In: Accounting
Not-for-profit accounting question
True or False:
Question: FASB Statement NO. 117 directs that revenues and expense be reported in a statement of financial position.
Answer: Per the guidance below I would argue this statement as false. I think that revenues and expenses should be reported in the statement of activities, not the statement of financial position.
“This Statement NO. 117 requires that all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows. It requires reporting amounts for the organization's total assets, liabilities, and net assets in a statement of financial position; reporting the change in an organization's net assets in a statement of activities; and reporting the change in its cash and cash equivalents in a statement of cash flows.
This Statement also requires classification of an organization's net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assets—permanently restricted, temporarily restricted, and unrestricted—be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.”
I have asked this question previously and received this answer as true, which I think is wrong per the guidance (amounts of change in each of those classes of net assets, which relate to revenue and expense, be displayed in a statement of activities). If you think it is true, please explain why this would be in the statement of financial position. Again I think the answer is false and should be reported in a statement of activities.
Yes the answer is false. FASB ststment 117 directs that revenue and expense shall be reported in Statement of activities but not in the Statment of financial position , explanation is as follows:
The statment of activities is another name of statment of revenue and income. In case of a business firm, they will have income generated business activities and expenses to meet by the organisation for sales. But in case of a charitable trust they will have only donations received ny different donars and expenditure for charitable activities, they cannot be treated as revenue / income and expenditure. So insted of statment of revenue and expenses, it is named as statment of activities. And at the same time it is also called as statment of changes in netassets. That is nothing but total assets minus liabilities which gives share holders equity and the change in that equity from prevous year to current year is the changes in income or proft. So, the net effect of statment of changes in net assets and statement of activities are same. And according to FASB Statment no. 117 the changes in net assets or the revenue and expenses by whatever name it is called shall be shown oor reported in STATMENT OF ACTIVITIES. But not in Statment of Financial position.