Quiz 10: Accounting for Private Not-For-Profit Organizations
Answers will vary depending on statements obtained.
Financial Accounting Standard Board (FASB) has a standard-setting authority over private not for profit organization. The non-for-profit activities of are commonly financed through charitable contributions. (a) Not- for profit necessity follow all appropriate FASB standard in recording transactions. The financial reporting for the not for profit organization is as follows: 1. Statement of financial position: In this, the asset, liabilities, and net asset are reported. All the assets and liabilities are reported as per the liquidity. The net asset is classified into three categories. 2. Statement of activities: In this, all the revenues, expenses, gains, and losses are reclassification of net assets are reported. The total of all the category must be provided organization wise. For all three categories of net asset revenues, expenses, gains, and losses are reclassification of the net asset is reported. 3. Statement of cash flows: the cash flow uses the standard FASB categories. Different categories are operating, financing, and investing. Any indirect or indirect method can be used. In addition to the above, the voluntary health and welfare organization must provide the statement of functional expenses. The statement of functional expenses reports both expenses by functional and natural classification. For the preparation of this statement, huge flexibility is provided if the requirements are not met. (b) In the not-for-profit organization all the revenues and expenses, long-term assets and liabilities are recorded in the books of account on an accrual basis. Under the accrual basis of accounting, expenses which are occurred are matched with the related revenues which are earned or reported when the expense occurs, not when the cash is paid. As per the FASB, the 3 classes in which the net asset can be divided are: 1. Permanently restricted net asset: In this case of an asset, the investment is permanent. These resources are restricted until the end of the organization has custody. 2. Temporarily restricted net asset: In this case, the investment is for a phase of time. it is for a specific purpose. It comes from the contribution with certain constraint, and these constrain is removed with the time frame. 3. Unrestricted net asset: In this case, the unrestricted contribution, proceeds from providing services, and unrestricted income from investments are included. (c) The plant and property are recorded as a long-term asset in the organization and are depreciated as per the companies' policy on depreciation. Generally, property plants and machinery are classified in the form of fixed asset and their utilization is unrestricted. These are unrestricted assets. These assets are recorded at their fair value. When the asset is donated than at that time their utilization is restricted as on the date when they are gifted or as on the balance sheet date. This restricted asset is recorded by accounting under plant replacement and expansion (restricted) funds. Any expenses on the acquiring of these assets are transferred to the general account. (d) As per FASB the investment of not-for-profit organization investment in equity will be determined on their fair value and investment in debt will be determined at fair value. All the income from these investments is recorded as an increase in unrestricted, temporarily restricted, or permanently restricted net assets. The classification is done based on the presence or absence of donor restrictions or legal requirements. All gains or losses both restricted and unrestricted are recorded in the statement of activities like 1. Unrestricted 2. Temporarily restricted 3. Permanently restricted This depends on the presence or absence of donor restrictions or legal requirements.
Financial Accounting Standard Board (FASB) has a standard-setting authority over private not for profit organization. The non-for-profit activities of are commonly financed through charitable contributions. (a) The not-for-profit organization will be recorded as the revenue when the promise is made. Revenue is considered unrestricted until the donor imposes the same restrictions. Restrictions are created when the donor specifies that the donations are for a certain purpose or a certain period. When the contributions restricted for the purpose the following expenditure is made first from restricted resources. The additional disbursement is completed from the unrestricted resources. When the contribution is restricted for the time of the current year than the revenue should be recognized in the same year. The upcoming expenses are deferred and are recognized in the future years when they are incurred. (b) The contributions are the unrestricted promise to give. It is to be recorded as revenue when the promise is fulfilled. When the contribution is conditional, it is not documented as revenue until the promise is fulfilled. The donor is not bound to pay if the promise is not fulfilled. In the case of the condition, some action is made by the donee before the gift is given. Restrictions are created when the donor extends the contribution for a specific purpose or at a certain time. In this case, the usage of the contributed asset is restricted. The restrictions are depended on the nature of the organization. (c) The contributed services are recognized when the services are received: 1. There is a development, rise and some non-financial asset are formed. 2. Some specific skills are required for the services and these skills are to be purchased when they are not donated. (d) The multiyear pledges should be recorded at the present value of future collections. As the period increases the present value of the collection rises. At the end of each accounting period, the new present value is subtracted from the beforehand recorded revenue to calculate the added contributed revenue. It is not recorded as interest.