NFP Exam 2 - transaction accounting for nfp

What is the definition of collection items for NFPs?

Works of art, historical treasures, or similar assets.

What three conditions must an asset meet to be considered a collection?

1) Held for public exhibition, education, or research in furtherance of the public interest, 2) Protected, kept unencumbered, cared for, and preserved, and 3) Proceeds from the sale of collection items are to be used to acquire other items for the collection.

Can NFPs choose whether or not to recognize collections?

Yes, NFPs can opt to recognize or not recognize collections.

Is selective capitalization allowed for NFP collection items?

No, selective capitalization is not allowed.

If a recognized collection item is acquired, how is it recorded?

Record at cost.

If a recognized collection item is contributed, how is it recorded?

Record at fair value.

When is depreciation not recorded for recognized collection items?

Depreciation is not recorded if the economic benefit of the collection is used so slowly that the estimated useful life is extraordinarily long.

What basis of accounting is used to recognize expenses for NFPs?

The accrual basis of accounting.

How are all expenses reported in relation to net assets?

They are reported as decreases in net assets without donor restriction.

For what types of assets must an NFP report depreciation expense?

All capital assets, except for art and historical collections.

What type of classifications should be used for reporting NFP expenses?

Functional classifications.

What is the functional classification of a "Program" expense?

The provision of goods and services that help achieve the major purpose or mission.

What is the functional classification of a "Support" expense?

Expenses that assist the NFP in carrying out its mission.

What are two examples of "Support" expenses?

Fund raising and Management.

What types of administrative activities are included in management and general expenses?

Costs of budgeting, accounting, reporting, legal services, office management, purchasing, and similar activities.

How is the cost of publicity and public relations activities designed to keep the organization's name before prospective contributors classified?

As management and general expenses.

How is the cost of informational materials that contain only general information regarding the NFP's program classified?

As management and general expenses.

Are the costs of informational materials distributed to potential contributors, but not part of a fund drive, considered fundraising or management and general expenses?

Management and general expenses.

What is an example of an NFP activity that combines a program or administrative activity with fundraising?

A door-to-door campaign to improve neighborhood safety and solicit contributions.

According to FASB guidelines, how should the total cost of joint activities generally be reported?

As fundraising costs unless a bona fide program or management and general function has been conducted in conjunction with the appeal for funds.

How should joint costs be handled if a bona fide function has been conducted alongside the fundraising appeal?

The joint costs should be allocated between the bona fide function and fundraising using an equitable allocation base.

What three criteria must be met to conclude that a bona fide program or management and general function has been conducted in conjunction with the appeal for funds?

Purpose, audience, and content.

Do FASB guidelines make it easier or more difficult to include fundraising as a part of program expenses?

More difficult.

What does the "Purpose" criterion require for joint costs of fundraising?

The joint activity helps accomplish a program purpose or a management activity.

What is generally required of the audience to meet the "Purpose" criterion for joint activities?

The joint activity needs to ask the audience to take a specific action that will help accomplish the NFP's mission.

Under what condition will the "Purpose" criterion not be met?

If the majority of the compensation or fees received by those conducting the joint activity are based on the contributions raised as part of the activity.

What does the "Audience" criterion dictate for joint costs of fundraising?

The audience was selected primarily for a program or management purpose rather than their ability to make a donation.

What does the "Content" criterion require for joint costs of fundraising?

The joint activity motivates the audience to action in furtherance of the mission, or meets a management responsibility.

How are reclassifications for net assets released handled during closing entries for NFPs?

They are closed into the appropriate categories of net assets.

Where are support and revenue without donor restrictions closed?

They are closed to net assets without donor restrictions.

Where are program and support expenses closed?

They are closed to net assets without donor restriction.

Where is support restricted for use and time closed?

It is closed to net assets with donor restrictions.

Where is support restricted for permanent endowment closed?

It is closed to net assets with donor restrictions.

Where are unrealized losses closed?

They are closed to the appropriate net asset categories.

closing entries steps

Step 1: Close restricted revenue to net assets with donor restrictions.

• Step 2: Close unrestricted revenue to net assets without donor restrictions.

• Step 3: Close expense to net asset without donor restriction

• Step 4: Close reclass from net asset with donor restriction to net asset with donor

restriction

• Step 5: Close reclass to net asset without donor restriction to net asset without donor

restriction.