UNIT 2 IP
TOPICS COVERED IN TODAY’S CHAT
Hints and tips for completing the Unit 2 IP
assignment
 Reviewing Net Asset Classifications
 Accounting for Contributions
 Accounting for donated services
 Accounting for Pledges
 Conclusion
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UNIT 2 IP ASSIGNMENT

You are believer that new employees should practice
their accounting skills before "throwing them into the
fire." Therefore, you have listed a series of transactions
that require journal entries and updating of T-Accounts.
You know that preparing nonprofit journal entries are
easy, so you ask the new employee to




prepare, side by side, the correct journal entry for the
identical transaction:
once for a nonprofit entity
once for a for-profit company
include notes for each transaction
UNIT 2 IP ASSIGNMENT

Transaction 1: Assume a nonprofit has a restricted fund for capital
asset purchases. Compare the journal entries for the cash purchase
of a $10,000 computer by the nonprofit, to how the journal entry
would look for this for-profit.

Transaction 2: Assume that a nonprofit has a need for $80,000 for a
particular new marketing expenditure, and a for-profit entity needs to
raise an additional $80,000 to pay for some unanticipated marketing
expenses. How would the journal entities look at the acquisition of
the funds and the subsequent spending of the funds?

Transaction 3: The for-profit entity sells $120,000 with net 30-day
terms, while the nonprofit entity has a fund raising drive for which
they receive pledges of $120,000. How do the two journal entries
look?
GRADING RUBRIC
Grading Criteria
30%
0-30 pts
30%
0-30 pts
30%
0-30 pts
10%
0-10 pts
For Transaction 1, prepare, side by side, the correct journal entry for a
nonprofit entity and a for-profit company.
For Transaction 2, prepare, side by side, the correct journal entry for a
nonprofit entity and a for-profit company 1.
For Transaction 3, prepare, side by side, the correct journal entry for a
nonprofit entity and a for-profit company.
All Notes in the journal entries are correct.
REMEMBER THE THREE NET ASSET
CLASSIFICATIONS ?

Unrestricted funds
 Used for general operations of the organization or may
be designated by the Board for a special purpose

Temporarily restricted funds


restricted through donor imposed criteria that will be
satisfied either by a specific action or through the
passage of time
Permanently restricted funds

The donor stipulates that the principal (corpus) being
donated must remain intact and only the proceeds that
result from the investment (i.e., interest income and/or
dividends) can be used for a specific purpose
CLASSES OF NET ASSETS
Net Asset Class
Permanently
Restricted
Temporarily
Restricted
Unrestricted
Types of Restrictions
Donor-imposed
Permanent in nature
Not removable by
organization
Donor-imposed or
implied
Met by
1. Passage of time
2. Use of resources
for restricted purpose
No donor-imposed
restriction
Examples
Permanent
endowments
Required
preservation of assets
(art, land)
Assets restricted to
use (research, capital
assets)
Assets restricted for
use for time certain
Pledges receivable in
future
All other net assets
Board-designated
resources not donorrestricted
ACCOUNTING FOR CONTRIBUTIONS
A donor contributes $50,000 to a NPO to sponsor
an event scheduled for next year. Should the
event not occur, the donation will be forfeited and
given back to the donor. Since there is an
condition (the holding of the event) the NPO
would record the cash received as an asset with
a corresponding temporarily restricted support.
When the condition is met, FAS No. 117 requires
a 2 step process
ACTUAL SPENDING UNDER FAS NO. 117
1.
2.
Record the release the funds from the restriction
Record the actual use of the released funds
Step 1: Record the release of the fund from restriction
06/01/XX Resources released from temporarily restricted account
$ 50,000
Cash
To record the use of the cash per the restricted fund requirements
$ 50,000
Step 2: Record the actual use of the released funds
06/01/XX Expenses related to annual conference event
Resources released from restriction
To show annual conference event expense from a restricted fund
$ 50,000
$ 50,000
T Pharmacy donated $10,000 to host a dinner at the
Physicials Annual Meeting.
Step 1: Record the release of the fund from restriction
What account
$ 10,000.00
What account
$ 10,000.00
To record the release of the cash restricted for dinner at the Annual Mtg
Step 2: Record the actual use of the released funds
What account
$ 10,000.00
What account
To show the dinner expense form a restricted fund
$ 10,000.00
USING A RESTRICTED FUND FOR A CAPITAL EXPENDITURE

The Church of the Holy General Ledger (a religious NFP) had a restricted
fund (generated from a fund raising event) specifically created to purchase
a RV (a capital asset) which will drive to bring the mass to shut aged
accountants. Create the JE to purchase the RV $350,000.
Nonprofit
1/1/2010 Resources released from Restricted Capital Fund
$350,000
Cash
$350,000
Note: Release restricted fund for purchase of RV
1/1/2010 RV – capital asset
Resources released from Restricted
Capital fund
Note: Record the expenditure to purchase the RV
$350,000
$350,000
SERVICE CONTRIBUTIONS


When people volunteer their time (services), this is usually
not recorded.
Volunteer services (FASB 116) can be recorded only if they
are professional in nature & the NPO would have to pay for
the service otherwise. Assume an accountant donates
his/her services to audit a NPO, valued at $10,000. This
would be recorded (unrestricted) as:
Expense-Professional Services10,000
Revenue-Contributed Services 10,000

Jeff, an electrician, donates his time to rewire
the church which has old knob and tube wiring.
Jeff usually charges $25,000 to rewire a
building of the church’s size. He also helped
serve dinner for 2 hours in the Church’s
homeless shelter. What is the journal entry?
PLEDGES


Pledges are unconditional promises to contribute cash
or other assets or services in the future.
Based on FASB 116, unrestricted pledges are
reported as revenue in the period received, based on
present value (estimated future cash flows discounted
for relative risk). Pledges expected to be collected
within one year need not be discounted.
PLEDGES JOURNAL ENTRIES

Pledges of $100,000 are received. We will record in the pledge
in the year it is made. It also happens that $60,000 will be
collected this year:
Unrestricted Fund
Pledges Receivable
60,000
Revenue from Contributions
Cash
60,000
Pledges Receivable
60,000
60,000
PLEDGES JOURNAL ENTRIES (2)

$40,000 of the pledges will not be collected this year,
of which $10,000 is expected to be uncollectible:
Temporarily Restricted Fund
Pledges Receivable
40,000
Allowance for Uncollectible
Pledges
10,000
Revenues from Contributions 30,000
How would a NFP calculate an allowance for
uncollectible pledges?
 Do you think a NFP should be able to record
revenue when a pledge is made even though
the cash may be received much later or
throughout the year, why?

DEPRECIATION
Depreciation on capital assets must be
recognized as expense for NPs (FASB 93). The
expense is unrestricted, even if the capital
assets are restricted.
 Assume a foundation records annual
depreciation of $5,000. The entry is
(unrestricted):
Depreciation Expense
5,000
Accumulated Depreciation 5,000
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Would a NFP ever have intangible assets? What
form would those intangible assets take?
CONCLUSION
Net Asset Classifications – 3 different funds
 Accounting for Contributions – No restrictions vs.
restrictions (2 step process)
 Accounting for donated services - Volunteer
services (FASB 116) can be recorded only if they
are professional in nature & the NPO would have
to pay for the service otherwise
 Accounting for Pledges - unrestricted pledges are
reported as revenue in the period received
 Conclusion
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QUESTIONS
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