Not for profit - Finanical Accounting

ACCA - F1   ACCOUNTANT  IN  BUSINESS

ACCA F5 - Performance Management 

 

Financial accounting perspective:

Ø  Statement of operation/activities (income and expenses): Since a nonprofit's primary purpose is to provide programs that meet certain societal needs, it issues a statement of activities (instead of the income statement that is issued by a for-profit business).The statement of activities reports revenue and expense amounts according to the three classifications of net assets discussed later.  

Ø  Statement of financial position:

o   Net Assets - Since a nonprofit organization does not have owners, the third section of the statement of financial position is known as net assets (instead of owner's equity or stockholders' equity).

A nonprofit's statement of financial position is represented by the following accounting equation:

Assets = Liabilities + Net Assets

The net assets section of a nonprofit's statement of financial position reports totals for each of the following classifications:

Ø   Unrestricted net assets - If a donor does not specify a restriction on his or her contribution, the amount received by the nonprofit is recorded as an asset and as unrestricted contribution revenues. Unrestricted contribution revenues (reported on the statement of activities) also cause the amount of unrestricted net assets to increase.

Ø   Temporarily restricted net assets - If a nonprofit receives a contribution that has a donor-imposed restriction (other than to be held in perpetuity), the amount is usually recorded as an asset and as temporarily restricted contribution revenues. Temporarily restricted contribution revenues (reported on the statement of activities) also cause the amount of temporarily restricted net assets to increase.

Ø  Permanently restricted net assets - If a donor stipulates that her contribution must be held by the nonprofit in perpetuity (forever, not be used up), the amount is recorded as an asset and as permanently restricted contribution revenues. Permanently restricted contribution revenues (reported on the statement of activities) also cause the amount of permanently restricted net assets to increase.

Total net assets

The grand total of the three classifications of net assets is reported as Net Assets or as Total Net Assets.

Not-for-profitAccounting Part 1, Part 2, Part 3 and Part 4