Question

Please answer all the following questions in depth.

1. Describe the four types of Not-for-Profit entities.

2. Discuss the role of funds in accounting for NFP’s.

3. Discuss donor imposed restrictions on the use of contributions.

4. Describe the 3 types financial statements prepared by NFP’s.

5. Discuss the oversight bodies for NFP’s

6. Discuss the accounting for contributed services.

7. Describe the presentation of cash on the financial statements of NFP’s. Include in your answer a discussion of the required footnote disclosure.

Answer 1

(1):- Nonprofits provide a variety of services to the public, including feeding the homeless, tutoring children and providing scholarships. Public charities, foundations, social advocacy groups and trade organizations are common types of nonprofit organizations.

•Public Charities :- These organizations provide free and low-cost services, such as computer training for children and career workshops for the unemployed. They receive funding from the public through the government, individuals, corporations and foundations. Churches, libraries, museums, hospitals and private schools can qualify as public charity nonprofits. Many public charities host fundraisers to obtain additional funding to support their missions.

• Foundations :- Foundations sponsor numerous programs and events in the community and they often fund other nonprofits. Foundations can be established through a family, a community group or through a business.

• Social Advocacy Organizations :- Many nonprofits are established as social advocacy organizations. These are mostly membership organizations that form to advance a specific set of beliefs or to reach specific goals. The National Organization for Women and Greenpeace are examples of social advocacy nonprofits. Social advocacy nonprofits like these use donations and membership dues to disseminate information and advocate social change according to their mission statements.

• Professional and Trade Organizations :-According to the Society for Nonprofit Organizations, professional and trade organizations form to provide programs and services for a group of people in the same profession.members pay dues to join these nonprofits, they also receive free and discounted classes and career training in their chosen fields.

(2):- The concept of fund accounting is one of the main differences between for-profit and nonprofit accounting. Its name comes from the fact that revenues and expenses are segregated in the accounting system into “funds” for the purpose of tracking each fund separately – primarily for reporting purposes.

nonprofits use fund accounting to focus on accountability, and the use of separate “funds” with their own ledger allows nonprofit organizations to more easily assess each fund individually. Depending on the nonprofit, a separate fund is typically established for each of the organization’s various programs as well as its overhead, general administrative, and fundraising activities. To track such revenues and expenses separately, the organization will set-up in the fund accounting system and assign to these transactions a unique fund code.

(3):- FASB116 focuses on the concept of restricted revenue. Under FASB116 all contribution revenue must be classified as either: unrestricted, temporarily restricted or permanently restricted. The existence of restrictions is determined by "donor-imposed" restrictions, internal restrictions (such as Board designated funds) are considered unrestricted.

• Permanently restricted support includes all contributions, which are not expendable by the NFP.

--> The most prevalent example of this is an endowment fund. Typically the organization is not able to use the principal but is able to use the investment earnings.

--> The earnings on permanently restricted funds may be further restricted for use for a given purpose, thus resulting in temporarily restricted revenue.

• Temporarily restricted consists of contributions with donor-imposed restrictions that limit the use of the funds as follows:

--> Purpose-restricted: These are funds that are donor-restricted for use on a particular project.

--> Time-restricted: These are funds that are donor-restricted for use in a certain time period. An example of this is a unconditional pledge that stipulates the funds will be donated to the NFP over a 5-year period. The amount to be received in future years is considered time-restricted.

• Unrestricted support consists of all other revenue.

(4):- NFP's, which have no owners, prepare a statement of financial position, which also looks at assets, liabilities, and prior earnings. The resulting net assets are classified as: 1) unrestricted, 2) temporarily restricted and 3) permanently restricted, based on the presence of donor restrictions.

The classes will be reduced to two: 1) net assets without donor restrictions and 2) net assets with donor restrictions. This change will take place when adherence to the new Accounting Standards.

NFP's are generally more focused on transparency than are for-profit companies. Thus, their financial statements and footnotes include disclosures about the nature and amount of donor-imposed restrictions on net assets. The new standard will require more disclosures on the amount, purpose and type of board designations of net assets. Additional disclosures will be required to outline the availability and liquidity of assets to cover operations in the coming year.