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F6 - NFP Accounting and Governmental Accounting Flashcards

1
Q

Identify the basis of accounting for not-for-profit organizations.

A

Full accrual basis of accounting.

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2
Q

Name the primary authoritative source for GAAP for not-for-profit organizations.

A

Financial Accounting Standards Board

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3
Q

What financial statements are prepared for nongovernmental not-for-profit entities?

A
  • Statement of financial position
  • Statement of activities
  • Statement of cash flows
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4
Q

Name the classifications of net assets.

A
  • Net assets without donor restrictions
  • Net assets with donor restrictions
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5
Q

Identify the three required elements in the statement of activities for not-for-profit organizations.

A
  • Change in total net assets
  • Change in net assets without donor restrictions
  • Change in net assets with donor restrictions
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6
Q

Name the functional classification of expenses commonly used in not-for-profit organizations.

A
  • Program expenses
    -Main goal of the organization (i.e. education, research)
  • Support expenses
    1. Fundraising expenses
    2. Management and general
    3. Membership developement
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7
Q

Name the classifications of the statement of cash flows for not-for-profit organizations.

A
  • Cash flows from operating activities
  • Cash flows from investing activities
  • Cash flows from financing activities
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8
Q

How are pledges (promises to contribute in the future without donor restrictions) accounted for?

A

Unconditional promises to contribute in the future (pledges) are reported as restricted support (time restriction), at the present value of the estimated future cash flows using a discount rate commensurate with the risks involved.

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9
Q

When are donated services displayed as revenue and expense (or capital improvement) on the financial statements of not-for-profit organizations?

SOME

A

Donated services are recognized as revenue of the financial statements of not-for-profit organizations SOME of the time. Recognized donated services must meet the following criteria:

The service creates or enhances nonfinancial assets, or:

Specialized skill are required and possesed by the donor
Otherwise needed (would have been purchased by the organizations anyway);
Measurable
Easily (at fair value)

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10
Q

What are the criteria that must be met in order to not record the donation of works of art or historical treasures?

A

Donated materials are recorded as revenue at fair value on date of receipt, if the fair value can be objectively determined.

  • Item is part of a collection, held for public viewing/exhibitions/education/research.
  • Item is cared for/preserved/protected.
  • Organization has policy that proceeds from the sale of the donated item be reinvested in other collection items or used to support direct care of existing collection.
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11
Q

For a university, identify common revenues without donor restrictions.

A
  • Student tuition and fees
  • Government aid, grants, and contracts
  • Gifts and private grants
  • Endowment income
  • Sales and services of educational departments
  • Revenues of auxiliary enterprises
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12
Q

If student tuition and fees are displayed at gross amount, what happens to scholarships and tuition waivers?

A

Scholarships and tuition waivers may be displayed as expenditures or as a contra-revenue line item.

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13
Q

For health care entities, identify the revenue accounts.

A
  • Patient service revenue
  • Other operating revenue, including tuition from schools, educational programs, donated supplies and equipment, and specific purpose grants.
  • Nonoperating revenue, gains and/or losses, including unrestricted interest and dividend income from investment activities, unrestricted grants, donated services, etc.
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14
Q

Describe how patient service revenue is recorded.

A

Patient service revenue is recorded on the gross basis using established rates. Note that charity care does not qualify for recognition as revenue.

Provisions for contractual adjustments and discounts are then deducted to arrive at net service revenue for external reporting.

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15
Q

Describe the treatment of charity care in a health care organization.

A

Charity care is not recognized as either revenue or expense on the financial statements of a health care organization.

Charity care represents services for which the health care organization does not anticipate any cash flows.

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16
Q

What is a reclassification of net assets?

A

Simultaneous increase in one class of net assets and decrease in another. A reclassification of net assets usually results from donor-imposed restrictions being satisfied or otherwise lapsing.

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17
Q

Conditions that preclude the recognition of revenue for a contribution to a not-for-profit organization are indicated by both of the following.

A
  1. Measurable barriers
  2. Right of the donor to demand return of transferred assets or retract pledge/promise to give
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18
Q

Identify four barriers that may indicate a conditional contribution to a not-for-profit organization.

A
  1. Specific levels of service are required.
  2. Specific outputs or outcomes are required.
  3. Matching provisions are attached to the gift.
  4. Outside events must occur or be resolved (e.g., contingencies).
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19
Q

What are the recognition criteria for cash contributions?

A

Cash contributions:
Recognized as revenues or gains in the period in which they are received, measured at fair value at the date of gift.

20
Q

What are the recognition criteria for unconditional promises?

A

Unconditional promises (pledges):
Pledge receivable and related contribution revenue are recognized at fair value when received.

21
Q

What are the recognition criteria for conditional promises?

A

Conditional promises (pledges):
No recognition of receivable or revenue occurs until a future event occurs (condition met).

22
Q

What are the recognition criteria for multiyear pledges?

A

Multiyear pledges:
Pledge receivable and associated contribution revneu are recognized at net present value at the date the pledge is made, with future collections considered restricted (by time).

23
Q

What does the term variance power mean in the context of not-for-profit accounting and reporting?

A

The unilateral authority to redirect assets to another beneficiary.

24
Q

In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as liabilities by the recipient organization?

A

When assets are transferred without variance power, so that the recipient organzation does not have the unilateral authority to redirect assets to another beneficiary, those transfers are recognized as liabilities.

25
Q

In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as revenue by the recipient organization?

A

When assets are transferred with variance powre, which gives the recipient organzation the unliateral authroity to redirect assets to another beneficiary, the transfer is reognized as revenue.

26
Q

How are marketable securities reported?

A

All debt securities and those equity securities that have readily determinable fair values are measured at fair value.

27
Q

Where are gains and losses on investments reported?

A

Gains and losses on investments are reported in the statement of activities as increases or decreases in net assets without donor restrictions, unless the use of the investment is restricted by explicit donor stipulations or by law.

28
Q

Is depreciation expense recorded in the financial statements of a not-for-profit organization?

A

Depreciation expense and accumulated depreciation are recorded in not-for-profit orgnizations in a manner consistent with recognition used in commercial enterprises.

29
Q

What is an endowment fund?

A

An established fund of assets to provide income for the maintenance of a not-for-profit entity. The use of the fund may be with or without donor-imposed restricitons.

Endowment funds are, however, generally established by donor-restricted gifts to provide a sourc eof income either:
* in perpetuity; or
* for a specified period.

30
Q

What is a board-disignated endowment fund?

A

It is an endowment fund created by a not-for-profit entity’s governing board by designating a portion of its net assets without donor restrictions to be invested to provide income for a long but not necessarily specified period. Board-designated endowments are also referred to as funds functioning as an endowment or quasi-endowment funds.

31
Q

What is an underwater endowment fund?

A

A donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained either by the donor or by law that extends donor restrictions.

32
Q

What are the conditions that define a not-for-profit organization’s economic interest in another entity?

A

A not-for-profit entity is deemed to have an economic interest in another entity if either of the following criteria are met:
1. The entity holds or utilizes signficant resources that must be used for the purpose of the not-for-profit either indirectly or directly by producing income or providing services; or
2. The not-for-profit is responsible for the liabilities of the other entity.

33
Q

Name the primary authoritative body for GAAP for governmental entities.

A

Governmental Accounting Standards Board (GASB)

34
Q

What are the three accounting themes addressed by governmental accounting?

A
  • Fund structure
  • Fund accounting
  • External reporting
35
Q

Identify the major categories of funds used by state and local governmental units.

A
  • Governmental
  • Proprietary
  • Fiduciary
36
Q

Name each governmental fund type.

A

G General Fund
R Special Revenue Funds
S Debt Service Funds
P Capital Projects Funds
P Permanent Funds

37
Q

What are the fund accounting principles applicable to governmental funds?

A
  • Current financial resources measurement focus
  • Modified accrual basis of accounting
38
Q

Name each proprietary fund type.

A

S Internal Service Funds
E Enterprise Funds

39
Q

What are the fund accounting principles applicable to proprietary funds?

A

Measurement focus: Economic resources
Basis of accounting: Full accrual

40
Q

Name each fiduciary fund type

A

Custodial funds
Investment trust funds
Private purpose trust funds
Pension and Other Employee benefit trust funds

41
Q

What are the fund accounting priciples applicable to fiduciary funds?

A

Measurement focus: Economic resources
Basis of accounting: Full accrual

42
Q

Distinguish between alternative measurement focuses.

A

Current Financial Resources (GRSPP)
* No fixed assets are recorded; capital outlays displayed as expenditures
* No depreciation
* No non-current liabilities are recorded; debt proceeds displayed as resource inflows
* Principal payments displayed as an expenditure
* Premiums and discounts on debt are not amortized; they are included as an increase or decrease of debt proceeds

Economic Resources (SE-CIPPOE)
* Fixed assets are recorded
* Non-current liabilities are recorded

43
Q

Define modified accrual and list the funds that use it as a basis of accounting.

A

Modified accrual: Revenues should be recognized when measurable and available; expenditures are generally (with the exception of interest expenditures) recognized when fund liability is incurred.

Funds using modified accrual basis:
G General Fund
R Special Revenue Funds
S Debt Service Funds
P Capital Project Funds
P Permanent Funds

44
Q

What do the terms measurable and available mean in the context of the modified accrual basis of revenue accounting?

A
  • Measurable means quantifiable in monetary terms.
  • Available means collectible within (generally) 60 days of year-end.
45
Q

What is the basic structure of the statement of revenues, expenditures, and changes in fund balance for the governmental funds?

A

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