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Joe's CPA Flashcards - FAR > Non-Profit Accounting > Flashcards

Non-Profit Accounting Flashcards

1
Q

Which financial statements are required for non-profit organizations?

A

Statement of Financial Position, Statement of Activities, Statement of Cash Flows, and Statement of Functional Expense (for Voluntary Health and Welfare Organizations Only)

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2
Q

What are the major classifications found on a non-profit’s Statement of Financial Position?

A

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Net Assets 
Temporarily Restricted Net Assets
Permanently Restricted Net Assets
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3
Q

What is the measurement focus and basis accounting used for non-profit accounting?

A

Economic Resources measurement focus so it follows Accrual accounting

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4
Q

Are the assets and liabilities found on a non-profit’s Statement of Financial Position listed in order of liquidity?

A

Yes

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5
Q

Who sets aside Unrestricted Net Assets?

A

The board of trustees

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6
Q

What are the characteristics of unrestricted assets or revenue?

A

No restrictions or conditions placed on entity in order to use the resources

Note: assets earmarked internally by management are still unrestricted

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7
Q

What type of restrictions are in place for Temporarily restricted Net Assets?

A

Time, Use, or Purpose

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8
Q

Will the restrictions on Temporarily Restricted Net Assets eventually lapse?

A

Yes, after a certain amount of time (or after a specific EVENT has occurred), the temporary restrictions will lapse; thus, creating Unrestricted Net Assets

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9
Q

Can the principal be spent for Restricted Net Assets? Can it be invested?

A

The principal may never be spent, but it may be invested. (Ex: Endowment)

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10
Q

What is the principal called for Restricted Net Assets?

A

Corpus

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11
Q

Are the dividend or interest earnings from Restricted Net Assets also restricted?

A

Can be restricted or unrestricted (or temporarily restricted) depending on donor’s stipulations

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12
Q

Who are the only parties that can restrict the use of assets (in non-profit accounting)?

A

External parties (donors)

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13
Q

What are the major classifications in a non-profit’s Statement of Activities? (Row labels)

A

Similar to an Income Statement, but also includes Retained Earnings (ala Net Assets):

1) Revenues, Gains, and Other Support
2) Net Assets Released From Restrictions
3) Expenses and Losses - ONLY deducted from Unrestricted Revenues
4) Changes in Net Assets
5) Beginning Net Assets
6) Ending Net Assets

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14
Q

What are the Column headers (labels) on a non-profit’s Statement of Activities?

A

The Net Asset classifications: Unrestricted, Temporarily Restricted, and Permanently Restricted (along with a Total column header)

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15
Q

How are Net assets released from restrictions treated on a non-profit’s Statement of Activities?

A

The amount is reduced in the Temporarily Restricted column and correspondingly increased in the Unrestricted column

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16
Q

On a non-profit’s Statement of Activities, all expenses affect what type of Net Asset?

A

Unrestricted Net Assets

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17
Q

Are any Expenses temporarily or permanently restricted?

A

No, because in order to spend the money, all restrictions have to have been removed. So they are only found in the Unrestricted column and accordingly deducted from Unrestricted Revenues. (don’t forget depreciation!!)

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18
Q

Which revenue classification are expenses deducted from?

A

Expenses ONLY deducted from Unrestricted Revenues - not Temporary or Permanently Restricted Revenues (Net Assets)

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19
Q

What are the major classifications of expenses for non-profits? Give an example of each.

A

1) Object (the “What”) - Salaries, depreciation
2) Function or Program (the “Why”) - health care, fire
3) Character (the “When”) - typically for debt service (past), current debt (present), or capital outlays (future)

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20
Q

What are the characteristics of a Statement of Cash Flows for non-profits? What are the major classifications?

A

Both direct and indirect methods are permitted:

Operating Activities - Unrestricted Revenues and Unrestricted Expenses

Investing Activities - Purchasing of investments or fixed assets

Financing Activities - Endowments and restricted contributions

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21
Q

What revenue types are associated with a non-profit’s Operating activities on its Statement of Cash Flows?

A

Both unrestricted and temporarily restricted revenues

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22
Q

What revenue types are associated with a non-profit’s Financing activities on its Statement of Cash Flows?

A

Permanently restricted revenues (which makes sense, as the principal from debt financing is a financing activity for private for-profit firms)

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23
Q

Proceeds spent on the acquisition of Fixed Assets are what type of activities in a non-profit’s Statement of Cash Flows?

A

Investing Activities

24
Q

Proceeds from contributions restricted for the acquisition of Fixed Assets are what type of activities in a non-profit’s Statement of Cash Flows?

A

Financing Activities

25
Q

Proceeds from contributions for long-term purposes are what type of activities in a non-profit’s Statement of Cash Flows?

A

Financing Activities

26
Q

Proceeds from contributions are usually what type of activities in a non-profit’s Statement of Cash Flows?

A

Operating Activities

27
Q

When are revenues on contributions recognized? What value are they recorded at?

A

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

28
Q

Which organizations are required to present a Statement of Functional Expenses?

A

Volunteer Health and Welfare Organizations (VHWOs)

29
Q

What are the major categories on a Statement of Functional Expenses?

A

1) Public support (donation revenue - primary revenue source)
2) Revenues (earned revenues such as from investments, recurring member dues, or client service)
3) Program Expenses (the primary costs of running the program)
4) Support services (think marketing and soliciting of funds)

30
Q

When are services rendered recognized as contributions on the financial statements of a non-profit?

A

If specialized skills were required, the organization would have otherwise paid for them or They increase the value of a non - monetary asset (They are then deemed to be ESSENTIAL)

31
Q

Is the donation of an art collection recognized as a contribution or asset?

A

They aren’t usually recognized as assets or contribution revenue if they are held for display or research (education) purposes, or their sale results in the purchase of similar items (not the operation of the non-profit organization). Doing so would make them appear to possess great wealth and not be in need of support .

32
Q

How are unconditional pledges to contribute recorded?

A

Classified as revenue in the current year only. The associated receivable asset needs to also have an accompanying “allowance for uncollectibles” contra-account. Multi-year future contributions fall under Temporarily Restricted and are reported at present value of the future estimated cash flows using an appropriate discount rate commensurate with the risks involved.

33
Q

How are conditional pledges to contribute recorded?

A

Trick question! They are not recognized until they become unconditional (or the likelihood that the conditions on which the condition/promise depends will not be met).

34
Q

How are funds received prior to conditions being substantially met for conditional pledges recorded?

A

As liabilities until such time as the promises become unconditional

35
Q

If the non-profit organization is acting as an agent or trustee and they have the power to redirect the money, what are cash collections recorded as?

A

Contribution Revenue

36
Q

If the non-profit organization is acting as an agent or trustee and they don’t have the power to redirect the money, what are cash collections recorded as?

A

Refundable Advance (a liability)

37
Q

How is depreciation expense recorded by a non-profit organization?

A

In the same exact manner as commercial organizations (US GAAP).

38
Q

How are scholarships recorded for colleges and universities?

A

Scholarships are expensed as incurred (as opposed to a reduction of revenue), which effectively inflates tuition revenues (and the university’s sense of importance).

39
Q

How is tuition remission recorded for colleges and universities?

A

Tuition remission is expensed as incurred (as opposed to a reduction of revenue), which effectively inflates tuition revenues (and the university’s sense of importance).

40
Q

Which statements are required for non-profit healthcare organizations?

A 
Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes are also disclosed
41
Q

Is charity care treated as a revenue for non-profit healthcare organizations?

A

NO! It also doesn’t result in the recognition of a receivable. It is disclosed in the notes to the financial statements only.

42
Q

For non-profit healthcare organizations, what does the Statement of Changes in Net Assets specifically report on?

A

Restricted contributions (temporarily or permanently) for long-term purposes (plant acquisition, endowments, etc.).

43
Q

What financial statement for non-profit healthcare organizations requires the inclusion of a performance indicator?

A

Statement of Operations

44
Q

How are donated supplies to a non-profit healthcare organization recognized?

A

Recognized as an unrestricted contribution (revenue) at fair value in the period received and can be either an asset or an expense.

45
Q

What are the characteristics of temporarily restricted assets/revenue?

A

Use is restricted to a future time - which could then convert to unrestricted after an amount of time has lapsed or the specific use or purpose has occurred.

46
Q

What are the characteristics of an endowment?

A

Use of investment is restricted - but income from investment could be either restricted or unrestricted

Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets

Otherwise - a memo entry is recorded

47
Q

When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first?

A

Temporarily restricted assets are used before Unrestricted assets.

48
Q

How are marketable securities investments recorded and valued in non-profit accounting?

A

They are required to use Fair Value accounting for most debt and equity investments and both realized and unrealized gains and losses are directly reported on the Statement of Activities.

49
Q

How might depreciation show up on a non-profit’s Statement of Cash Flows?

A

Only in the reconciliation of Net Assets to net cash provided from Operating Activities (Indirect Method).

50
Q

On a non-profit healthcare organization’s Statement of Operations, what is the performance indicator similar to on a commercial organization’s income statement?

A

Net Income/Earnings. It is effectively operating income (excess of revenues and gains over expenses and losses).

51
Q

Do asset purchases such as Inventory, Investments, or Fixed Assets affect the Statement of Activities for non-profit organizations?

A

No! Just like commercial organizations, asset purchases only affect the balance sheet (and the statement of cash flows).

52
Q

How is a non-profit healthcare organization’s Statement of Operations organized?

A

Patient Service revenue
-Provision for contractual adjustments
=Net patient service revenues
+Other operating revenues (non-medical such as parking and gift shop)
-Operating Expenses
+Non-operating revenues (unrestricted donations, dividends, interest)
=Excess of Revenue/gains over Expenses/Losses (this is your Performance Indicator
(“PP-NO-ONE”)
**Also separately reported items are disclosed below the Performance Indicator

53
Q

On a non-profit healthcare organization’s Statement of Operations, what items are reported separately from the performance indicator?

A

Restricted donations/contributions
Fixed assets released from donor restrictions
Restricted Investment Income
Changes in net unrealized gains/losses on unrestricted investments (other than trading)
Transfers to Parent
Discontinued operations and Extraordinary Items

(“RFR-CTD”)

54
Q

Upon spending temporarily restricted funds, how does this affect a non-profit’s Statement of Activities?

A

Since Expenses can only be deducted from Unrestricted Revenues, the previously Temporarily Restricted Net Assets need to be reclassified into Unrestricted Net Assets. The expense will then be accordingly deducted (recorded).
(2 debits, 1 credit)

55
Q

Name the primary authoritative source for GAAP for non-profit organizations?

A

Financial Accounting Standards Board

56
Q

What are some unrestricted revenues for a university?

A

1) Student tuition and fees (at gross)
2) Government aid, grants, and contracts
3) Gifts and private grants
4) Endowment income
5) Sales and services of educational departments
6) Revenues of auxiliary enterprises

Joe's CPA Flashcards - FAR (30 decks)

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