UNDERSTANDING THE ISSUES
Separating the accounting for current activities
into restricted and unrestricted funds allows for de-
tailed reporting of resources and spending. This is
often done to satisfy donors and/or grantors who re-
quired detailed reporting of inflows and outflows. In
addition, the information generated assists in the
overall financial reporting that requires net assets to
be shown as restricted, temporarily restricted, and
Users of not-for-profit financial information are
interested in the fair value of investments regardless
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, govern-
ments, and other grantors in their funding decisions.
Thus, FASB Statement No. 124 does not differenti-
ate among investment categories.
Public support captures all forms of donations
to a not-for-profit organization, including direct contri-
butions of all types (cash, assets, services, reduced
liabilities, free rent, reduced rates, etc.), net pro-
ceeds from fund raising events, gifts from legacies
and bequests, and indirect giving from umbrella
charitable campaigns, e.g., United Way. Revenue
captures amounts earned from exchange transac-
tions—where both parties gain and something of
value is given or returned. Examples of revenue are
dues and subscriptions, membership fees, proceeds
from the sale of goods or services, realized and un-
realized earnings from investments.
A contribution is a nonreciprocal transaction
where one part gives something of value and does
not expect something in return. An agency transac-
tion is where one party gives something of value to
an intermediary organization (e.g., a foundation) that
receives this gift on behalf of another organization.
In the first example, revenue is recorded at the fair
value of the contribution. In the second example, a li-
ability to the ultimate recipient is recorded.
A VHWO must include a Statement of Func-
tional Expense as part of its financial statements in
order to detail the total expenses in each program
and supporting services reported on the Statement
of Activities. This allows users of the financial state-
ments, including donors, potential donors, grantors,
lenders, and governments, to better evaluate spend-
ing and identify detailed expense patterns by pro-
(Appendix) A VHWO may wish to present its
financial information on a fund basis rather than
simply on an organization-wide basis if this detailed
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 mem-
bers, lenders, and other oversight bodies. Many VH-
WOs still use funds-based financial systems that can
easily generate this detailed information.