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chap 18 (1) - Chapter 18 Accounting and Reporting for...

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Chapter 18 - Accounting and Reporting for Private Not-for-Profit Organizations CHAPTER 18 ACCOUNTING AND REPORTING FOR PRIVATE NOT-FOR-PROFIT ORGANIZATIONS Chapter Outline I. Historically, the financial reporting for private not-for-profit entities has differed significantly according to the type of organization (such as a health care entity versus a college or university). The reporting of these entities is now standardized considerably by FASB pronouncements that focus on the reporting of contributions, the financial statements to be issued, and the recording of mergers and acquisitions. However, public colleges and universities and similar organizations still must follow the standards issued by GASB. A. This chapter looks at the financial reporting for private not-for-profit organizations. FASB has placed the emphasis on the entity as a whole rather than on the individual funds. B. Reporting for these organizations should be similar to a business entity unless a critical difference exists that impacts the needs of financial statement users. Several critical differences can be identified. 1. Many private not-for-profit organizations receive a significant amount of their financial resources from contributions rather than from revenues or capital investments. 2. Some of the resources given to a not-for-profit organization include donor-imposed restrictions. 3. No single indicator of success is present in the financial reporting. No number such as net income provides a means for evaluation as it does for a for-profit business entity. II. FASB has established the following financial statements for a private not-for-profit organization. A. Statement of Financial Position reports assets, liabilities, and net assets. B. Statement of Activities and Changes in Net Assets reports revenues, expenses, gains, and losses. C. Statement of Cash Flows D. A voluntary health and welfare organization is also required to present a Statement of Functional Expenses which indicates the allocations of resources to program services (to meet the goals of the organization) and supporting services (to operate the organization and raise funds). III. For reporting purposes, the economic resources of a private not-for-profit organization must be classified within one of three categories. A. "Unrestricted net assets" indicates the amount of an entity's resources that are not subject to external donor restrictions. Officials of the organization can make whatever use they wish of these assets. 18-1
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Chapter 18 - Accounting and Reporting for Private Not-for-Profit Organizations B. "Temporarily restricted net assets" are restricted by an outside party (often a donor) for a particular purpose or for use in a future period of time. When the restriction is satisfied, these resources are switched to unrestricted net assets. Thus, on the statement of C. activities and changes in net assets, temporarily restricted net assets are shown as being reclassified as unrestricted net assets when the appropriate time has passed or the resource is used as stipulated.
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