CH 13 Non Profit
Support
The increase in net assets arising from contributions of resources or non exchange transactions and includes only amounts for which the donor receives no direct tangible benefit from the recipient agency
Untrestricted Net Assets
The portion of the excess of total assets over total liabilities that may be utilized at the discretion of the governing board of a not for profit entity.
Statement of Financial Position
*Can also be called a balance sheet *Net assets (the difference between assets and liabilities) must be classified into three classes: -Unrestricted- Only the donor can put restrictions on the money -Temporarily restricted- has to be spent for a particular purpose and or when to use it -Permanently restricted- Can't be spent but the earning on the money can be spent. *Flexibility in displaying information, as long as minumium info is presented > total assets, liabilities and net assets > each class of net assets
Contributed Services
*Contributed services should be recorded as contributions and asset/expense (salaries expense) at fair value if the services: -Create or enhance non-financial assets * Meet all 3 criteria's - Require specialized skills - provided by individual possessing those specialized skills - typically would need to be purchased if not provided b donation fair value has to be based on market value
Donated Materials (Important Slide)
*Donated materials (gifts-in-kind) should be recorded as contributions and as expenses (supplies expense or cost of goods sold) at fair value on the date of the gift if an objective, clearly measurable basis for fair value can be established *Good test Question- Ebay is great for determining the Fair Value
Statement of Activities (Cont'd)
*FASB allows flexibility in presenting information; it can be presented as a single column or multiple separate columns, one for each class of net assets - Required > change in each class of net assets >Change in total net assets > Assets released from restrictions *Within net asset classes additional classifications can be used, such as operating and nonoperating, expendable and nonexpendable, earned and unearned, and recurring and nonrecurring *Expenses are reported on the face or in the notes by functional categories Exception for investment expenses
Management and General Expenses
*Management and general expenses include the cost of publicity and public relations activities designed to keep the organizations name before prospective contributors. -The cost of budgeting , accounting, reporting , legal services, office management, purchasing and similar activities are examples of expenses properly classifiable as management and general expenses.
Statement of Cash Flows
*NFP organizations follow the same standard as for-profit entities when preparing the statement of cash flows *Cash flows are reported as changes in operating, investing, and financing activities *The indirect method or direct method (with reconciliation) may be used for reporting cash flows from operating activities
Statement of Activities
*Reports on changes in all classes of net assets for a period of time *Changes to net assets the form of revenues, gains, expenses, and losses *Net assets released from restrictions decrease temporarily restricted net assets and increase unrestricted net assets, as restrictions are met *All expenses decrease unrestricted net assets
Support
*Support is a category of revenue that arises from receipt of resources in nonexchange transactions in which the donor derives no tangible benefit from the recipient agency * Support- resources in nonexchange transactions > donor derives no tangible benefit. *Contributions - support in the form of cash, other assets or services (or cancellation of liabilities) *Pledges - the promise of a contribution
Not-for-Profit Sector
*The not-for-profit sector of the U.S. economy is very diverse, consisting of many different kinds of organizations -The majority of NFPs are philanthropic and quite often rely on contributions and the services of volunteers > IRC 501 (c) (3) rely on contributions and the services of volunteers > IRC 501 (c) (3) only NFP we can make a deduction and take a deduction on your taxes. -Some NFPs are designed to serve the interest of the organizations' members -Most are not governments or governmental in nature -Some of NFPs are owned or operated by governments
Revenues
*Traditionally, revenues have been defined as increases in unrestricted net assets that arise from exchange transactions in which the other party receives direct tangible benefits commensurate with the resources provided * Exchange- increases in unrestricted net assets in which other party receives direct tangible benefits commensurate with resources provided *Examples include: -Membership dues -Program service fees -Sales of supplies and services -Investment income -Some grants
Pledges or Promises to Give
*Unconditional pledges depend only on the passage of time or demand by the donor for performance. Record these as support in the period promise made *Conditional pledges depend on the occurrence of a specified future and uncertain event to bind the promissor, such as obtaining matching gifts, death, and start new programs matching gifts by the recipient. record these as support when the conditions are substantially met
Recording Unconditional Pledges
*Unconditional pledges received in less than a year can be reported at net realizable value (at year end adjust for any estimated uncollectible amount) *Long-term (more then a year) unconditional pledges are generally recorded at fair value -Apply fair value criteria to determine the present fair value of future receipts -The difference between the pledge amount and the fair value amount is recorded as a discount that is amortized as the pledges are received - estimated future cash flows discounted for commensurate rick difference between pledge amount & fair value amount = discount - discount amortized as pledges are received
Statement of Cash Flows (Cont'd)
*Unrestricted contributions and gifts are reported as part of operating activities *Restricted contributions given for long-term purposes are included with financing activities along with the related income > Financing activities *Non-cash gifts or in-kind contributions are disclosed as non cash investing and financing activities in a separate section - New GAAP >securities received as payments > Follow contributing accounting
Support Increases:
*Unrestricted net assets when no donor restrictions exist or the restrictions have expired *Temporarily restricted net assets when the donor imposes restrictions as to purpose (how the asset is used) or time (when the asset is used) *Permanently restricted net assets when the donor stipulates that the assets must be held in perpetuity, but the organization can spend the income from the assets
How Does a Nongovernmental NFP Differ from a Business Entity?
-Contributions of resources from providers who do not expect a proportionate return (i.e.,nonexchange transactions) -Operating purposes other than to earn a profit for owners (i.e., no one expects a return on their investment) -Lack of defined ownership (i.e., lack of owner oversight) > Board vs Owner Oversight
How Does a Nongovernmental NFP Differ from a Governmental Entity?
-It was not created by a government, but rather by individuals who are not placed in power through popular election or appointment by government officials -Usually does not have the power to levy taxes -Usually may not have the power to issue tax-exempt debt
Financial Statements for NFPs
-Statement of financial position (Ill. 13-2) (Balance sheet) -Statement of activities (Ill. 13-3) (income statement) -Statement of cash flows (Ill. 13-4) -Statement of functional expenses for VHWOs (Ill. 13-5) -Notes to the financial statements (Foot notes)
GAAP for Nongovernmental NFPs
-The FASB, not the GASB, sets accounting and financial reporting standards for nongovernmental not-for-profit organizations -Unless otherwise indicated, all FASB standards apply to NFP organizations, but the FASB Accounting Standards Codification (ASC) in Section 958 apply specifically to NFPs
Split Interest Gifts
Donors may arrange to divide the interest in a gift among several beneficiaries, including an NFP. In these case in party may receive the gifts investment income as an asset and the other party has the right to the gifts principal at some point in time ( such as the donor's death)
FASB objective of Financial reporting for Not For Profit Organzations
1.Making resource allocation decisions 2.Assessing services and ability to provide services 3.Assessing management stewardship and performance 4.Assessing economic resources obligations net resources and changes in them
Stockholders for NFPs
Donors, Grants, members, Lenders, And Consumers
Endowments
A gift whose principal must be maintained inviolate bu whose income may be expended
Promise To Give
A pledge or promise to make contribution that may be unconditional or conditional
Conditional promise to give
A promise to make a contribution to an organization that depends on the occurrence of a specified future and uncertain event to bind the promisor such as obtaining matching gifts by the recipient.
Unconditional Promise to Give
A promise to make contributions to an organization that depends only on the passage of time or demand by the promisee for performance
Financially Interrelated
A recipient entity and a specified beneficiary are financially interrelated entities if. 1 one of the entities has the ability to influence the operating and financial decisions of the other entity and. 2 one of the entities has an ongoing economic interest in the net assets of the other.
Intermediary
A recipient entity that acts as a facilitator for the transfer of assets between a potential donor and a potential beneficiary but is neither an agent or trustee nor a donee and donor
Temporarily Restricted Net Assets
A term used in accounting for not for profit organization indicating the amount of net assets temporarily restricted by an external donor for use in a future period or for a particular purpose
Permanently Restrcited Net Assets
A term used in accounting for not for profit organizations indicating the amount of net assets whose use is permanently restricted by an external donor.
Net Assets
A term used in accounting for not for profit organizations indicating the difference between total assets and total liabilities.
Exchange transactions
A transaction in which each party receives direct tangible benefit commensurate with the resources provided, for example sales between a buyer and a seller
Acquistion
A transaction or other event in which a not for profit acquirer obtains control of one or more non-profit activities or businesses and initially recognizes their assets and liabilities in the acquirers financial statements
Merger
A transaction or other event in which the governing boards of two or more not for profit entities cede control of those entities to create a new not for profit entity
Other NonProfit Organizations (ONPO)
A wide variety of not for profit organizations such as cemetery organizations, civic organizations, fraternal organizations, labor unions, libraries, museums, cultural institutions, performing arts organizations, political parties, private schools, professional and trade associations, social and country clubs, research and scientific organizational and religious organizations.
Contribution
An amount given to an individual or to an organization for which the donor rec no direct private benefits. contributions may be in the form of pledges, cash, securities, material, services or capital assets.
Federated fund raising
An organization composed of independent charitable organizations that have voluntarily joined together to raise and distribute money among themselves
Gifts in Kind
Contributions of tangible items to a tax exempt organization.
Recording Pledges (Cont'd) look at the next on for year two
Example: A charity receives pledges of $1,000 to be paid within the next year. It also receives pledges of $5,000 to be collected 2 and 3 years from now. It is estimated the fair value of the long-term pledges is $4,760. Debit Credit Contributions Receivabel6,000 Contributions—Temporarily Restricted 5,760 Discount on Contributions Receivable 240
Board Designated net assets
Funds created to account for assets set aside by the governing board of an organizations board decides to set aside or designate for specific purposes.
Gains
Increase in net position from peripheral or incidental transactions of an entity
Purpose Criterion
May be met if the joint activity helps accomplish a program purpose or management functions
Voluntary Health and Welfare Organizations (VHWO)
Not for profit organizations that receive contributions from the public at large and provide health and welfare services for a nominal or no fee
Variance Power
The unilateral power of an organization to redirect donation assets to beneficiary different than the third party initial indicated by the donor
Nonexchange transactions
Transactions in which donor derives no direct tangible benefit from the recipient agency fro example a contribution to or support for a government or not for profit organization.
Organizaiton
Unites or departments within an entity such as police department or city attorney department
Statement of Functional Expenses
VHWOs must present this statement showing both functional expenses and natural (object or line item) expenses (Ill. 13-5)
Collections
Works of art historical treasures or similar assets that are. 1 held for public exhibition, education, or research in furtherance of public service rather than financial gain, 2 protected kept unencumbered cared for and preserved and 3 subject to an organizational policy that requires the proceeds of items that are sold to be use to acquire other items for collection
Audience Criterion
is met if the audience was selected primarily for program or management reasons rather than its ability to make contribution or donation.
Content Criterion
is met if the content of the joint activity either motivates the audience to take action to further the NFP's mission, or the joint activity meets a management responsibility.
Revenue
the inflow or economic resources resulting from the delivery of services or activities that constitute the organizations major or central operations rather than from inter fund transfers and debt issue proceeds.
