21_Fischer10e_SM_Ch18_final

21_Fischer10e_SM_Ch18_final - CHAPTER 18 UNDERSTANDING THE...

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CHAPTER 18 UNDERSTANDING THE ISSUES 1. Separating the accounting for current activities into restricted and unrestricted funds allows for detailed reporting of resources and spending. This is often done to satisfy donors and/or grantors who require detailed reporting of in- flows and outflows. In addition, the information generated assists in the overall financial report- ing that requires net assets to be shown as re- stricted, temporarily restricted, and permanently restricted. 2. Users of not-for-profit financial information are interested in the fair value of investments re- gardless of their trading status. Not-for-profits, particularly foundations and pension plans, have large portfolios. Up-to-date information on the status of investments in these portfolios is necessary for donors, governments, and other grantors in their funding decisions. Thus, FASB Statement No. 124 does not differentiate among investment categories. 3. Public support captures all forms of donations to a not-for-profit organization, including direct contributions of all types (cash, assets, ser- vices, reduced liabilities, free rent, reduced rates, etc.), net proceeds from fund-raising events, gifts from legacies and bequests, and indirect giving from umbrella charitable cam- paigns, e.g., United Way. Revenue captures amounts earned from exchange transactions— where both parties gain and something of value is given or returned. Examples of revenue are dues and subscriptions, membership fees, pro- ceeds from the sale of goods or services, and realized and unrealized earnings from invest- ments. 4. A contribution is a nonreciprocal transaction where one part gives something of value and does not expect something in return. An agency transaction is where one party gives something of value to an intermediary organiza- tion (e.g., a foundation) that receives this gift on behalf of another organization. In the first ex- ample, public support is recorded at the fair value of the contribution. In the second ex- ample, a liability to the ultimate recipient is re- corded. 5. A VHWO must include a statement of functional expense as part of its financial statements in order to detail the total expenses in each pro- gram and supporting services reported on the statement of activities. This allows users of the financial statements, including donors, potential donors, grantors, lenders, and governments, to better evaluate spending and identify detailed expense patterns by program. 6. (Appendix) A VHWO may wish to present its financial information on a fund basis rather than simply on an organization-wide basis if this de- tailed presentation was requested or helpful to the users. Since historically this information was presented in funds-based statements, keeping some notion of funds in the reporting may be useful to board members, lenders, and other oversight bodies. Many VHWOs still use funds-based financial systems that can easily generate this detailed information.
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This note was uploaded on 02/05/2010 for the course ACC 476 taught by Professor Hildy during the Spring '07 term at Lane.

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21_Fischer10e_SM_Ch18_final - CHAPTER 18 UNDERSTANDING THE...

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