General-Purpose Financial Reporting: Nongovernmental Not-for-Profit Entities

Question 1

Whats the difference between Conditional pledge vs unconditional.

Answer 1

Unconditional: No strings attached; recorded as revenue right away.

Conditional: Strings attached; not recorded until conditions are met.

Question 2

Statement of activities is equivalent to

Answer 2

Income statement.

Question 3

What is the statement of financial position for
a NPO similar to?

Answer 3

Balance Sheet

Question 4

What’s the difference between Statement of Financial Position and Statement of Activities

Answer 4

Statement of Fin Pos has Net assets with/without donor restrictions as the equity section

Statement of Activities shows the changes in Net assets both with/without donor restrictions during a period.

Question 5

Contribution revenue equation

Answer 5

Question 6

Simplified rules for non profit hospital revenue

Answer 6

Question 7

NFP Statements and their equivalents

Answer 7

Question 8

What are the Bases and financial reporting frameworks

Answer 8

Question 9

What are the NFP Functional expense catagories

Answer 9

Program services are NPOS mission, Supporting services are secondary expenses.

Question 10

When do you recognize revenue for conditional pledges?

Answer 10

When the pledge is satisfied.

Question 11

What are examples of Natural vs Functional Classificaions

Answer 11

Voluntary health and welfare NPOs are required to present both.

Question 12

Whats in the NOP Statement of Cash flows operating section and briefly in the other sections

Answer 12

Question 13

Net assets with donor restrictions equation

Answer 13

Question 14

Ongoing central operations must be reported at their ________ amounts. Secondary or peripheral activities may be reported at their ____ amounts on the statement

Answer 14

Gross

Net of revenue and expenses

Question 15

For NPO hospitals, ______charges related to ______ care must be deducted from gross revenue

Answer 15

For NPO hospitals, service charges related to charity care must be deducted from gross revenue

Question 16

What is a split interest arrangement

Answer 16

A split-interest arrangement is when a gift is shared between the donor (or someone they choose) and a charity. The donor gets payments for a set time (lead interest), and the charity gets what’s left after (remainder interest).

Question 17

Why are future pledges/contributions considered restricted even without specific donor restrictions, and how are they classified

Answer 17

Future pledges are restricted because of time restrictions. If the payment is due in more than a year, it’s classified as revenue with donor restrictions until the time restriction is met.

Question 18

Donations of services are recognized on the statement of activities if either of the 2 conditions are met. What are the 2 conditions

Answer 18

1) Services create or enhance a nonfinancial asset
(e.g., building repairs).

2) Services require specialized skills. (e.g., services from accountants, doctors, or lawyers)

Question 19

Income from an endowment goes into _________

Answer 19

Net assets without donor restriction. It is not added back to the endowment balance

Question 20

Watch out for contributed collectibles like antiques or artifacts, these do not go on the financial statements but are __________

Answer 20

Disclosed in the footnotes.

Question 21

Do quasi-endowments go into assets with donor restrictions?

Answer 21

No. Quasi-endowments are board-designated funds, not donor-restricted. The board controls their use, so they are classified as assets without donor restrictions.

Question 22

On the Statement of financial position, where does Net assets go?

Answer 22

After Total Liabilities.
Net assets is in the equity position, showing net assets with/without donor restrictions.

Question 23

What is the starting point for the cash flows from operating activities for a private, not-for-profit entity using the indirect method

Answer 23

Question 24

How should a nonprofit report unconditional pledges that will be collected over more than one year?

Answer 24

Report at present value of future collections

Discount is either:
* Subtracted directly from pledge receivable
* Or disclosed separately in the notes

Revenue is recognized in the year pledged, not when collected

🧠 Matching GAAP: Report receivables at net realizable value, just like accounts receivable

Question 25

How are restricted and unrestricted cash contributions reported on a nonprofit’s statement of cash flows?

Answer 25

Unrestricted contributions → Operating inflow Restricted for long-term asset purchase → Financing inflow Use of restricted funds to buy asset → Investing outflow 🧠 Example: $500K unrestricted = operating inflow $200K restricted = financing inflow $200K property purchase = investing outflow

Question 26

🧾 In a nonprofit’s functional statement of expenses: Which are supporting services, and how much should be reported as such? Given: Education = $300,000 Fundraising = $250,000 Management & General = $200,000 Research = $50,000

Answer 26

Supporting services = Fundraising + Management & General = $250,000 + $200,000 = $450,000 🔹 Program services = Direct mission work (Education, Research) 🔹 Supporting services = Indirect support: Fundraising (raising money) Management & General (admin, HR, accounting) Nonprofits must report program vs. supporting separately to show how funds are used. ✅ Answer: $450,000 in supporting services.

Question 27

📊 On a nonprofit’s statement of activities, which type of revenue and expense must be reported at gross (not netted under any circumstances)? Options (example-based): A. Sale of used equipment B. Annual fundraising campaign C. Investment income & fees D. Foreign exchange gains/losses

Answer 27

✅ B. Annual fundraising campaign 🔹 Ongoing major operations (like fundraising) must be reported at gross amounts – This includes all revenues and direct expenses separately – Helps donors understand the true effectiveness of the fundraising effort 🔹 Secondary or peripheral activities (e.g., sale of equipment, investment income, FX gains/losses) can be reported net 📌 Key Rule: Gross = core mission activities Net = incidental or supporting activities

Question 28

🧾 A private university receives a $1,000,000 donation that is conditional on raising matching funds within 12 months. There’s only a 50% chance they’ll meet the condition. How should this donation be reported? (A) Restricted revenue (B) Unrestricted revenue (C) Refundable advance (D) Memo footnote only

Answer 28

✅ Correct answer: (C) Refundable advance * Conditional donations are not recognized as revenue until the condition is substantially met. * Until then, the NFP has a liability to return the funds — recorded as a refundable advance. * This is similar to deferred revenue: the org holds the money but hasn’t earned it yet. * Once the condition is met, it gets reclassified to contribution revenue. 📌 Key Rule: Conditional donations = Liability (refundable advance) until the condition is met. Revenue is only recorded once the donor-imposed barrier is overcome.

Question 29

When should a recipient NFP organization report a donation as contribution revenue?

Answer 29

When the recipient is either: Given variance power by the resource provider (power to redirect funds to other beneficiaries), or Financially interrelated with the beneficiary (shares control or economic interest) ➡️ If the recipient has no variance power and is not financially interrelated, it must not recognize contribution revenue — instead, it acts like a pass-through agent. Example MCQ: “A resource provider grants variance power to the recipient org to redirect donations to others.” → ✅ Recognize as contribution revenue ## Footnote Baiscally if the recipent has to give it to other agencies its recorded as an asset or liab

Question 30

When a nonprofit uses unrestricted funds to invest in public stock, and the stock increases in fair value plus earns dividends, how should these changes be reported on the statement of activities? (Example: Crestfallen buys stock for $35,000 with no donor restrictions, stock is worth $42,000 at year-end, and earns $1,000 in dividends.)

Answer 30

Report the full $8,000 ($7,000 gain in FMV + $1,000 dividend) as an increase in net assets without donor restriction. Investments bought with unrestricted funds stay unrestricted, even when they earn income or grow in value. Unrealized gains (FMV increases) and dividends are reported as revenue without donor restrictions. “Temporarily restricted” classification is no longer used under GAAP for NFPs.