Accounting For Charities

CHARITIESV O L U N T A R Y H E A L T H A N D W E L F A R EO R G A N I Z A T I O N S ( V H W O )

FASBCharities follow FASB rules

Statement of... ...Financial Position

...Activities ...Cash FlowsThese are the three financial statements required of not for profits

Statement ofFunctionalExpensesA VHWO also needs one of these. It tells the user what thecharity spends on program, administration, and fund raising.

NETASSETS

The equity section of the statement of financial positionis the net asset section. There are three categories ofnet assets

PERMANENTLYRESTRICTED

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Consists of endowments -assets that cannot be spent.

TEMPORARILYRESTRICTED:

TIME ORPURPOSE

These will be available at some point. A time restriction means that the assets is not available in thecurrent period. A purpose restriction means that assets are available only for specified activities.

RESTRICTIONSARE EXTERNAL

ONLY.Only an outside party can impose restrictions on assets. Management cannot imposerestrictions on the assets of the charity.

UNRESTRICTEDThe charity can use these assets right now.

STATEMENTOF

ACTIVITIESIs the equivalent of an income statement.

REVENUERECOGNITION

RESTRICTIONSDON'T

MATTERRestrictions are either time or purpose as stated earlier. Restrictions onassets received does not prohibit a charity from recognizing revenue.

CONDITIONSMATTER

Conditions are requirements that must be met before the charity hasaccess to contributed assets. The charity cannot recognize revenueuntil the requirements have been met.

FAIRMARKETVALUE

Contributions are recorded at fair value.

PRESENTVALUE

Where time is an issue, assets and revenue are discounted topresent value and revalued every accounting period. The changein value is recorded as contribution revenue, not interest income.

SERVICES

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Donated services are revenue to the charity when provided by aprofessional.

Furthermore, the services must represent something that the charitywould have had to pay for otherwise.

For example - the services of a veterinarian to charity that focuses onanimals might be a donated service that qualifies for revenue

recognition. The services of volunteers that require no special trainingwould probably not qualify.

EXPENSESARE ALWAYS

UNRESTRICTEDYou can think of a charity as having three different sets of financial statements - one for each ofthe net asset categories. Revenue of a charity can fall in any of the three categories, but theexpenses will always be unrestricted. When restricted money is spent, a reclassification of netassets must be recorded - DEBIT Permanently Restricted or Unrestricted Net Assets, CREDITUnrestricted Net Assets.

FIXEDASSET

POLICYCharities can record fixed assets either as temporarily restricted or unrestricted. If they arerecorded as restricted, a reclassification must take place every time depreciation is recorded(expenses are always unrestricted).

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