Flashcards in NFP Accounting Deck (45)
Which financial statements are required for not - for - profit organizations?
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Statement of Functional Expense (Volunteer Health Organizations Only)
What are the major classifications found on a Statement of Financial Position?
Similar to Balance Sheet:
Permanently Restricted Assets
Temporarily Restricted Assets
What are the major classifications in a Statement of Activities?
Similar to an Income Statement - organization - wide:
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
What are the characteristics of a Statement of Cash Flows for not - for - profits? What are the major classifications?
Both direct and indirect methods are OK
Operating Activities - Unrestricted Revenues and Unrestricted Expenses
Financing Activities - Endowments and restricted contributions
Which organizations are required to present a Statement of Functional Expenses?
Volunteer Health Organizations
Which statements are required for non - governmental hospitals?
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes
Which basis of accounting is used for revenues and net assets?
Accrual basis of accounting is used
Only external parties can restrict the use of assets (permanent or temporary)
Assets earmarked internally by management are still classified as unrestricted
What are the characteristics of unrestricted assets or revenue?
No restrictions or conditions placed on entity in order to use the resources
Note: assets earmarked internally by management are still unrestricted
When are revenues on contributions recognized?
Revenues on contributions are recognized in the year received - not the year the contribution is spent and are recorded at Fair Value on the date received
When are services rendered considered contributions?
If the organization would have otherwise paid for them
They increase the value of a non - monetary asset
Is hospital charity care revenue?
It is disclosed in the notes to the financial statements only.
How are unconditional pledges to contribute recorded?
Classified as revenue in the current year only - multi - year future contributions fall under Temporarily Restricted.
Which revenues are expenses deducted from?
Expenses ONLY deducted from Unrestricted Revenues - not Temporary or Permanently Restricted Revenues/Assets
What are the characteristics of temporarily restricted assets/revenue?
Use is restricted to a future time - which could then convert to unrestricted - Class: Temp. Restricted Revenue
Unrestricted contributions promised (including multi - year contributions) - but not yet received are actually restricted by time and are therefore classified as Temporarily Restricted Assets - Multi - year contributions are recorded at the present value of the future contributions
What are the characteristics of an endowment?
Use of investment is restricted - but income from investment could be either restricted or unrestricted
Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets
Otherwise - a memo entry is recorded
When is the donation of an art collection recognized as a contribution or asset?
Not recognized as assets or contribution revenue if they are held of display or education' or their sale results in the purchase of similar items
When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first?
Temporarily restricted assets are used before Unrestricted assets.
How is a refundable advance recorded by a not for profit?
Classified as a Liability
Promise to contribute assets pending on certain conditions being met
Becomes unconditional once the possibility that it won't happen is remote
How are investments recorded and valued in not - for - profit accounting?
Fair Value is mostly used
Exception - Equity method used when significant influence exists
How are scholarships recorded?
As a reduction of revenue - netted against college's tuition
How is depreciation expense recorded by a not - for - profit?
Depreciation expense is allocated proportionately to various functions
What is nonprofit accounting? Pg. 32-1
It provides a service from funded contributions (donations)
What are the 3 basic financial statements used by nonprofits? Pg. 32-1
1) Statement of Financial Position (like B/S): Assets = Liabilities + NET assets
2) Statement of Activities (like I/S and R/E)
3) Statement of Cash Flows
For nonprofit accounting, what are 3 accounts for the net asset section? Pg. 32-1
1) Unrestricted net assets
2) Temporarily restricted net assets
3) Permanently restricted net assets
*Significance of permanently restricted?
*How do you classify each net asset in the statement of cash flows
1) Unrestricted net assets: board of trustees designated; also includes services that you would buy (operating activity in cash flows); NO RESTRICTION what so ever!!!
2) Temporarily restricted net assets: there is a restriction, then there lapse due to time, use, or purpose => therefore, becomes unrestricted; may spend on only certain purpose; also includes promises are also included here, and unrealized gains (operating activity in cash flows)
3) Permanently restricted net assets: endowment of the arts (NFP may never spend, but can only invest earnings) (financing activity in cash flows)
*Earnings from permanently restricted will be unrestricted/temporarily restricted
Not for profit: Statement of Cash Flows Pg. 32-4
*What are the activities that are included? (3)
*Contribution revenue is what type of activity?
*Contribution for long-term purpose is what type of activity?
1) Operating Activity: you can use direct/indirect; revenue, expense, interest income/expense, dividend income
2) Investing Activity: LIP => Investments & PP&E => money OUT to acquire; no loans
3) Financing Activity: how to raise money for a company
a) Money RESTRICTED to acq PP&E => money IN (different from GAAP cash flows)
b) Permanently RESTRICTED revenue
What is a VHWO? Pg. 32-6
What is the equation for statement of FUNCTIONAL expense under statement of activities?
Voluntary health and welfare organization financed by voluntary contributions from the general PUBILC (ie Red Cross, Greenpeace, and homeless shelters
Public support (donated)
+ Revenues (earned)
- PROGRAM expenses (further the mission of the organization) => expenses directly related to the program
- SUPPORT Services (secondary to the mission)
= Excess of revenue over expenses
What is the statement of operations for a hospital?
P Patient service revenue (all costs of taking care: hotel type, medical, lab)
P - Provision for contractual adjustments (no bad debt included; allowance included; medicare, employee discounts, not charity)
N = Net patient service revenues
O + Other Operating revenues gains and losses (earned, not patient service, RESTRICTED donations, and interest/dividends) => revenues and gains that represent amounts received for reasons other than performance of health care related service
O - Operating Expenses (cost of running hospital); includes bad debt
N + Non-operating revenues (unearned)
E = Excess of Rev/Exp
What type of net asset is an expense?
Unrestricted net asset
Name 3 categories of net assets the statement of activities reports? Pg. 32-2
1) Revenues / Gains: reported in FMV
2) Net assets released from restriction: Temporary restriction became unrestricted
3) Expenses: only unrestricted because it is spent
What is an agent in relation to nonprofit?
When the recipient of the funds has little or no discretion as to how funds will be used => will book as a liability
*What is a pledge? Pg. 32-8
*What is a conditional promise?
*An unconditional promise to give
*It is considered a "liability" until funds are matched, then a revenue
For the statement of functional expenses (VHWO), what is considered support services? Pg. 32-6
2) Fund raising
How should donations be recorded?
At fair value (quoted market prices)
When is contribution revenue reported in the statement of activities for a not-for-profit? NFP #23 & 24
Since they are accrued, they are included when they are made net of uncollectible accounts
How is any expense treated as in any not-for-profit? (What type of asset)
ALL expenses are treated as unrestricted net assets
What type of contributed SERVICES and EQUIPMENT are recorded as revenue for not-for-profits? NFP #34, 35 WB
What type of net asset is it considered as?
Essential services that require specialized skills, which are contributed by professionals
Unrestricted net asset, since they were going get the service anyway
When does a not-for-profit recognize a donation they received for coporate stock / securitites? NFP #37
Fair market value at year end
What is included as restricted support for a not-for-profit? NFP #19
Temporary restricted and permanently restricted
When is a net asset for not for profit accounting considered a liability and not a restricted, temporary restricted, and permanently restricted? NFP #4
When the money is given to an agent
For any expense of a not for profit, which net asset will decrease? NFP #33
Unrestricted net asset
When do you recognize a temporary resticted net asset? NFP #48
When the income is spent in a manner satisfying the restriction that it would be released from temporarily restricted net asset
When you reclassify from temporary restricted net asset to unrestricted net asset, what is the net affect for unrestricted net asset and temporary restricted net asset? NFP Chart
Unrestricted net asset: NO net affect
Temporary restricted net asset: decrease
What type of asset would revenue be classified as for not for profit? NFP #20
Unrestricted net asset if there is no time lapse, or condition restricting the asset
Are public universities considered NFP? NFP #22 WB
No since they are supported by the government