Ch18 - CHAPTER 18 UNDERSTANDING THE ISSUES 1. Separating...

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UNDERSTANDING THE ISSUES 1. 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 permanently restricted. 2. 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. 3. 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. 4. 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. 5. 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- gram. 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 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. 18–1
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Ch18 - CHAPTER 18 UNDERSTANDING THE ISSUES 1. Separating...

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