Case Studies in Not-for-Profit Accounting and Auditing

SOLUTIONS

CHAPTER 1

Case Study Solutions

There are several deficiencies in the statement prepared by Tom, including the following:

• The statement does not report a change in total net assets for the year.
• The statement reports the using up of restricted resources as expenses in temporarily restricted net assets. All expenses should be recorded as decreases in unrestricted net assets. Using resources to meet a temporary donor-stipulated restriction would decrease temporarily restricted net assets and increase unrestricted net assets simultaneously.
• It appears that all gifts were recorded as increases in unrestricted net assets, and the restricted gifts then transferred to the proper class of net assets. Restricted gifts should be recorded directly in the proper class of net assets.
• The statement uses the term expenditures instead of expenses. The statement should report expenses, not expenditures.
• The statement reports depreciation. This is not a functional classification of expense.

The following are additional observations about Tom's statement. They are not errors.

• The statement is titled “statement of operations,” not the statement of activities. It is acceptable to label this statement something other than the statement of activities.
• The statement reports a 'loss from operations." This is acceptable. An organization may choose to report some intermediate measure of operations, such as operating revenues over expenses.
• The statement does not report total revenue or expenses. ...