Financial Statements and Reporting of Nonprofit Organizations
The Financial Accounting Standards Board (FASB) statements 116 and 117 encompass the guidelines for not-for-profit entities in relation to recording revenue and financial statement presentation. These guidelines apply to all nonprofit companies and requires particular attention to the type of revenue collected and how the statements are presented.
FASB 116
FASB statement No. 116 applies to nonprofit revenue recognition guidelines and donor-imposed restrictions, as well as exchange transactions. The guidance requires all unconditional contributions be recorded as revenue. Exchange transactions can be indicated as follows:
There are economic penalties if the terms of the agreement are not met.
The payor specifies the time and place of delivery of any goods or services.
The payment is calculated in a manner that provides a "profit margin" for the recipient.
The payor receives a direct benefit from the payee excluding any intrinsic benefit from helping the nonprofit organization.
The grant requires that the recipient provide the grantor with a specific service, facility or product rather than providing the benefit to the general public (Miller, FAS 116, 2014).
The most important aspect of FASB statement No. 116 is the requirement that all unconditional promises to give be recognized in the year the notification of the donation is received. The pledge must be in written form and indicate some of the following factors:
1. The donor has made payments under the promise.
2. The promise contains a fixed payment schedule.
3. The award uses contractual wording.
4. The amount of the promise is determinable.
5. The donor has the financial ability to fulfill the promise.
6. A condition that is not truly uncertain where the nonprofit organization continues operations.
7. Examples of true conditions are:
a. Raising matching funds or receipt of other awards.
b. Receipt of funds is based on a certain outcome.
c. Amount of award is based on the amount expended (Miller, FAS 116, 2014).
After funds have been received from a donor, FASB statement No. 116 helps nonprofit organizations define restriction levels as imposed by the donor as follows:
Permanently restricted support includes all contributions, which are not expendable by the nonprofit organization.
Temporarily restricted consists of contributions with donor-imposed restrictions that limit the use of the funds as follows:
Purpose-restricted: These are funds that are donor-restricted for use on a particular project.
Time-restricted: These are funds that are donor-restricted for use in a certain time period.
Unrestricted support consists of all other revenue (Miller, FAS 116, 2014).
FASB 117
After funds have been received and are expended appropriately in accordance with donor-restrictions and FASB statement No. 116, the information must be made available to stakeholders using the guidelines in FASB statement No. 117. These guidelines primarily relate to the financial statement presentation nature and format of nonprofit organizations. The statements required by FASB statement No. 117 are as follows:
1. Statement of Financial Position
2. Statement of Activities
3. Statement of Cash Flows
4. Statement of Functional Expenses (Miller, FAS 117, 2014)
The Statement of Financial Position must be classified into current and noncurrent assets and liabilities and totaled based on the existence of donor-imposed restrictions. The Statement of Activities must
