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Governmental - A Not-for-Profit Organization Receives a Restricted Gift

Provide examples of resources that are temporarily restricted as to: (a) purpose; (b) time; and (c) the occurrence of a specific event. Provide an example of permanently restricted resources.

A not-for-profit organization receives a restricted gift.
When, and in which type of fund, should it recognize the revenue? When, and in which type of fund, should it recognize the related expense? What is the reason for the apparent inconsistency between the fund types in which the revenues and expenses are reported?

Please give me a one page summary of SFAS 116 and 117.

Solution Preview

* Provide examples of resources that are temporarily restricted as to: (a) purpose; (b) time; and (c) the occurrence of a specific event. Provide an example of permanently restricted resources.

An example of permanently restricted resources according to Princeton.edu are "[net assets or] resources that may never be spent, mainly endowment funds. They are generally the results of gifts and bequests with donor stipulations that they be invested to provide a permanent source of income. They may also include gifts in kind such as works of art or real property.
Temporarily restricted net assets include those that, again by donor stipulation, must be invested only for a certain period of time or are to be used in a specified future period (example: resources or funds from donations or grants for specific operating time, specific event, or capital purpose).
Unrestricted net assets may be expended for any purpose and result from investment income, including net gains, and revenue from virtually all non-gift sources such as tuition and auxiliary services."
Reference: http://web.princeton.edu/sites/TreasurersOffice/Treasurer/Files/Public/Reports/97/06.html

* A not-for-profit organization receives a restricted gift. When, and in which type of fund, should it recognize the revenue? When, and in which type of fund, should it recognize the related expense?
If a not-for-profit organization receives a restricted gift, according to Princeton.edu again, it would be PERMANENTLY restricted, unless the donor specifies otherwise. The type of fund which it could recognize as revenue is, for example, gift income primarily from Annual Giving (donations), shown as operating income, while income from promises to give (pledges) would be considered a nonoperating source of income. Payment to workers specifically during fundraisers or the costs of mailings would be considered the expense.

"Contributions must be classified among those that are permanently restricted, temporarily restricted, or unrestricted, as determined solely by the donor. Permanently restricted contributions are those that may never be spent, such as endowment gifts that provide only for the spending of their income. Temporarily restricted contributions are those that may only be spent after donor-imposed restrictions on the use of the gift have been met or upon the passage of a specific time period. Unrestricted contributions may be spent at the discretion of the donee. The classification of contributions is essential for the proper presentation of revenue in the Statement of Activities and of net assets in the Statement of Financial Position."

Note: The Statement of Functional Expenses requires all not-for-profit organizations to report expenses by their functional classifications and encourages organizations to also report expenses by their natural classification.
Reference (same as above): http://web.princeton.edu/sites/TreasurersOffice/Treasurer/Files/Public/Reports/97/06.html

* What is the reason for the apparent inconsistency between the fund types in which the revenues and expenses are reported?

Note: Weiss of The CPA Journal (1993) references that, "The FASB released two statements designed to resolve the pervading ...

Solution Summary

1800+ words give an example of how a non-profit can work with restricted resources, such as how to recognize gifted money with restrictions. Also summarizes SFAS 116 and 117.

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