Perspective and Issues

Concepts, Rules, and Examples

Unrestricted Net Assets

Temporarily Restricted Net Assets

Permanently Restricted Net Assets

Changing Net Asset Classification Reported in a Prior Year

Endowment Fund Reporting

Financial Statement Presentation

Disclosure Requirements


Net assets are defined as “the residual interest in an entity's assets remaining after liabilities are deducted.” (FASB Statement of Financial Accounting Concepts 6, Elements of Financial Statements). In more simple language, net assets represent the difference between an organization's assets and liabilities.

As a residual interest, net assets cannot be measured independently of an organization's assets and liabilities. Changes in net assets result from transactions and other events and circumstances in which total assets and total liabilities change by different amounts. In many not-for-profit organizations, such changes include nonreciprocal transfers of assets received from donors who do not expect to receive either repayment or proportionate economic benefit in return. Display of, and disclosures about, net assets and changes in them are intended to assist donors and other users in assessing an organization's efforts to provide goods and services to its constituencies, its efficiency and effectiveness in providing such services, and its continuing ability to do so.

GAAP requires the reporting of net assets in three different classes. Net assets are classified ...

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