimate value NOR items given to them are not part of the non-profit's actual main operations.

Also, special events volunteers in this case = do not either requiring specialized skills or being mandatory.


In non-profit college/university accounting:

How are tuition and fees revenue reported?

Tuition and fees revenue are reported

net (or after refunds made back to students).

FYI - Any portion of the Tuition and Fees revenue assigned by the University for any other activities like scholarships or give to faculty = Expenses (not revenues).


If the pledges (unrestricted and restricted) are legally enforceable, then _________________________.

Unrestricted pledges
Restricted pledges

are all recorded including reporting on allowances for uncollected accounts on both Unrestricted pledges and restricted pledges.


Marketable equity securities with readily determinable fair values and all in the statements in debt securities
are measured at ___ _____ in the statement of financial position.

Gains and losses on in statements are reported in the statement of activities as increases or decreases in _____ net assets unless their use is _____ or ______ restricted by explicit donor stipulations or law.

Fair value

unrestricted net assets unless their use is temporarily or permanent restricted by explicit donor stipulations or law.


In the non-profit accounting:

what value is reported for marketable securities?

Marketable securities are always reported as FAIR VALUE at the balance sheet.

This follows the full-accrual accounting.

Marketable securities are NOT reported as Cost, carrying value, nor at date of receipt.


(1) Donor pledged to give money each year for 5 years at $1,000 per year (end of each year) to a non profit is considered as:

Unrestricted net assets - revenue
Temporally restricted net assets

(2) This $1,000 payment per year for 5 years, PV factors are as follows:
PV of Ordinary annuity, 5 periods, 6%: 4.21236
PV of Annuity due, 5 periods, 6%: 4.46511

How much is recorded on statement of activities?

It'll be considered as Temporarily restricted net assets.

This is due to the Time restriction where the Non-profit gets the cash payment (to be used for its operations) when it is received at the designated payment dates by the donor.

(2) $1,000 payment per year x 4.21236 PV factor (ordinary annuity, 5 periods, 6%) = 4,212


What is the criteria that Non-profit does not report a contribution revenue on getting donated historical artifacts?

(1) Held for public display
(2) Be preserved and care for
(3) Not be sold for a profit. If sold, then proceeds are only used to buy other historical artifact collection.


When does a donor's conditional promise become unconditional?

It becomes unconditional when it's probable that the condition is not met is REMOTE.

Other words, Conditional promise can be met. There's a low chance that conditional promise cannot be met.
There's a high probability that the non-profit can meet the conditions on this conditional promise.


When condition becomes unconditional then there is a increase to what two accounts?

Condition becomes unconditional by meeting the conditions' criteria:

increase Revenue or increase Support.


The difference between Conditional and Restricted on Donor's contribution to a not-for-profit organization?


Condition is where the non-profit not recognize a revenue or support from a Donor's contribution (donor-imposed condition contribution) until the Conditions are satisifed. Once condition is met, the Donor's contribution becomes unconditional and Non-profit recognizes a Revenue or receivable.

Restriction (donor-imposed restriction) is where the Donor tells the Non-profit when to actually use the Contribution (cash donation) via Time restriction. Or what specific activity that cash donation be used for (use restriction).

If there is an use- or time-restriction, then recognize a Temporarily restricted revenue or receivable.
If there is no restrictions at all, then it is an unrestricted revenue.


Can donate artworks be held in Permanently net assets when the Donated artworks is only use for public display, cannot be sold, and must be preserved by the non-profit?

Yes, because according to the Rules:

Donated artworks that is restricted only for Public display, cannot be sold, and must be preserved at all times
The non-profit has a policy to capitalize any works of donated art

must be kept in Permanent net assets.

Permanent net assets is where:
(a) Cash put in these permanent net assets (principal amount) cannot be touched, but the interest and dividend income from such permanent net asset scan be used for Non-profit board's designated use (unrestricted) or a Donor-imposed use (temporary restricted)
(b) Can put art works in permanent net assets where these artworks cannot be touched at all for anything. Can't sell it or depreciate it once these donated artworks in permanent net assets.


How should a Private Non-profit report debt securities invsetments that are classified as current and non-current on Statement of Financial Position (balance sheet)?

They're reported as Fair value.

Current assets portion on Debt securities = at Fair value

Non-current assets portion on Debt securities = at Fair value

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