Chapters 12

• Learn presentation and recognition of: NFPs Health Care Organizations Universities

NFPs

• Charities • Hospitals• Churches • Professional Societies

AICPA

NFPs

NFP

Full Accrual

With Restrictions

Financial Statements

Balance Sheet

Statement ofActivities

Statement ofCash Flows

Statement of Functional Expenses

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Categorization

Unrestricted Operating funds

Temporarily Restricted

Restricted for a period of time by thedonor, to be used for set purposePermanently

Restricted

Donor RestrictedNever Spent

NFP Statement of Financial Position

In addition to Total assets, Total liabilities, and Total Unrestricted net assets,

ASC 958 requires Net Assets in three categories: Unrestricted net assets

Temporarily Restricted net assetsPermanently restricted net assets

(May be restricted by time, purpose, or event)Net assets rather than equity!!

Classified as current and non-current

Statement of Activities

•Three categories • Unrestricted • Temporarily restricted • Permanently restricted

All expenses must be recognized in the Unrestricted fund, so funds that have been restricted must be released from theRestricted fund and transferred to the Unrestricted.

Statement of Cash Flow • Three Sections

• Operating • Investing • Financing

• Recommended direct method

Exception: Contributions for long term purposes, endowments, capital assets and any earnings on those funds are financing

activities. See Table 12-4, note differences in financing section

Recognition Rules

• Revenue is recognized when donated or contingency is met• Revenue from exchange transactions recognized in unrestricted fund• Expenses recognized when incurred• All expenses recognized in unrestricted fund• All types of assets on the statement of

Financial position• All types of liabilities also recognized

NFP Revenue

• Exchange transactions follow FASB rules • Pledges (ASC 958)

• Collect current year - use allowance • Collect within 1 year - NRV• More than one year out - PV and in temporarily restricted fund

• Conditional pledge - disclosed, recognized as revenue when condition met• Released from any restrictions when collected

Entries

Unrestricted fund, when no restrictions Placed on donations: Pledges receivable $100,000

Revenues from contribution $97,000Allowance for uncollectible 3,000

When collected: Cash $50,000

Pledges receivable $50,000

Entries Temporarily Restricted by time or purpose:When Pledged: (TR)Pledges Receivable $75,000

Allowances for uncollectible pledges $ 5,000Revenues from pledges $70,000

When restriction met and collected: (TR)Pledges released from restriction $60,000

Cash $60,000Unrestricted fund – used for intended purpose: Cash (Expense) $60,000

Pledges released from restriction $60,000

More than one year in future

Use present value of 4 future payments of $100,000:

When made (TR): @ 10% (3.170)Pledges receivable $317,000

Deferred revenue (PV)$317,000

When collected (TR): Resources released (PV) $ 68,300

Pledges receivable (PV) $ 68,300Unrestricted fund: Cash $100,000

Resources released from restriction $ 68,300Interest Revenue $ 31,700

Donated Services

•Not recognized unless professional services which would otherwise be purchased • Criteria for recognition

• Create or enhance financial assets • For specialized skills

Entry: (accounting services)Salaries Expense 1,500

Contributions 1,500

Intermediary Org

If donations held to be transferred to another

organization

If other organizationis specified, then recognized asset and liability

If other organizationnot specified and discretion is explicit thenrevenue. This is Variance power.

Type ofOrganization SpecifiedTemp.Res.

NFP Expenses

• Recognized using FASB rules • Depreciation of capital assets

• By function• Total disclosed

• Gains and losses recognized• AllAll recognized in unrestricted fund

Investments

• Marked to market • Unrealized gains/losses recognized in revenue

Investments Investment earnings

• Don’t use the FASB categories• Realized gains/losses only those incremental over last statement date• Gains/losses recognized in unrestricted for investments held in temporarily restricted•Can also use equity method

Assets not listed•Don’t need to capitalize if held for exhibit

• For educational, exhibition, or research• Will be preserved and protected

• Policy is if asset is sold, the proceeds will be used to purchase other collectibles

Consolidations

If more than one unit, consolidate with eliminations• Consolidation rules:

• controlling financial interest• control of board and substantial economic interest•May consolidate if control is by other means than financial (contract)

• New rules on consolidation and definition of control

Financial Health

• Liquidity ratios• Debt to assets• Unrestricted net assets to expenses• Surpluses vs. deficits• Program expenses to revenues• Fund-raising expenses to revenues