Not-for-Profit Financial Reporting

Solutions

Chapter 1

Case study solutions

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

• The statement would report only two classes of net assets: net assets without donor restrictions and net assets with donor restrictions.
• 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 net assets with donor restrictions. All expenses should be recorded as decreases in net assets without donor restrictions. Using resources to meet a donor-stipulated restriction would decrease net assets with donor restrictions and increase net assets without donor restrictions simultaneously.
• It appears that all gifts were recorded as increases in net assets without donor restrictions 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 Bob'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. ...