Question

4-2 Please explain and provide examples with details

list and describe the three classes of net assets used in private not-for-profit accounting. Give an example of each type.

Answer 1

There are three types of net assets used in private not for profit accounting .These are unrestricted net assets, temporary restricted net assets and permanently restricted net assets.

Unrestricted net assets : Non profit organization use unrestricted net assets for it's daily purpose.

Example : Donations with no restrictions

Temporary restricted net assets : Any fund received by non profit organization for any future program or event is called temporary restricted net assets .

Example : A car donated and could only be used for patients service for first two years.

Permanently restricted net assets : It contains endowment fund which are to be kept for infinite time period .The income arises out of that fund can be utilized freely but never the principal amount.

Example : Building and premises donated to a college or university only for providing educational service to the students for infinite period of time.