NFP Financial Statements

What are the learning objectives of the NFP Financial Statements presentation?

Identify authoritative GAAP standard-setting bodies for governmental vs. non-governmental NFPs, understand NFP financial reporting requirements, prepare/read/analyze required NFP financial statements, and understand functional and natural classifications of NFP expenses.

Which authoritative body sets GAAP for For-Profit and Nongovernmental Not-for-Profit entities?

FASB (Financial Accounting Standards Board).

Which authoritative body sets GAAP for Governmental Not-for-Profit entities?

GASB (Governmental Accounting Standards Board).

What is the single authoritative source of US accounting and reporting standards for nongovernmental NFPs?

The FASB Accounting Standards Codification (ASC).

Which specific FASB ASC Topic contains NFP-specific standards?

FASB ASC Topic 958, Not-for-Profit Entities.

What basis of accounting is required for NFP financial statements?

The accrual basis of accounting.

What are the three required financial statements for a not-for-profit organization under GAAP?

A statement of financial position, a statement of activities, and a statement of cash flows.

How must NFP expenses be reported?

By both nature (e.g., salaries, rent, supplies) and function (program or supporting), displayed on the face of the Statement of Activities, in the notes, or in a separate statement.

What is the primary purpose of NFP financial reporting?

To provide decision-useful financial information to resource providers, such as donors, members, and creditors.

What four key areas should NFP financial reporting provide useful information for?

Making resource allocation decisions, assessing services/ability to provide services, assessing management stewardship/performance, and assessing economic resources, obligations, net resources, and changes in them.

Who are some typical users of NFP financial statements?

Board members, management, clients, resource sources (donors, lenders, government agencies), donors' representatives, workforce, and regulators/tax authorities.

Is fund accounting presented in GAAP financial statements?

No, fund information is no longer presented in GAAP financial statements, though it may be used internally for compliance.

What is the primary purpose of the Statement of Financial Position?

To provide relevant information about assets, liabilities, and net assets, and their relationships at a moment in time, focusing on the organization as a whole.

What assessments does the Statement of Financial Position help stakeholders make?

The NFP's ability to provide services, liquidity, financial flexibility, ability to meet obligations, and needs for external financing.

Into how many classes must NFP net assets be classified?

Two classes: Net assets without donor restrictions and Net assets with donor restrictions.

How are assets and liabilities typically listed on an NFP's Statement of Financial Position?

Listed in decreasing liquidity.

What is the basic NFP accounting equation involving net assets and restrictions?

Assets - Liabilities = Net Assets = (Net Assets with Donor Restriction + Net Assets without Donor Restriction).

What do Net Assets with Donor Restrictions result from?

Contributions where donors impose permanent restrictions (endowments) or temporary restrictions (time and purpose restrictions).

What is included in Net Assets without Donor Restriction?

Assets free from donor restrictions, including Board-designated net assets and formerly restricted net assets whose restrictions have been released.

What are common assets found on an NFP's Statement of Financial Position?

Cash, short/long-term investments, accounts receivable, grant receivables, pledges receivable, inventory, property, plant, and equipment, and right-of-use assets.

What are common liabilities found on an NFP's Statement of Financial Position?

Accounts payable, grant payables, accrued expenses, deferred revenue, notes payable, and right-of-use liabilities.

What is the Statement of Activities equivalent to in for-profit entities?

An income statement (showing information over a period of time).

What three primary net asset changes does the Statement of Activities present?

Changes in net assets without donor restrictions, changes in net assets with donor restrictions, and total change in net assets.

What are the main forms that changes in net assets take on the Statement of Activities?

Revenues, gains, expenses, losses, and reclassifications.

How are NFP expenses handled relative to net asset classes?

All expenses decrease net assets without donor restrictions, except investment expenses which are netted against investment return.

What is the primary purpose of the Statement of Cash Flows?

To provide relevant information about the cash receipts and cash payments of an entity during a period.

How does NFP cash and cash equivalents treatment differ regarding restrictions under ASU 2016-18?

Restricted cash is included within cash and cash equivalents on the statement of cash flows.

What are the three categories of cash flows on the statement of cash flows?

Operating activities, investing activities, and financing activities.

Which method(s) can an NFP use for the operating section of the Statement of Cash Flows?

Either the direct or indirect method.

What are examples of operating cash transactions for an NFP?

Receipts of unrestricted contributions, sales of goods/services, unrestricted interest/dividends, interest and taxes paid, and program/employee/supplier payments.

What are examples of investing and financing cash flow activities for an NFP?

Investing: property transactions, investment sales/maturities, loans. Financing: restricted long-term contributions, borrowing/repaying money.

What are the two ways NFPs must report their expenses?

By function (program services vs. supporting activities) and by natural classification (salaries, rent, supplies, etc.).