FAR M6

• Fund accounting enables service and mission-driven organizations to easily monitor:

  • compliance with spending purpose (legal restrictions)
  • spending limits (budget and financial control)
  • other fiscal accountability objectives.
• The GASB is the primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements
• Separate fund financial statements should be presented for governmental and proprietary funds to report additional and detailed information about the primary government.
• Governmental funds use the current financial resources measurement focus and modified accrual basis of accounting in their fund financial statements.

  Proprietary and fiduciary funds use the economic resources measurement focus and accrual basis of accounting.
• Special revenue funds are expendable (may be entirely used up), while permanent funds are nonexpendable (legally restricted to the extent that income and not principal may be used for the restricted purpose).
• Government-wide financial statements must be prepared using the economic resources measurement focus and the full accrual basis of accounting
• Property tax revenues that are measurable but not available at year end are recorded as deferred inflows of resources in governmental fund presentations and not recognized as revenues consistent with the modified accrual basis of accounting.
• GRaSPP SE CIPPoe:

  G = General fund

  R = special Revenue fund

  S = debt Service fund

  P = capital Projects fund

  P = Permanent fund

  S = internal Service fund

  E = Enterprise fund

  C = Custodial fund

  I = Investment trust fund

  P = Private purpose trust fund

  P = Pension

  OE = Other Employee trust fund
• Donor-imposed restrictions that are met in the same period they are received may be recorded as support (aka contribution revenue) (with or without?) WITHOUT donor restrictions, provided that the organization discloses and consistently applies this accounting policy.
• The three functional classifications for expenses incurred by a not-for-profit organization are:

  • program services
  • management and general costs, and
  • fundraising and other supporting services.
• Net assets (with or without?) withOUT donor restrictions are available to finance general operations of a not-for-profit org and may be expended at the discretion of the governing board
• T/F: Board-designated endowment funds created by self-imposed limits should be reported as net assets with donor restrictions

  FALSE: net assets with donor restrictions are subject to specific externally-imposed limitations made by a donor
• All expenses (other than investment expenses) are reported as decreases in net assets without donor restrictions
• In the statement of activities, investment expense is

  • netted against investment returns
  • classified according to requirements of investment revenue
  • shown as part of a change in the restricted amount
• Not-for-profit corporations are required to produce the following financial statements:

  • Statement of financial position
  • Statement of activities
  • Statement of cash flows
• A not-for-profit organization needs to

  • report its expenses in the statement of activities by their functional classification (program classification, supporting activities, fund-raising, etc.) and
  • disclose the expenses in a natural classification by function in the notes to the financial statements.
• A donation designated as a quasi-endowment would be classified as a donation (with or without?) WITHOUT donor restrictions
• T/F: a bequest promised to a not-for-profit org in an individual's will results in an increase in the org's net assets without donor restrictions.

  FALSE:  Uncertainty about a person's death and the potential for future modification of a person's will makes inclusion of bequests in wills ineligible for recognition.
• Assets provided to a not-for-profit organization that are restricted for a purpose that can be met by the recipient organization are classified as with donor restrictions.
• Good faith deposits/resources associated with conditional promises represent a refundable advance that is recorded as a liability and is not a portion of net assets
• Conditional promises provided to a not-for-profit organization (do or do not?) do NOT represent a receivable revenue or net assets until the conditions are met.

  The promise to provide funding contingent upon securing operating funding is conditional and would not be recorded.
• Donated services are recorded SOME of the time:

  • S = Specialized skills
  • O = Otherwise would be purchased
  • ME= Measured Easily
• Investment income would be classified as an increase to net assets with donor restrictions until expended as specified by the donor
• Cash contributions with donor restrictions are reported as increases in financing activities because the restriction is the acquisition of property, not general operations.
• A cash flow statement prepared using the indirect method will not present cash payments for interest as a separate line item in the cash flow from operations section of the cash flow statement.

  Rather, interest paid will be specifically included as a supplemental disclosure.
• Proceeds from the sale of long lived assets and insurance proceeds associated with the loss of long lived assets are both classified as investing activities
• Cash received with donor-imposed restriction limiting its use to long-term purposes (such as construction of a new building) is displayed as a financing activity on the statement of cash flows of a not-for-profit organization.
• A nongovernmental not-for-profit organization borrowed $5,000, which it used to purchase a truck. This borrowing would be a cash inflow from financing activities, and the purchase of the truck would be a cash outflow from investing activities.
• The issuance of long-term debt results in a cash (inflow/outflow?) INflow to an organization's financing activities.
• Proceeds from long-term debt providing cash will be classified as a cash inflow from financing activity.
• Dividend income earned on equity securities represents an increase in net assets and would be treated like an increase in net income.
• Both interest payments and interest earned are categorized as cash flows from operating activities
• Beneficiaries with a financial interest in recipient organizations recognize a change in their interest of the recipient organization on their statement of activities
• All debt securities that have readily determinable fair values are measured at fair value in the statement of financial position.
• RST Charities received equity securities valued at $100k as a gift without donor restrictions at the beginning of Year 1. During Year 1, RST received $5k in dividends from these securities; at year-end, the securities had a fair market value of $115k.

  By what amount did these transactions increase RST's net assets?


  Answer: $120k

  [Equity security ($100k) + change in market value ($15k) + dividends received ($5k)]
• In the B/S of a not-for-profit, marketable equity securities should be reported at fair value with gains and losses reported in the statement of activities.
• Donated shares of stock are measured at:

  • fair value at EOY
  • donor's basis
  • fair value at date of donation

  Answer: fair value at date of donation
• Unless explicitly restricted by donor or law, gains and losses on investments purchased using endowment assets w/ donor restrictions should be reported in the statement of activities as increases or decreases in net assets without donor restrictions.
• Cash contributions and unconditional pledges are recognized as contribution revenue in the year in which the cash or pledge is received.
• An exchange transaction increases net assets without donor restrictions