12 - CHAPTER 12 UNDERSTANDING THE ISSUES 1 Separating the...

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CHAPTER 12 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 required 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, revenue is recorded at the fair value of the contribution. In the second example, a liab- ility to the ultimate recipient is recorded. 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. In order for the government grant to be a contri- bution, the grantor may not receive anything of value from the use of the funds by the receiving organization. If something of value is given in return for the grant, the grant is an exchange transaction that will recognize an equal amount of earned revenue when expenses are made in accordance with the provisions of the grant. This distinction is important in private universit-
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This note was uploaded on 12/17/2011 for the course ACC 400 STBSBA73 taught by Professor Gilbertrodriguez during the Spring '09 term at University of Phoenix.

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12 - CHAPTER 12 UNDERSTANDING THE ISSUES 1 Separating the...

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