What are the 3 primary characteristics of a not-for-profit entity?
Their revenues come from contributions
Their operating purpose does not include profit (they can make profit, but it’s not their focus)
Their ownership interests are unlike business enterprises
What are the 4 types of industries that tend to have not-for-profit entities?
Health Care Organizations
Educational Institutions
Voluntary Health and Welfare Organizations
Other (cemetery, fraternal organizations, labor unions, museums, libraries, performing arts, professional organizations)
True / False: Not for profit entities tend to use the cash basis of accounting
False
They use full accrual
True / False: Fund accounting is used for not-for-profit entities
False
Fund accounting is used for government agencies
What are the required financial statements for not-for-profit entities?
Statement of Financial Position (balance sheet)
Statement of Activities (income statement or changes to assets)
Statement of Cash Flows
Define a not-for-profit's functional classifications vs natural classifications for reporting expenses
Functional Classifications: Costs by major classes of program and support services
Natural Classifications: common general ledger categories of expenses such as salaries, rent, utilities, interest expense, etc
What are the components of the Statement of Financial Position?
Assets
Liabilities
Net Assets (equity)
True / False: Assets and liabilities in the Statement of Financial Position are categorized by current vs non-current
True
The Net Assets section of the Statement of Financial Position includes which two line items?
Assets with donor restrictions
Assets without donor restrictions
When is an asset listed as “donor restricted”?
When the actual donor of the asset imposes a limitation. This is an external limitation; not imposed internally. A restriction by the Board is not a donor restricted asset.
What are the required elements of a Statement of Activities, and how are the items in each category presented (gross vs net)?
Revenues = gross
Expenses = gross
Gains = net of expenses
Losses = net of expenses
Change in net assets w/o donor restrictions
Change in net assets w/donor restrictions
Change in total net assets
How are prior period adjustments accounted for and presented on the financial statement of a not-for-profit entity?
Adjustment to beginning net assets on the Statement of Activities
Investment returns are presented (gross, net) of investment expenses on the Statement of Activities