Not-for-Profit Accounting
Not-for-profit (NFP) organizations follow specific FASB guidance for reporting net assets in two categories (with donor restrictions and without donor restrictions) and recognizing contributions.
Explanation
NFP entities report net assets in two classes: with donor restrictions (purpose or time restrictions, or permanent endowments) and without donor restrictions (available for general use). Contributions are recognized as revenue when received (or unconditionally promised), classified based on donor-imposed restrictions. When restrictions are met, net assets are reclassified from with restrictions to without restrictions.
NFP financial statements include a statement of financial position, statement of activities, statement of cash flows, and (for voluntary health and welfare organizations) a statement of functional expenses. Contributed services are recognized only when they create or enhance non-financial assets or require specialized skills that the entity would otherwise purchase.
Key Points
- •Two net asset classes: with donor restrictions and without donor restrictions
- •Contributions recognized when received or unconditionally promised
- •Contributed services recognized only if they require specialized skills
- •Statement of functional expenses allocates costs to program, management, and fundraising
Exam Tip
Know the rules for when contributed services can be recognized as revenue, and understand the reclassification of net assets when restrictions are satisfied.
Frequently Asked Questions
Related Topics
Government Accounting (GASB)
Government accounting follows standards set by the Governmental Accounting Standards Board (GASB), using fund accounting and the modified accrual basis to track resources restricted for specific purposes.
Revenue Recognition (ASC 606)
ASC 606 provides a five-step framework for recognizing revenue from contracts with customers, replacing industry-specific guidance with a single, principles-based model.
Balance Sheet (Statement of Financial Position)
The balance sheet reports an entity's assets, liabilities, and equity at a specific point in time, following the fundamental accounting equation: Assets = Liabilities + Equity.
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