Question

In: Accounting

Regarding the Statement of Cash Flows and the Statement of Net Assets: 1. Distinguish between restricted...

Regarding the Statement of Cash Flows and the Statement of Net Assets:

1. Distinguish between restricted and unrestricted resources. Next, provide an example of each.

2. What is the definition of a fund account? Why is it beneficial for healthcare organizations to establish fund accounts?

3. Provide an example to demonstrate when the temporarily restricted fund account is to be utilized.

4. List and then discuss the purpose of each section of the Statement of Cash Flows. Next, relate this statement to the current global pandemic. What makes this statement so significant in these trying times?

5. Each section of the Statement of Cash Flows has both cash inflows and outflows. For each section listed in #4 above, list an example of a cash inflow and cash outflow for each.

Solutions

Expert Solution

1. Distinguish between restricted and unrestricted resources.

Restricted Resources: where the resources earmarked as a specific purpose it is termed as restricted resources.For instance I.e. a donor make a contribution with particular purpose.

Unrestricted Resources: where the resources doesnot earmarked as a specific purpose it is termed as unrestricted resources.For instance I.e. a donor make a contribution with no restrictions in use.

2. Fund Accounting is an Accounting system for recording Resources whose utilisation has been earmarked by the donor,grant authority, governing body,or others by law.It emphasizes on accountability rather than profitability and normally used by Government or non-profit organisations.

As mentioned above, it is beneficial for non-profit organisations reason best known is Fund Accounting emphasize on accountability rather than profitability.

Health care organisations required more accountability for it's best function rather than profitability.Therefore Fund Accounting is beneficial for healthcare organisations.

3. Time - limited restricted funds became unrestricted funds after that stipulated time has over or the project is done.Examples are a grant,the completion of a building project.

4.Three sections of the statements of cash flows:

A) Operating Activities:The principal revenue generating activities of an organisation and other activities that are not Investing or Financing Activities.Current global pandemic will affect profit for operations as well as cash flows from current assets and current liabilities due to massive lockdown.

B) Investing Activities: Any cash flows from the acquisition and disposal of long-term assets and other investments.Due to current global pandemic no such activities will occurred, even if occurred will have much impact on the considerations.

C) Financing Activities: Any cash flows that result in changes in the size and composition of the equity capital or borrowings of the entity.As sharemarket has crashed in all countries ,hence acquisition is very beneficial whereas disposal is almost in zero value.

5. a) Operating Activities:

Net Income added back non cash expenditure

Changes in operating assets and liabilities .

b) Investing Activities:

Purchase of properties and equipments

Proceeds from property and equipment

Purchase of maturities and marketable securities

Sales of marketable securities

c) Financing Activities:

Proceeds from long-term debt and others

Repayment of long term debt and others

Principal repayment of capital lease obligations

Principal repayment of finance lease obligations


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