Which financial statements are required for not-for-profit organizations?
Not-for-profit organizations require:
- Statement of Financial Position
- Statement of Activities
- Statement of Cash Flows
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What are the major classifications found on a Statement of Financial Position?
Similar to Balance Sheet:
- Assets
- Liabilities
- Net Assets
- With Donor Restrictions
- Without Donor Restrictions
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
- With Donor Restrictions
- Without Donor Restrictions
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
How are Expenses reported in the Statement of Activities?
- Expenses are reported by
- Functional Expense
- Program Services
- Support Services
- Natural Expense
- Salaries
- Rent
- Utilities
- Supplies
Which statements are required for non-governmental hospitals?
Non-governmental hospitals require:
- Balance Sheet
- Statement of Operations
- Statement of Changes in Net Assets
- Statement of Cash Flows
- Financial Statement Notes
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.
Assets earmarked internally by management are still classified as unrestricted.
What are the characteristics of unrestricted assets or revenue?
No restrictions or conditions placed on the entity in order to use the resources.
Note: Assets earmarked internally by management are still unrestricted.
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.
When are services rendered considered contributions?
Services rendered are considered contributions if:
- The organization would have otherwise paid for them, or
- They increase the value of a non-monetary asset.
Is hospital charity care revenue?
NO. It is disclosed in the notes to the financial statements only.
How are unconditional pledges to contribute recorded?
They are classified as revenue in the current year only; multi-year future contributions fall under Restricted.
Which revenues are expenses deducted from?
Expenses ONLY deducted from Unrestricted Revenues - not Restricted Revenues/Assets.
What are the characteristics of Restricted Assets/Revenue?
Use is restricted to a future time - which could then convert to Unrestricted - Class: Restricted Revenue
Unrestricted contributions promised (including multi-year contributions) but not yet received are actually restricted by time and are therefore classified as Restricted Assets.
Multi-year contributions are recorded at the present value of the future contributions.
What are the characteristics of an endowment?
Use of investment is restricted, but income from investment could be either restricted or unrestricted.
It must be under the control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets.
Otherwise, a memo entry is recorded.
What are the disclosure requirements for an Underwater Endowment?
- Fair Value of Funds
- Original Gift Amount or Required
- Funding Level
- Deficiency Amount
- Governing Board Policies
When is the donation of an art collection recognized as a contribution or asset?
They are 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.
When both Restricted Assets and Unrestricted Assets are available for use, which assets are used first?
Restricted Assets are used before Unrestricted assets.
How is a refundable advance recorded by a not-for-profit?
It is classified as a liability.
Promise to contribute assets pending on certain conditions being met.
It becomes unconditional once the possibility that it won’t happen is remote.
How are investments recorded and valued in not-for-profit accounting?
Fair Value is mostly used.
Exception: Equity method is used when significant influence exists.
How are scholarships recorded?
As a reduction of revenue - netted against college’s tuition.
How is depreciation expense recorded by a not-for-profit?
Depreciation expense is allocated proportionately to various functions.
