Fund Accounting & GAAP for NPOs Flashcards

Under ASC 958, how must a nonprofit classify a donor-imposed restriction that expires when a specific asset is purchased?

Answer: As net assets with donor restrictions until the asset is acquired

ASC 958 requires that purpose restrictions on net assets remain classified as net assets with donor restrictions until the stipulated condition (purchasing the asset) is fulfilled.

Which statement best describes the 'functional expense' reporting requirement for nonprofits under GAAP?

Answer: All nonprofits must present expenses by both nature and function either on the face of statements or in notes

ASU 2016-14 requires all nonprofits to present an analysis of expenses by both their nature and function, either on the face of the financial statements or in the notes.

A nonprofit receives a $50,000 grant restricted for building renovations. The renovation is completed in the same fiscal year. How should the release from restriction be reported?

Answer: As a reclassification from net assets with donor restrictions to net assets without donor restrictions

When a donor restriction is satisfied, GAAP requires reclassifying the net assets from 'with donor restrictions' to 'without donor restrictions' on the statement of activities.

What is the primary purpose of fund accounting in a nonprofit organization?

Answer: To segregate resources according to donor restrictions and legal requirements for accountability

Fund accounting segregates resources into funds based on donor restrictions or legal requirements, ensuring accountability and proper stewardship of each fund's assets.

Under GAAP, how should a nonprofit record a conditional promise to give where the condition has NOT yet been met?

Answer: Disclose in notes but do not record as an asset or revenue

Conditional promises to give are not recognized as revenue or assets until the conditions are substantially met; they are only disclosed in the notes.

Which of the following is an example of an 'endowment fund' in nonprofit fund accounting?

Answer: A fund where the donor specifies the principal must be maintained in perpetuity and only income may be spent

A true (donor-restricted) endowment requires the principal to be maintained in perpetuity, with only the investment income available for spending per donor stipulation.

A nonprofit's board of directors designates $200,000 of unrestricted net assets for a future building project. How are these funds classified on the statement of financial position?

Answer: Net assets without donor restrictions — board designated

Board designations create 'net assets without donor restrictions — board designated' because only donors (not the board) can impose donor restrictions; the board can reverse its own designation.