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Flashcards in NFP Accounting Deck (29):
2

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)

3

What are the major classifications found on a Statement of Financial Position?

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Assets
Permanently Restricted Assets
Temporarily Restricted Assets

4

What are the major classifications in a Statement of Activities?

Similar to an Income Statement- organization-wide:

Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted

5

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

Investing Activities

Financing Activities - Endowments and restricted contributions


6

Which organizations are required to present a Statement of Functional Expenses?

Volunteer Health Organizations

7

Which statements are required for non-governmental hospitals?

Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes

8

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

9

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

10

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

11

When are services rendered considered contributions?

If the organization would have otherwise paid for them

or

They increase the value of a non-monetary asset

12

Is hospital charity care revenue?

NO.

It is disclosed in the notes to the financial statements only.

13

How are unconditional pledges to contribute recorded?

Classified as revenue in the current year only - multi-year future contributions fall under Temporarily Restricted.

14

Which revenues are expenses deducted from?

Expenses ONLY deducted from Unrestricted Revenues- not Temporary or Permanently Restricted Revenues/Assets

15

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

16

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

17

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

18

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.

19

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

20

How are investments recorded and valued in not-for-profit accounting?

Fair Value is mostly used

Exception - Equity method used when significant influence exists

21

How are scholarships recorded?

As a reduction of revenue- netted against college's tuition

22

How is depreciation expense recorded by a not-for-profit?

Depreciation expense is allocated proportionately to various functions

23

Would the following transaction or event cause an increase in unrestricted net assets for the year ended 12/31/2013?

A private not-for-profit voluntary health and welfare organization spent a restricted donation that was received in 2012. In accordance with the donor's wishes, the donation was spent on public health education during 2013.

ANSWER:

The restricted donation of the voluntary health and welfare organization is reported as a reclassification on the statement of activities for 2013. The net effect of the reclassification and the recognition of the expense is zero. The reclassification resulting from the expiration of the donor-imposed restriction increases unrestricted net assets; however, the expense resulting from using the funds for public health education is subtracted from this increase, causing no effect on unrestricted net assets.

24

Would the following transaction or event cause an increase in unrestricted net assets for the year ended 12/31/2013?

During 2013, a private, not-for-profit college earned dividends and interest on term endowments. Donors placed no restrictions on the earnings of term endowments. The governing board of the college intends to use this investment income to fund undergraduate scholarships for 2013.

ANSWER:

The interest and dividends earned on the term endowments are unrestricted, and should be reported as an increase in unrestricted revenue for 2013. Since no expenses have been incurred from the use of the investment income for 2013, the net effect is an increase in unrestricted net assets for 2013.

25

Question:

During the year ended 12/31/2013, a not-for-profit performing arts entity received the following donor-restricted contribution and investment income.

As a result of the cash receipts, the statement of cash flows for the year ended 12/31/2013, would report an increase of

Cash receipts received:

1. Cash contribution of $100,000 to be permanently invested

2. Cash dividends and interest of $6k to be used for the acquisition of theater equipment

ANSWER:

The receipt of cash from a donor to establish a permanent endowment should be reported as a financing activity on the statement of cash flows. This same paragraph also states that receipts from investment income that by donor stipulation are restricted for the purposes of acquiring plant, equipment, and other long-lived assets should also be reported as a financing activity.

26

When functional classifications are used by private sector health care organizations, they should be based on?

Functional classifications should be based on full cost allocations. Health care organizations may report depreciation, interest, and bad debts along with functions.

27

Question:

James Hospital, a nonprofit hospital affiliated with a private university, provided $200,000 of charity care for patients during the year ended 12/31/2013. The hospital should report this charity care

...Only in the notes to the financial statements for 2013.

According to the AICPA Audit and Accounting Guide, Health Care Organizations, charity care does not qualify for recognition as receivables or revenue in the financial statements. Management's policy for providing charity care, as well as the level of charity care provided, should be disclosed in the financial statements. Such disclosure generally is made in the notes to the financial statements and is measured based on the providers' rates, costs, units of service, or other statistical measure.

28

What kinds of revenue are usually reported as "other revenue and gains" on a hospital's statement of operations?

According to the AICPA Audit & Accounting Guide, Health Care Organizations, a hospital's other revenue, gains, and losses are derived from services other than providing health care services or coverage to patients.

Other revenue, gains, and losses typically include interest and dividends that are unrestricted as well as proceeds from sales at gift shops and snack bars.

29

Question:

Which of the following financial statements of a private, nonprofit hospital reports the changes in unrestricted, temporarily restricted, and permanently restricted net assets for a time period?

1. Balance Sheet

2. Statement of operations

The statement of changes in net assets reports the changes in the hospital's unrestricted, temporarily restricted, and permanently restricted net assets for a time period.

The statement of operations discloses only the changes in unrestricted net assets for a time period, while the balance sheet discloses the amounts of unrestricted, temporarily restricted, and permanently restricted net assets as of a specific date.

Therefore, neither the balance sheet nor the statement of operations discloses the changes in unrestricted, temporarily restricted, and permanently restricted net assets for a time period.

30

Performance Indicator

The statement of operations for a private, nonprofit hospital should include a performance indicator that indicates the results of operations for a period.

What types of items would be included in a hospital's performance indicator reported on the statement of operations?

The AICPA Audit and Accounting Guide, Health Care Organizations, lists proceeds from sales of cafeteria meals and guest trays to employees, medical staff, and visitors as one of the items reported as other revenue on the statement of operations.

Other revenue is included in the performance indicator on the statement of operations.

Net assets released from restrictions are also reported in the performance indicator IF the net assets are used for operating expenses.