F6 Flashcards
(135 cards)
1
Q
what are 3 characteristics of NFPs as defined by the FASB?
A
1) revenues come from contributions
2) operating profits does not include profit, although there is nothing to preclude the generation of profit
3) ownership interests are unlike business enterprises
2
Q
what are the 4 major sectors of NFPs?
A
health care organizations
educational institutions
voluntary health and welfare organizations
other private (non governmental) not for profit organizations
3
Q
what are 4 users of NFP financial statements?
A
donors
members of org.
creditors
others who provide resources to the NFP entity
4
Q
what are the 3 FS included for NFPs?
A
statement of financial position (B/S)
statement of activities (I/S)
statement of cash flows
5
Q
what is the primary reporting emphasis for NFPs?
A
disclosing the sources of the institution’s resources and how they were expended
basic information for the org. as a whole
6
Q
what are governmental NFPs governed by in regards to accounting standards?
A
governmental accounting standards board (GASB)
7
Q
what are the 3 ways NFPs can report information about relationships between functional classifications and natural classifications of expenses in one location?
A
1) on the face of the statement of activities
2) as a schedule in the notes
3) in a separate FS with a name of the entity’s choosing
8
Q
what is functional classification for expenses?
A
categorizing costs by major classes as either program or support services
describing its purpose and mission to the NFP
9
Q
what is natural classification for expenses?
A
categorizing expenses based on their account titles
ex. salaries, rent, utilities, etc.
10
Q
what are the 3 components on the BS of a NFP?
A
assets
liabilities
net assets (equity)
11
Q
what are the 2 potential classifications for net assets?
A
with donor restrictions
without donor restrictions
12
Q
what are net assets without donor restrictions?
A
available to finance general operations of a NFP and may be expended at the discretion of the governing board
13
Q
what are net assets with donor restrictions?
A
subject to specific, externally imposed limitations made by a donor
information regarding this must be reported in FS or notes
14
Q
are internal board-designated funds classified as with or without donor restriction?
A
without donor restriction
with donor restriction has to come from an external donor
15
Q
where do items classified as OCI in commercial accounting presented for NFPs?
A
in the I/S after operating income
16
Q
what happens when the entity satisfies (or donor withdraws) the donor restriction?
A
a reclassification is reported on the I/S that increases one net asset account and decreases another
17
Q
what happens if donor imposed restrictions are satisfied in the same period in which they are received?
A
may be recorded as an increase to net assets WITHOUT donor restrictions as long as the organization discloses this and consistently applies this policy
18
Q
what is the general rule for expense classification?
A
all expenses (other than investment expenses) are reported as decreases in net assets WITHOUT donor restrictions
19
Q
how are investment expenses classified?
A
netted against investment returns and classified according to requirements of investment revenue and would be shown as part of a change in restricted amount
20
Q
where does a NFP use functional classification? natural classification?
A
functional: in the statement of activities
natural: in the notes
21
Q
what are program services?
A
all expenses, direct and indirect, that relate to activities for which an organization is chartered
22
Q
what are supporting services? what is a common example?
A
all activities other than program services
ex. fundraising costs
23
Q
are grants to other organizations recorded as an expense for NFPs?
A
yes
24
Q
what are the 2 main characteristics of a donor restriction?
A
purpose
time
25
do you book revenue if the donation is contingent?
no, only if it is unconditional
26
when is FASB ASC 230 not applicable to NFPs?
when it conflicts with industry guidance
if so, then industry guidance would take over
27
contributions of unrestricted revenue later earmarked (board designated) for construction or purchase of long-lived assets are classified as what in SCF?
operating cash flow until it is expended as an investing cash flow
28
what else will you see in NFP financing cash flows beyond what is typically found in commercial accounting SCF?
cash transactions related to certain restricted contributions (proceeds from donor-restricted contributions for long lived assets)
29
what are 4 examples of noncash transactions that should be disclosed in the NFP's notes?
contributed securities
CIP and other fixed asset purchases included in AP
unconditional promises to receive cash
noncash debt refinancing transactions (change in interest rate, etc.)
30
what are the 5 attributes of an unconditional contribution?
1) unconditional
2) must be a transfer of cash and/or other assets (collection is certain)
3) title must pass
4) must be voluntary (the donor is not obligated to donate)
5) must be nonreciprocal (the donor gets nothing in exchange)
31
what are 3 examples of contributions?
cash
service
other assets
32
what are the 3 ways an unconditional contribution could be reported?
1) an increase to net assets WITHOUT donor restrictions
2) donor-restricted support in the period received
3) can be recognized as an asset, reduction of a liability, or an expense depending on form of benefits received
33
what are 3 characteristics of a conditional contribution?
1) not recognized
2) conditions are indicated by the existence of a barrier
3) donor holds the right to demand return of the contribution if condition is not met
34
what is the difference between a condition and a restriction?
restriction designates how the money can be spent whereas a condition delays revenue recognition until the condition is met
35
what are the 2 elements of a conditional contribution?
1) measurable performance-related barrier or other barrier
2) right of return
36
what is a pledge?
a promise to contribute which can also result in revenue recognition
37
what are 3 characteristics of an unconditional promise?
1) contribution is recorded at FV when promise is MADE
2) may be written or verbal
3) verbal pledges should be documented by the org. internally and may be more difficult to collect
38
what are 2 characteristics of a conditional promise?
1) transaction that depends on an occurrence of a future and/or uncertain event
2) recognition does not occur until conditions are substantially met resulting in promise becoming unconditional
39
how are good faith deposits accounted for in terms of conditional promises? what is the JE?
accounted for as a refundable advance in the liability section of the B/S
DR: cash
CR: refundable advance
40
what are 2 characteristics of multiyear pledges? how is it recognized as revenue?
1) recorded at NPV at date the pledge is made
2) future collections are considered donor-restricted revenues and net assets (time-restricted)
difference between the previously recorded PV and the current amount collected is recognized as contribution revenue
41
how is the placed in service approach used for noncurrent assets with donor restrictions?
initially record the asset and donor restricted support at FMV
depreciate the asset each year and reclassify this amount from net assets with restrictions to net assets without restrictions
42
does allowance for credit losses have bad debt expense?
no, it is a direct reduction to revenue
43
what is a split interest agreement?
entity shares interest with other beneficiaries of a donor contribution
ex. trust fund
44
how should changes in the value of the split interest agreement be recognized?
amortization of discounts
revaluations
45
how are split agreements reported in relation to the rest of the entity's accounts on the statement of financial position? statement of activities?
should be disclosed separately in both
46
what is the general rule in terms of recognizing donated services? what is the exception?
not recorded
should be recorded as a contribution and expense at FV if services meet one of 2 criteria
47
what are the 2 criteria (one has to be met) to recognize donated services?
1) they create or enhance a nonfinancial asset (land, building, inv, etc.)
2) they require specialized skills that the provider possesses and would otherwise have been purchased by the organization (attorney, accountant, etc.)
48
what is the mnemonic for when a NFP would recognize donated services?
SOME
Specialized skills are required and possessed by the donor
Otherwise needed by the organization
Measurable
Easily (can easily measure at FV)
49
what is the JE to recognize contributed/donated services?
DR: expense or asset
CR: contributions -- without donor restrictions
50
what are the 3 requirements that must be met for donated collected items to not be recorded by the NFP?
1) item is part of a collection held for... public viewing, exhibition, edu., research
2) collection is cared for, preserved, and protected by the organization
3) org. has a policy that requires any proceeds from the sale of donated items to be reinvested in new collection items or is used to support the direct care of existing collections
51
what if the requirements are not met for donated collected items?
donation must be recognized as an asset and contribution revenue will be recognized
policy must be used for all applicable assets (cannot pick and choose)
52
what is the JE for passed through donated materials that are substantial enough to recognize?
DR: expense
CR: contribution -- supplies (recognize the revenue)
53
what is a gift-in-kind?
nonfinancial contributions (land, buildings, materials, etc.) recognized as a contribution at FV and revalued when sold
difference is accounted for as an additional contribution
54
unconditional promises to contribute in the future are reported:
as donor-restricted support due to implied time restriction (receive it in X years)
at the PV of the estimated future cash flows using a discount rate or NRV if less than one year
55
what is the initial JE for unconditional promises?
DR: pledge receivable -- with donor restriction
CR: AFDA
CR: contributions -- with donor restriction
56
what is JE when unconditional promise is collected?
DR: cash -- with donor restriction
CR: pledge receivable -- with donor restriction
DR: satisfaction of time restriction -- with donor restriction
CR: cash -- with donor restriction
AND THEN
DR: cash -- without donor restriction
CR: satisfaction of time restriction -- with donor restriction
57
what is the initial JE for a conditional promise?
DR: pledge receivable -- with donor restriction
CR: AFDA
CR: donor -- restricted support
58
what is the JE when a conditional promise is spent?
DR: reclassification -- satisfaction of donor restriction
CR: cash -- with donor restrictions
AND THEN
DR: cash -- without donor restrictions
CR: reclassification -- satisfaction of donor restriction
DR: operating expense
CR: cash -- without donor restrictions
59
what is formula for contribution revenue for fundraising?
total contribution received
- fair value of premiums
---------------------------------------
contribution revenue
60
what is an exchange transaction?
one in which the NFP earns resources in exchange for a service performed
61
what are 2 characteristics of recognizing revenue for exchange transactions?
recognized when realized or realizable and earned
classified as increases to net assets without donor restrictions
62
what is the total revenue for educational institutions?
all increases in net assets without donor restrictions and donor-restricted resources expended in that period
ex. student tuition, gov. grants, gifts, endowment, etc.
63
what is the formula for net student tuition and fees?
assessed/gross student tuition and fees
- canceled classes
---------------------------------------------------
net revenue from tuition and fees
**scholarships, tuition waivers, etc. can be considered expenditures or as a separate valuation account
64
how should patient service revenue be recorded?
accounted for on accrual basis at established standard rate even if full amount is not expected to be collected
- show patient service revenue net of deductions
65
what is charity care?
health care services are provided but never expected to result in cash flows to the hospital
66
how is charity care recognized?
management policy and level of care should be disclosed
not recognized as receivable or revenue
not recognized as credit loss expense
67
what are the two treatments for credit losses from patient service revenue and when should they be used?
1) operating expense: failure to collect revenue that health care org. anticipated earning
2) deduction from revenue: credit loss resulting from inability to collect large volume of revenue that health care org. never assessed for quality/collectability
68
what are capitation revenues?
the fixed amount per individual that is paid periodically, usually monthly, to a provider as compensation for providing health care services for that period
69
what is formula for patient service revenue?
gross patient service revenue
- charitable services (charity care)
------------------------------------------
patient service revenue
70
what are 4 examples of other sources that might generate operating revenue for healthcare organizations?
educational programs
cafeteria revenue
parking fees
donated supplies
## Footnote
*not an exhaustive list there can be many other revenue sources
71
what are the 3 categories health care revenue can be reported in?
1) patient service revenue
2) other operating revenue
3) nonoperating revenue
72
are donated supplies/materials recognized as expenses when consumed?
yes
73
what are 6 examples of nonoperating revenue and other gains and losses for hospitals?
interest and dividend income
gifts
grants
income from endowment funds
income from board designated funds
donated services
74
what are the 2 characteristics of financially interrelated organizations?
1) an org. has the ability to influence the operating and financial decisions of the other
2) an org. has an ongoing economic interest in the net assets of the other
75
what are the 2 conditions for a NFP to be a recipient entity?
1) accepts assets from a resource provider
2) agrees to use the assets on behalf of the specified beneficiary or transfers the assets to the beneficiary
76
what are the 2 factors affecting the accounting by the recipient depend on?
1) whether the recipient and beneficiary are financially interrelated
2) whether the recipient has variance power
77
what is variance power?
recipient can vary from the original wishes of the resource provider
78
what are the 2 characteristics of a recipient NFP when they are not financially interrelated and do not have variance power? what is the JE?
1) the org. accepts assets from resource provider
2) the org. uses or manages the assets on behalf of a specified beneficiary
DR: asset (at FV)
CR: refundable advance liability
79
what are the 2 characteristics of a recipient NFP when they are not financially interrelated but do have variance power? what is the JE?
1) the org. accepts assets from a resource provider and agrees to use or manage them on behalf of a beneficiary
2) assets are recognized as a contribution when received and expensed when distributed to the beneficiary
DR: asset (at FV)
CR: contribution
80
what are the 3 characteristics of a recipient NFP when they are financially interrelated? what is the JE?
1) whether they have variance power or not does NOT matter
2) the org. accepts assets from a resource provider and agrees to use or manage them on behalf of a beneficiary
3) assets are recognized as a contribution when received and expensed when distributed to the beneficiary
DR: asset (at FV)
CR: contribution
81
when do specified beneficiaries not recognize their rights to assets held by the recipient?
when recipient is granted variance power
82
what are the 3 ways to record rights when they are recognized by a beneficiary?
1) contribution and receivable
2) beneficial interest
3) change in interest in the net assets of the recipient
83
what is the JE for a beneficiary when the recipient is financially interrelated?
DR: interest in recipient net assets
CR: change in interest in recipient net assets
84
what is the JE for a beneficiary when the recipient is not financially interrelated?
DR: receivable or beneficial interest
CR: contribution
85
how do NFPs record a contribution of a financial instrument?
1) all debt securities and equity securities with a FV are measured at FV on the B/S
2) realized and unrealized G/L are reported on I/S as increase or decrease in net assets WITHOUT donor restriction
86
when would a financial instrument gain or loss be donor restricted?
explicitly by donor demand or by law either temporarily or in perpetuity
87
when are the 2 instances an underwater endowment fund can occur?
donor-restricted endowment fund for with FV of the fund is less than
1) the original gift amount; or
2) the amount required to be maintained by the donor
88
what do you do when an underwater endowment fund occurs?
report accumulated losses together with the endowment fund in net assets with donor restrictions
89
what are the 3 disclosure requirements for an underwater endowment?
## Footnote
what is the mnemonic?
1) FV of the underwater endowment
2) Endowment gift original amount or level required to be maintained set by donor
3) Deficiency between 1 and 2
## Footnote
FED
90
what are the 5 disclosure requirements for any endowment fund?
1) governing board's interpretation of endowment's requirements
2) how do you go about using endowment's intended purpose
3) investment policies
4) composition of donor restriction and without donor restriction
5) change in donor restriction endowments and without donor restriction throughout the year
91
are works of art and historical treasures (anything in a collection) depreciated?
no
92
NFPs are considered financially interrelated organizations in the event one of the organizations:
is both able to influence the operating and financial decision of the other AND has an ongoing economic interest in the net assets of the other
93
what are the 3 objectives of governmental reporting?
1) designed to demonstrate the accountability of each org. for the stewardship of the resources in its care
2) focused on providing efficient and effective delivery of services with public resources
3) identifying and displaying the accountability objectives of gov. organizations is integral to related accounting
94
what does fund accounting enable?
service and mission drive organizations to easily monitor and report compliance with:
spending purposes (fund restrictions)
spending limits (budget)
other fiscal accountability objectives
95
why do governments use fund accounting?
to demonstrate accountability in their external reporting and use funds for internal accounting
96
what is the difference between state and private colleges and universities when it comes to accounting?
state schools use governmental accounting
private schools use NFP accounting
97
what are the 3 things that differentiate governmental accounting?
fund structure
fund accounting
external reporting
98
what is a fund?
a sum of money or other resource SEGREGATED for the purpose of carrying on a specific activity or attaining certain objectives in accordance with specific regulations, restrictions, or limitations, creating its own independent fiscal and accounting entity
each fund has its own accounts, BS, IS, etc.
99
what are the 3 generic categories that the 11 fund types are categorized into?
governmental funds
proprietary funds
fiduciary funds
100
what do the GASB concept statements 1-6 do?
establish the objectives and concepts that underlie governmental financial reporting
101
governmental type activities are typically funded by...? business type activities?
gov: taxes
business: user fees (revenues)
102
what does interperiod equity mean?
from period to period we will not live beyond our means
103
what are the 6 characteristics that information in government financial reports should have?
## Footnote
what is mnemonic?
Understandability
Reliability
Make a difference - *Relevant*
In *timeliness*
Consistency year over year
Entity to entity *comparability*
## Footnote
U R MICE
104
what are the 3 primary user groups of gov. accounting?
citizens of the jurisdiction
individuals and groups charged with oversight
investors/creditors
105
governmental funds are accounted for using what basis and focus?
modified accrual basis of accounting
and
current financial resources measurement focus
106
does the balance sheet of governmental funds contain fixed asset or long term debt accounts?
no
107
what is the general fund set up for?
taxes
other general revenues
all transactions not accounted for in other funds are accounted for here
108
what are special revenue funds set up for?
account for revenues from special taxes or other earmarked sources
109
what are debt service funds set up for?
to account for the accumulation of resources and the payment of interest and principal on all general obligation debt
110
what are capital project funds set up for?
used for acquisition or construction of major capital assets by a governmental unit except projects financed by an enterprise fund
111
what is the permanent fund set up for?
used to report resources that are legally restricted to the extent that income may be used for certain purposes
**similar to an endowment
112
what does a fund balance sheet look like for governmental fund accounting?
CA + deferred outflows
=
CL + deferred inflows of resources
+
fund balance (equity)
113
what is formula for net change in fund balance (income statement for fund)?
revenues - expenditures +/- other financing sources/uses
114
proprietary funds are accounted for using what basis and focus?
full accrual basis of accounting
AND
economic resources measurement focus
115
what is an enterprise fund set up for?
to account for the acquisition and operation of gov. facilities and services that are intended to be self-supported by the external customers of the government
ex. utilities, airports, transit systems
115
enterprise funds are required when any one of the following 3 criteria are met...
1) activity of the fund is financed by debt secured by a pledge of fee revenue
2) laws require collection fees adequate to recover costs
3) pricing policies are established to produce fees to recover costs
115
what are internal service funds set up for?
to account for goods and services provided by designated departments
ex. central motor pool, building maintenance
116
what does a proprietary I/S look like?
operating revenue
- operating expenses
+/- nonoperating revenue/expenses
= change in net position
117
what do fiduciary (trust) funds account for?
assets controlled by a government in the capacity of a trust on behalf of beneficiaries with whom a beneficiary relationship exists
118
fiduciary funds are accounted for using what basis and focus?
full accrual basis of accounting
AND
economic resources measurement focus
119
what are custodial funds set up for?
any fiduciary activities that are not required to be reported in other fiduciary fund classifications
120
what are investment trust funds set up for?
account for external investment pools
121
what are private purpose trust funds set up for?
used for activities not properly accounted for either as pension or investment trust funds
assets legally protected from creditors
122
what are pension (and other employee benefit) trust funds set up for?
account for resources of defined benefit plans, defined contribution plans, post-employment benefit plans, and other long-term EBPs
123
what does a proprietary and fiduciary fund B/S look like?
all assets + deferred outflows of resources
- (all liabilities + deferred inflows of resources)
----------------------------------------------------------------
net position
124
what does a fiduciary fund I/S look like?
additions
- deductions
= change in net position
125
what are the 5 current financial resource funds?
## Footnote
GRaSPP
General fund
special Revenue fund
And
debt Service fund
capital Projects fund
Permanent fund
126
what is the purpose of current financial resource funds?
a measure of available, spendable, or appropriate resources
127
what are the 7 economic resource funds?
## Footnote
SE-CIPPOE
internal Service fund
Enterprise fund
Custodial fund
Investment trust fund
Private purpose trust fund
Pension
Other Employee trust fund
128
what is the purpose of economic resource funds?
show the costs of services and the effectiveness and efficiency with which invested capital has been used
show all assets and liabilities on the B/S
129
what does available mean under modified accrual accounting (GRaSPP)?
collectible within current period or soon enough after to be used to pay CL (generally within 60 days after year end)
130
the governmental fund measurement focus is on the determination of what out of:
income, financial position, and current financial resources
financial position and current financial resources
131
the proprietary and fiduciary fund measurement focus is on the determination of what out of:
income, financial position, and current financial resources
income
132
which of the following bases of accounting is required to be used in government-wide FS for governmental activities and business-type activities?
accrual basis or modified accrual basis or one for each?
accrual basis for both at the government-wide level
133
Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they:
become available and measurable
