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Non-Government non-for-profit organizations that wish to follow generally accepted accounting principles in the preparation of their financial statements should follow:

FASB Standards


List the four broad categories of not-for-profit organizations.

  1. Hospitals and other health care entities;
  2. Colleges and Universities;
  3. Voluntary Health and Welfare Organizations;
  4. Other not-for-profit organizations.


What authoritative body has jurisdiction over private not-for-profit organizations?

Financial Accounting Standards Board (FASB).


In which net asset categories are expenses recognized?

Reported as decreases in Unrestricted net assets.


List the two sub-classifications of expenditures for supporting services within a not-for-profit organization.

  1. Management and General;
  2. Fund Raising.


What are the two main categories of expenses in the Statement of Activity?

  1. Program Services
    • Related to the primary mission of the organization
  2. Supporting Services
    • Do not directly relate to the primary mission
      • Management
      • General and Administrative
      • Fundraising



List two types of temporary restrictions for private not-for-profit organizations.

  1. Time restrictions 
    • when the donor stipulates that the resources must be spent in a certain time period;
  2. Purpose restrictions 
    • when the donor stipulates that the resources must be spent on a specific manner.


What financial statement is required for Voluntary Health and Welfare Organizations only?

  • Statement of Functional Expenses.
  • The statement is recommended, but not required, for all other types of not-for-profit organizations.


List the two broad classifications for expenditures within a not-for-profit organization.

  1. Program Services;
  2. Supporting Services.


List the three financial statements that are required for all private not-for-profit organizations.

  1. Statement of Financial Position;
  2. Statement of Activity;
  3. Statement of Cash Flows.


Describe the accounting entry for a not-for-profit organization that has a temporary restriction of $5,000 satisfied.

The entry is a reclassification

"Net assets released from restrictions" is reported as a $5,000 decrease in the revenue section of temporarily restricted net assets and as a $5,000 increase in the revenue section of unrestricted net assets.


List the three categories of a not-for-profit organization's Net Assets.


  1. Unrestricted;
  2. Temporarily Restricted;
  3. Permanently Restricted.


How do you report revenue in the

Statement of Activity?

Revenue is reported at Gross


What financial statements are required for VHWO?

  1. Statement of Financial Position
  2. Statement of Activity
  3. Statement of Cash Flows
  4. Statement of Functional Expenses


In the Statement of Activities,

where are Expenses reported?

ONLY in Unrestricted Net Assets



Statement of Functional Expenses is only required for which organizations?

Voluntary Health and Wellness Organizations



What is an

Unrestricted Net Asset?

  • Resources are free of donor restrictions.
  • NPO can use net assets for any purpose


What is a Temporarily Restricted Net Asset?

A Net asset where donor stipulates purpose for the use of the donated resource:

  1. Purpose-type restriction
  2. Time-specific restriction


What are the 3 types of Net Asset Restrictions?

  1. Unrestricted
  2. Temporarily Restricted
  3. Permanently Restricted


What are the 4 principal sections of the Statement of Activity?

  1. Revenues and Gains;
  2. Net Assets Released from Restrictions;
  3. Expenses and Losses;
  4. Change in Net Assets (including reconciliation of beginning and ending Net Assets).


What are the two ways to classify expenses in the Statement of Activity?

  1. Program Services
    • Expenditures made to further the mission of the organization
    • Education, Outreach, Research
  2. Support Services
    • Management and General
    • Fund Raising


What categories are used in a Non-governmental Not-for-Profit Organization's Statement of Financial Position?

  • Assets
  • Liabilities
  • Net Assets


How should operating expenses for a nongovernmental not-for-profit organization be reported?

Change in unrestricted net assets

According to FASB Statement No. 11, a nongovernmental not-for-profit organization reports operating expenses only in the Changes in Unrestricted Net Assets section of the Statement of Activities.


An unrestricted cash contribution should be reported in a nongovernmental not-for-profit organization's Statement of Cash Flows as an inflow from...

Operating Activities.


What are examples of Supporting Expenses from the Statement of Functional Expenses?

  1. Management
  2. G&A
  3. Fund Raising expenses required to operate


What are examples of Program Expenses from the Statement of Functional Expenses?

  1. Salaries of researchers
  2. Cost of equipment used in research
  3. Cost of laboratory supplies used in research


Define "PURE endowments."

Contributions to the organization from third parties for which the principal (corpus) must "remain intact in perpetuity."


Define "term endowments."

  • Gifts and bequests from third parties
  • It has to be retained and invested for a period of time or until a specific event occurs,
  • After the criterion has been met, the full amount can be spent.


When is an implied time restriction recognized?

An implied time restriction can be recognized on donated long-lived depreciable assets.

For example, a VHWO that was donated a building with a 30 year expected life and adopts a policy to recognize such donations as having an implied time restriction would recognize the donation as temporarily restricted net assets and then incrementally reclassify into unrestricted net assets over the 30 year life of the building. Essentially, the amount reclassified each year would be equal to annual depreciation expense.


What are the regular endowment criterias?

  1. Expendable Restricted (specific use)
  2. Expendable Unrestricted 
  3. Non-expendable (Depending on donor)


What is the difference between Quasi and Board Designated Funds?

Quasi = Earnings can be spent

Board Designated Fund = Principal can be spent


How should a nongovernmental not-for-profit organization classify gains and losses on investments purchased with permanently restricted assets?

Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in unrestricted net assets.


Investments in equity securities that have a readily determinable market value and all debt securities of a not-for-profit organization are reported at

According to FASB Statement No. 124, not-for-profit organizations report their investment in debt securities and equity securities at Fair Value.


How do Not-for-Profit Organizations value debt securities?

At Quoted Market Prices

Unlike for-profit entities, not-for-profit entities do not break debt securities into trading, available-for-sale, and held-to-maturity categories. Following FASB Statement No. 124, not-for-profits value debt securities at fair value (quoted market price).


List the three conditions that must be met in order for assets to be classified as a "collectible."

  1. Held for public exhibition, education, or research rather than financial gain;
  2. Protected, kept unencumbered, cared for, and preserved;
  3. Subject to a policy that requires proceeds from sales of collection items to be used to acquire other items for collections.


When is a contribution of services recognized?

Recognized if the services require the following:

  1. special skills 
  2. the person providing the services possess those skills 
  3. the services would have been purchased if not obtained by donation.


Describe the general revenue recognition rule for contributions.

In general, contributions are recognized as revenue in the period when the contribution is made, regardless of whether they are received in cash or not.


A donor gave $15,000 to a not-for-profit organization and specified a beneficiary (a particular individual) to receive the funds. What must the not-for-profit organization possess in order to recognize the $15,000 as a contribution.

  • Variance Power.
  • The NFP must have the ability to set aside the donor restriction (e.g., redirect the resources to another beneficiary or revoke the restriction).
  • The NFP would recognize a liability if it does not have variance power.


What value is used to record donated capital assets?

Fair market value at the date of donation.


When are conditional promises to give recognized?

  • Recognized when the conditions are substantially met


  • the likelihood of the conditions not being met is remote.


What is the journal entry to record receipt of $100,000 in pledges when it is estimated that 20% of the pledges will be uncollectible?

DR: Pledges Receivable $100,000
    CR: Est. Uncollectible Pledges  $20,000
    CR: Contribution (Revenue)      $80,000


How are special event revenues and direct costs reported?

  • Revenues and direct costs are reported at gross amounts.
  • Expenses to promote the event, such as printing, mailing, are treated as fund-raising and are not charged against the special event.


List the characteristics of a contributions.

  1. Unconditional;
  2. Voluntarily made;
  3. Nonreciprocal;
  4. Not made by an owner.


What is the journal entry for

Pledges net of allowance account?

Pledges Receivable

    Allowance for uncollectible Pledges

    Contributions Revenue (Plug)

*Contributions Revenue is a plug figure


What is the criteria for recognizing 

Donated Services?

  1. Non-Financial assets are enhanced
  2. Special skills that the organization would normally have to pay for
    • Ex: A CPA volunteering to audit.


A nongovernmental not-for-profit animal shelter receives contributed services from the following individuals valued at their normal billing rate:

  • Veterinarian provides volunteer animal care$8,000
  • Board members volunteer to prepare books for audit4,500
  • Registered nurse volunteers as receptionist3,000
  • Teacher provides volunteer dog walking2,000

What amount should the shelter record as contribution revenue?

Contribution revenue is $12,500

Veterinarian + preparation of books for audit


What is another name for Conditional Revenue?

Refundabe Advance

The not-for-profit should account for conditional contributions received (e.g., cash is deposited) as a refundable advance (liability) until the condition is met.


What is the JE for Refundable Advance?


    Refundable Advance (Liability)


Ragg Coalition, a nongovernmental not-for-profit organization, received a gift of treasury bills. The cost to the donor was $20,000, with an additional $500 for brokerage fees that were paid by the donor prior to the transfer of the treasury bills. The treasury bills had a fair value of $15,000 at the time of the transfer. At what amount should Ragg report the treasury bills in its statement of financial position?


Donated assets are reported at FV.


What are the 3 Types of Net Assets for Non-governmental NPOs?

  1. Unrestricted Net Assets
  2. Temporarily Restricted Net Assets
  3. Permanently Restricted Net Assets


Janna Association, a nongovernmental not-for-profit organization, received a cash gift with the stipulation that the principal be held for at least 20 years.

How should the cash gift be recorded?

As a temporarily Restricted Asset

  • It is time-restricted but can be used after the time restriction has been met. 
  • This is not permanent because it's not an endowment and the fund can be used.


How should depreciation expense on an asset be reported for non-governmental NPO's?

Included as a decrease in unrestricted net assets.

Depreciation expense is allocated to programs and therefore is a decrease in unrestricted net assets.


How does the allowance account for uncollectible pledges affect the Unrestricted and Restricted contributions?


    Allowance (5% of Total Pledges)

    Unrestricted (Net of 5% allowance)

    Restricted (Net of 5% allowance)


Oz, a nongovernmental not-for-profit organization, received $50,000 from Ame Company to sponsor a play given by Oz at the local theater. Oz gave Ame 25 tickets, which generally cost $100 each. 
Ame received no other benefits.

How would you JE the above transaction?

Journal Entry:

Cash                                50,000

   Ticket Sales Revenue         2,500

   Contributions Revenue       47,500


How are Donated Fixed Assets recorded?

Recorded at FMV at date of donation.

These assets are subject to depreciation.


What donated assets are not required to be in the statement of financial position for NPO's?

  1. Held for public exhibition, education or research in furtherance of public sector rather than financial gain'
  2. Protected, kept unencumbered, care for, and preserved,
  3. Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.

Ex: An art collector donated a famous oil painting to a local nongovernmental art museum for display in its exhibit hall.


What is the JE for the below:

 Purchased equipment for $25,000 using donor resources restricted for the purchase of the equipment.

Equipment       25000

Cash                     25000

Temp. Restr. NA-Restr. Released    25000

Unrestricted NA-Rest. Released          25000



What is the JE for the below:

Received pledges for $600,000 in a campaign at the end of the year. 10% are expected to be uncollectible. No collections were collected in the current year.

Pledges Receivable       600000

Allowance                                      60000

TRS -Contributions                        540000

This affects the Temporarily-restricted Net asset account.


What is the JE for the below:

Metro incurred $120,000 of costs for the transitional housing program for homeless men.

Expenses                          120000

Cash                                         120000

Temporarily Restricted     120000

Unrestricted                             120000

This affects the Asset and Temporarily restricted Net asset account.


What is the JE for the below scenario:

A donor pledged $1,000,000 if Metro can get a national hotel chain to donate one of its notels in the region to Metro to convert it to a half-way house for drug and alcohol rehabilitation.

No JE required.

This is a conditional pledge that cannot be recognized as support until the condition is satisfied


What accounts are affected in the below transaction?

The donor who pledged $1,000,000 for the half-way house contributes $250,000 as a way to demonstrate her commitment to the project.

  • Increase in Asset
  • Increase in Liability

Even though the donor has given Metro cash the condition still exists and therefore the amount is a refundable advance.


What is the JE for the below transaction?

$50,000 is incurred in costs Metro's loaves and fishes free cafeteria for the homeless. The costs are covered by earnings from an investment in a permanent endowment for the program.

Expenses    50000

Cash                50000

Permanently Restricted        50000

Unrestricted NA-Restr. Released     50000


What is charity care?

  • Services to persons who have demonstarted that they are unable to pay.
  • Never expected to be collected.
  • Not recognized as receivable, revenue, or bad debt.


List the financial statements required by a not-for-profit hospital.

  1. Balance Sheet;
  2. Statement of Operations;
  3. Statement of Cash Flows.


How is charity care recognized in the financial statements of a not-for-profit hospital?

  • It is not recognized.
  • (Not as revenues, receivable, or bad debt in the financial statements of a not-for-profit hospital.)
  • Charity care is reported in the notes to the financial statements, however.


List the net asset categories for a not-for-profit hospital.

  1. Unrestricted;
  2. Temporarily restricted;
  3. Permanently restricted.


Define "capitation fees."

Payments made to health care providers for comprehensive client coverage provided for a fixed fee; e.g., HMOs.


How are "contractual adjustments" reported by health care organizations?

Contractual adjustments are a contra account deducted from patient service revenues in deriving net patient service revenues, which is the first line in the statement of operations for a health care organization.


Are Cash Flows from Noncapital Financing Activities and Cash Flows from Capital and Related Financing Activities required for governmental healthcare agencies and not-for-profit healthcare agencies?

  • Cash Flows from Noncapital Financing Activities and Cash Flows from Capital and Related Financing Activities are required sections of the cash flow statement for governmental healthcare agencies.
  • Not-for-profit healthcare agencies report cash flows from financing activities (a single category).


List the financial statements required by a governmental hospital.

  1. A balance sheet;
  2. A statement of revenues, expenses, and changes in net position;
  3. A statement of cash flows


Which of the following should normally be considered ongoing or central transactions for a not-for-profit hospital?

I. Room and board fees from patients.

II. Recovery room fees


Both room and board fees from patients and recovery room fees are normal, ongoing activities of a not-for-profit hospital.


How is the donation of medicine recorded? 

As Other Operating Revenue

Medicine is considered essential to the major ongoing operation of the hospital, therefore the donation of medicine is recorded as other operating revenue at its fair market value.

dr. Inventory of Medicine

   cr. Donated Revenues

SFAS 116


In hospital accounting, restricted funds are:

Restricted as to their use by the donor, grantor, or other source of the resources.

In government hospitals and non-government hospitals restricted funds or assets, both permanent and temporary, can only be restricted as to use by the donor, grantor, or other source of the resources.


How do you calculate

Net Patient Service Revenue?

Gross patient Service Revenue 

— Charity services/care

— Contractual adjustments

— Uncollectible accounts (bad debts)

+  Other Revenue

+  Net Assets Released from Restrictions

Net Patient Service Revenue


List the net position categories used by a public university.

  1. Unrestricted;
  2. Restricted;
  3. Net investment in capital assets.


Define "auxiliary enterprises" of a college or university.

Activities carried on by an educational institution that are not directly related to the delivery of instruction (i.e., residence halls, dining services, athletics).


List the net asset categories used by a private university.

  1. Unrestricted;
  2. Temporarily Restricted;
  3. Permanently Restricted.


How is tuition revenue reported?

  • Net of tuition discounts and scholarships allowances in the operating statement.
  • However, scholarships, assistantships, and tuition waivers granted in return for services are reported as expenses.


Public Colleges and Universities follow what standards?



Private colleges and universities follow what standards?



What is the journal entry for Tuition Revenue between sessions?


      Revenue (current month)

       Deferred Revenue (months remaining)


Tuition scholarships for which there is no intention of collection from the student should be classified by a private university as

A reduction of gross revenue to arrive at net revenue