Financial Accounting & Reporting (FAR)

Full Set of Financial Statements

1. Statement of Financial Position (Balance Sheet)
2. Statement of Earnings (Income Statement)
3. Statement of Comprehensive Income
4. Statement of Cash Flows
5. Statement of Owner's Equity

Comprehensive Income

Items of Other Comprehensive Income (OCI):

• Pension Adjustments
• Unrealized Gains and Losses on Available-for-Sale Debt Securities
• Foreign Currency Items (including translation adjustments)
• Instrument-Specific Credit Risk
• Effective Portion of Cash Flow Hedges

Individual Foreign Transactions

Direct Method: Domestic price of another currency ($/€)

Indirect Method: Foreign price of domestic currency (€/$)

SEC Filing Deadlines

Form 10-K

Form 10-Q

Stock Definitions

• Authorized: Amount of stock that may be issued.
• Issued: Stock that has been sold/distributed.
• Outstanding: Issued Stock - Treasury Stock.

Retained Earnings

Book Value Per Common Share

Common Shareholder Equity (SE): Total Assets - Total Liabilities - Preferred Equity - Dividends in Arrears

Common Shares Outstanding: Shares Issued - Shares Repurchased (Treasury)

Stock Issuance Journal Entries

Basic & Diluted Earnings Per Share (EPS)

Liquidity & Solvency

Core measures of a company's financial health.

Diluted EPS: Treasury Stock Method

Used for options and warrants. Assumes the proceeds from exercising options are used to repurchase shares at the average market price.

Additional Shares Calculation

This calculation is only performed if the average market price is greater than the strike (exercise) price, as the options would be dilutive.

Preferred Stock - Equity with Options

Treasury Stock

Stock Subscriptions

Subscription Default: 1) Issue stock proportional to amount paid, 2) Refund partial payment, or 3) Retain payments and credit APIC.

Dividends

Date of Declaration: DR: RE, CR: Div. Payable

Date of Record: No JE. Determines who gets paid.

Date of Payment: DR: Div. Payable, CR: Cash

• Property (In-Kind) Dividend: Use FMV of property. G/L recognized.
• Scrip Dividend: Note payable used for cash shortage.
• Small Stock Div (<20-25%): Reduce RE by FMV.
• Large Stock Div (>20-25%): Reduce RE by Par Value.

The 5-Step Revenue Recognition Model (ASC 606)

Revenue is recognized based on the transfer of control of promised goods or services to customers. The process follows five sequential steps.

Step 1: Identify the Contract with a Customer

A contract exists if all five criteria are met:

• All parties have approved the contract.
• The rights of each party are identified.
• Payment terms are identified.
• The contract has commercial substance.
• It is probable that the entity will collect the consideration.

If a contract fails this test, revenue can only be recognized if the consideration received is nonrefundable and there are no remaining obligations to the customer.

Step 2: Identify Separate Performance Obligations (POs)

A performance obligation is a promise to transfer a good or service that is distinct. A good or service is distinct if both criteria are met:

1. The customer can benefit from the good/service on its own or with other readily available resources.
2. The promise is separately identifiable from other promises in the contract (i.e., it is not highly interrelated or part of an integrated service).

Step 3: Determine the Transaction Price

This is the amount of consideration an entity expects to be entitled to in exchange for transferring the goods or services.

Step 4: Allocate the Transaction Price to the POs

The total transaction price is allocated to each separate performance obligation based on its relative standalone selling price.

Step 5: Recognize Revenue When (or As) the PO is Satisfied

Revenue is recognized when the customer obtains control. This can happen over time or at a point in time.

• Recognize Over Time if ANY are met:
  • The customer simultaneously receives and consumes the benefit as the entity performs.
  • The entity's performance creates or enhances an asset that the customer controls.
  • The performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment.
• Recognize at a Point in Time if not met over time. Indicators of control transfer include:
  • The entity has a present right to payment.
  • The customer has legal title to the asset.
  • The customer has physical possession of the asset.
  • The customer has the significant risks and rewards of ownership.
  • The customer has accepted the asset.

Revenue Recognition: Detailed Criteria

Contract Modifications

A contract modification is treated as a new, separate contract if both of the following conditions are met:

• The scope of the contract increases due to the addition of distinct goods or services.
• The price of the contract increases by an amount that reflects the standalone selling price of the additional goods or services.

Non-Separately Identifiable Performance Obligations

Performance obligations are not considered separately identifiable if they are highly interrelated or interdependent. This can also occur if the entity provides a significant service of integrating the goods or services into a combined item for the customer.

Performance Metrics

Recognizing Revenue Timing

Satisfied Over Time (if any met):

• Customer simultaneously receives and consumes the benefit.
• Creates or enhances an asset that the customer controls.
• Does not create an asset with alternative use.

Methods: Output (value to customer) or Input (entity's efforts).

Satisfied at a Point in Time:

Recognize when customer obtains control (right to payment, legal title, physical possession, risks/rewards, acceptance).

Fair Value Measurement

Notes to the Financial Statements

• Summary of Sig. Acct. Policies: First or second footnote. Describes measurement bases and specific principles used.
• Disclosure of Risks & Uncertainties: Describes major operations, use of estimates, and significant concentrations. A concentration should be disclosed if all of the following are met:
  • The concentration exists at the financial statement date.
  • The concentration makes the entity vulnerable to a near-term severe impact.
  • It is at least reasonably possible that the event causing the impact will happen in the near term.
• Other Notes: Contingencies, pension plans, segment disclosures, FV estimates, changes in SE, material asset/liability info.

Accounting Changes & Error Corrections

Subsequent Events

Event after B/S date but before F/S are issued/available.

• Type 1 (Recognized): Condition existed at B/S date. Requires F/S adjustment.
• Type 2 (Non-Recognized): Condition did NOT exist at B/S date. Disclosure only.

Public firms evaluate until F/S are issued. Private firms evaluate until F/S are available to be issued.

Other Bases of Accounting (OCBOA)

• Cash Basis: Revenue is recognized when cash is received; expenses when cash is paid. F/S include a "Statement of Cash and Equity" and a "Statement of Cash Receipts and Disbursements".
• Modified Cash Basis: A hybrid method that uses cash basis but includes modifications like capitalizing and depreciating fixed assets, accruing income taxes, or capitalizing inventory.
• Income Tax Basis: Rules used to prepare a tax return are used for financial statements.
• OCBOA Guidelines: When using a non-GAAP basis, F/S titles should be different, equivalents of B/S and I/S are required, changes in equity should be explained, and disclosures should be similar to GAAP. A Statement of Cash Flows is not required.

Cash to Accrual Basis Conversion

General Rules: Add increases in current assets & decreases in current liabilities. Subtract decreases in current assets & increases in current liabilities.

Solvency Ratios

Profitability Ratios

Sales Discounts (Gross vs. Net Method JEs)

Sales discounts are offered to incentivize prompt payment. Terms like "2/10, n/30" mean the customer can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30 days.

Advanced Asset & Inventory Topics

Moving Average Method (Perpetual)

Used for homogeneous products, this method computes the weighted average cost per unit after each purchase. The new average cost is then used to value subsequent sales until the next purchase occurs.

PP&E Equipment Capitalization (Substitutions)

When substituting a new, similar asset for an old one, the accounting treatment depends on the old asset's carrying value.

• If the old asset's carrying value is known, it should be written off and the new asset recorded.
• If the old asset's carrying value is not known, you should debit Accumulated Depreciation for the cost of the new asset and credit cash.

Depletion Method

Inventory Methods & Systems

Costing Methods

• Specific Identification: The cost of each item is uniquely identified. Used for large, high-value items.
• FIFO/LIFO: Standard methods covered elsewhere.
• Weighted Average Method (Periodic): Used for homogeneous products. The cost per unit is `Total inventory Costs / Total # of units available`.

Periodic System Details

Modified Perpetual System

Keeps an updated count of the quantity of inventory on hand, but not the cost. Cost is determined later, similar to a periodic system.

Composite Depreciation

Averages the economic lives of a group of dissimilar assets and depreciates them as a single unit.

1. Find the total depreciable base (Total Cost - Total Salvage).
2. Find total annual depreciation for all assets.
3. Calculate Average Composite Life = Total Depreciable Base / Total Annual Depreciation.

Sale of Asset under Composite Method:

No gain or loss is recognized. The entry is simply:

JE: DR: Cash, DR: Accumulated Depreciation (plug), CR: Asset (Cost)

Cash & Bank Reconciliation

Bank Balance

• + Deposits in Transit
• - Outstanding Checks
• +/- Bank Errors

Book Balance

• + Interest, Note collections
• - Service Charges, NSF Checks
• +/- Book Errors

Cash Equivalents: Short-term, highly liquid investments readily convertible to cash with an original maturity of 90 days or less.

Uncollectible A/R (Allowance)

Estimate BDE: DR: BDE, CR: ADA

Write-off: DR: ADA, CR: A/R

Collection of Written-off:

1. DR: A/R, CR: ADA (Restore)
2. DR: Cash, CR: A/R (Collect)

A/R Sales Discounts

Instructional T-Accounts

Accounts Receivable

Accumulated Depreciation

A/R: Factoring & N/R: Discounting

Factoring w/o Recourse: True sale. Remove A/R, recognize G/L. DR: Cash, DR: Due from Factor, DR: Loss, CR: A/R.

Factoring w/ Recourse: May be sale or borrowing. Sale if control surrendered, repurchase not required, obligation can be estimated.

Discounting N/R: 1. Calc Maturity Value (Principal + Interest). 2. Calc Bank Discount (MV x Bank Rate x Time). 3. Calc Proceeds (MV - Discount). 4. Calc Int. Income/Expense (Proceeds - Face Value).

Inventory Ownership & Title

• FOB Shipping Point: Title transfers when goods leave seller's dock. Buyer owns in transit.
• FOB Destination: Title transfers when goods arrive at buyer's dock. Seller owns in transit.
• Consigned Goods: Remain in the inventory of the consignor (seller) until sold by the consignee.
• Sale with Right of Return: Include in seller's inventory if the amount of returns cannot be reasonably estimated.
• Installment Sales: Include in seller's inventory if uncollectible debts cannot be estimated.

Inventory

PP&E Capitalized Costs

Land: Purchase price, commissions, legal fees, site development, draining swamps, clearing trees, removing old buildings (net of salvage).

Plant/Building: Purchase price, architect fees, deferred maintenance, digging foundation, construction period interest.

Equipment: All expenditures related to acquisition or construction. Capitalize improvements that increase quantity/quality, or are substitutions. Ordinary repairs are expensed.

Capitalizing Interest

On self-constructed assets. Capitalize the lower of actual interest cost incurred or computed capitalized interest (avoidable interest).

Capitalization period begins when expenditures are made, activities are in progress, and interest cost is being incurred. The period stops if these conditions cease. Brief or intentional interruptions do not stop capitalization, but unintentional interruptions do.

Disposal of Assets

Nonmonetary Exchanges

Accounting for the exchange of one nonmonetary asset for another depends on whether the transaction has "commercial substance."

Commercial Substance

A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This change can be in the areas of risk, timing, or amount of cash flows.

Gain/Loss Recognition Rules

• If the exchange has commercial substance:
  • Recognize the transaction at the fair value of the asset given up or the asset received, whichever is more clearly evident.
  • Recognize all gains and losses immediately. The gain or loss is the difference between the fair value and the book value of the asset given up.
• If the exchange lacks commercial substance:
  • No boot is received or boot is paid: Defer all gains. Recognize all losses immediately.
  • Boot is received:
    • If boot is significant (generally ≥ 25% of total consideration), the transaction is considered monetary. Recognize the entire gain.
    • If boot is not significant (< 25%), a proportional amount of the gain is recognized.
      $$ \text{Gain Recognized} = \frac{\text{Boot Received}}{\text{Total Consideration Received}} \times \text{Total Realized Gain} $$

Basis of Acquired Asset

• For fair value transactions (with commercial substance): The basis of the new asset is its fair value (or the FV of the asset given up plus any cash paid).
• For transactions lacking commercial substance: The basis of the new asset is the book value of the asset given up. This is adjusted for any boot paid (increases basis) or boot received (decreases basis) and any gain recognized.

Depreciation & Similar Methods

Asset Impairment

Step 1: Recoverability Test: If an asset's future undiscounted cash flows are less than its carrying value, it is impaired.

Step 2: Calculate Loss:

• Held for Use: Depreciate new cost basis. No restoration of loss permitted.
  $$ \text{Loss} = \text{Carrying Value} - \text{Fair Value} $$
• Held for Disposal: No depreciation. Restoration of loss is permitted.
  $$ \text{Loss} = \text{Carrying Value} - (\text{Fair Value} - \text{Costs to sell}) $$

Intangible Assets

• Patents (Finite Life): Amortize over shorter of useful or legal life.
• Goodwill (Indefinite Life): Test for impairment annually. Do not amortize.
• Start-up Costs: Expensed as incurred.
• Franchisee Costs: Capitalize initial costs; expense ongoing costs.
• Cloud Computing: Expense preliminary/post-implementation phases. Capitalize costs in the application development phase (e.g., customization, configuration).

Liability Calculation Details

Estimating Premiums Liability

To estimate the liability for outstanding premium claims at year-end:

1. Calculate Total Estimated Redemptions: Multiply the number of coupons issued by the estimated redemption rate.
2. Determine Coupons to be Redeemed: Subtract the coupons already redeemed from the total estimated redemptions.
3. Find Outstanding Premium Claims: Divide the remaining coupons to be redeemed by the number of coupons required for each premium.
4. Calculate Estimated Liability: Multiply the number of outstanding premium claims by the cost per premium.

Notes Payable: Principal Reduction

To find the principal reduction for a period's payment on an interest-bearing note:

1. Calculate Interest Expense: Multiply the beginning carrying value of the note by the effective market interest rate.
2. Calculate Principal Reduction: Subtract the interest expense from the periodic cash payment.

Troubled Debt Restructuring (Debtor JEs)

Transfer of Assets

Debt is extinguished. Two gains/losses are possible.

Transfer of Equity Interest

Debt is extinguished. A gain is recognized.

Carrying Value of Debt

The net amount at which a bond or other debt instrument is reported on the balance sheet.

Lease Details

Lease Commencement Date

The date on which the lessor makes the underlying asset available for use by the lessee.

Lease Options

• Option to Extend: Included in the lease term if the lessee is reasonably certain to exercise it.
• Option to Terminate: The lease term ends on the date the option becomes exercisable if the lessee is reasonably certain to exercise it.
• Options controlled by Lessor: Only the lessor's actions are considered when determining the lease term.

Notes Payable: Measurement

Notes Payable are written promises to pay money at a fixed rate and are measured as follows:

• Gross Notes Payable: Calculated as the periodic payment amount multiplied by the number of payments.
• Present Value of Notes: The gross amount is discounted to its present value. The difference between the Gross and PV is the discount on the note.

Trade Accounts Payable: Discount Methods

Similar to Accounts Receivable, purchase discounts can be recorded using either the Gross or Net method.

• Gross Method: The payable is recorded at its full amount. A purchase discount is recognized if the payment is made within the discount period.
• Net Method: The payable is recorded assuming the discount will be taken. If the discount is not taken, the lost discount is recorded to an expense account.

Common Current Liabilities

• Trade A/P & N/P: For inventory, raw materials, etc.
• Sales Tax Payable: Liability created when a company collects sales tax from customers on behalf of the government.
• Employee-Related Liabilities:

  Expense for Employer: FICA, FUTA, SUTA

  Not an Expense (Deductions): Employee Income Tax, Employee FICA

• Accrued Vacation: Accrue in year earned if services rendered, rights vest/accumulate, payment is probable, and amount is estimable.
• Premiums: Estimate liability for outstanding premium claims. (Total Est. Redemptions - Redemptions to Date) x Cost per redemption.

Loss Contingencies

Gain Contingencies: Do not accrue. Disclose if not remote.

Annuity Definitions

• Annuity Due: Payments occur at the beginning of each period.
• Ordinary Annuity: Payments occur at the end of each period.

Exit or Disposal Activities

A liability is recognized for costs associated with an exit or disposal plan (e.g., severance, contract termination costs, facility consolidation).

Criteria: An obligating event has occurred, resulting in a present obligation, and the entity has little or no discretion to avoid it. The liability is measured at fair value.

Asset Retirement Obligation (ARO)

Initial JE: DR: Asset Retirement Cost (Asset), CR: ARO Liability (at Present Value)

Subsequent Measurement:

• Accretion Expense: Increases ARO liability due to passage of time. DR: Accretion Exp, CR: ARO.
  
  $$ \text{Accretion Exp} = \text{Beginning ARO} \times \text{Discount Rate} $$
• Depreciation Expense: Depreciates the ARC asset over its useful life. DR: Depreciation Expense, CR: Accumulated Depreciation.

Bonds

Initial Journal Entries (Investor)

Lease Accounting (Lessee)

Troubled Debt Restructuring & Loan Impairment

Transfer of Assets/Equity

Debt is extinguished. Recognize gain on extinguishment = CV of Debt - FV of consideration transferred. Also recognize G/L on asset transfer itself (FV of Asset - BV of Asset).

Modification of Terms

Debt is not extinguished. Adjust future cash flows. No gain unless total future undiscounted cash flows < CV of debt.

Loan Impairment (Creditor)

Occurs when it's probable that the creditor will be unable to collect all amounts due. The impairment loss is the difference between the investment in the loan and the present value of expected future cash flows.

Bonds Issued Between Interest Dates

When bonds are issued between interest payment dates, the buyer pays the seller for the accrued interest since the last payment date.

This accrued interest is added to the price of the bond. The issuer will pay a full 6-month interest payment at the next payment date.

Sale of AFS & Uncertain Tax Positions

Sale of Available-for-Sale (AFS) Security

When an AFS security is sold, the realized gain or loss is the difference between the selling price and the original cost of the security. Upon sale, any unrealized gains or losses that were recorded in Other Comprehensive Income (OCI) must be reversed.

Uncertain Tax Position

An uncertain tax position is evaluated in a two-step process. First, a "more-likely-than-not" (>50%) threshold must be met to recognize the benefit. If this test fails, the following entry is made to recognize the tax expense without the benefit:

Partnership Details

Profit and Loss Distribution

Partnership profits and losses are split based on the method specified in the partnership agreement.

Partner Admission & Withdrawal Methods

• Exact Method: The purchase price equals the book value of the capital account being purchased. No goodwill or bonus is recorded.
• Bonus Method: This method is used when the purchase price does not equal the book value. The bonus is allocated to the old or new partners. For withdrawal, the bonus is allocated among the remaining partners.
• Goodwill Method: This method is used when the purchase price is greater than the book value. Goodwill is recorded and allocated based on the old capital structure. For withdrawal, goodwill is allocated to all partners before the payout.

Sale of Debt Securities (JE Detail)

Sale of Trading Security

The realized gain or loss is the difference between the selling price and the carrying value at the time of sale.

Sale of Available-for-Sale (AFS) Security

A realized gain or loss is recognized in earnings, calculated as the difference between the selling price and the original cost of the security. Any unrealized gains or losses in Accumulated Other Comprehensive Income (OCI) must be reversed upon sale.

Investment Accounting Summary

Equity Method (20-50%)

Initial Investment: $$ \text{Investment} = \text{Purchase Price} $$

Share of Net Income: $$ \text{Investment} \uparrow \text{by Share of NI} $$

Dividends Received: $$ \text{Investment} \downarrow \text{by Dividends Rec'd} $$

Investment Reclassification & Sale

Reclassification

Transfers between categories are accounted for at fair value on the date of transfer.

• To Trading: Unrealized G/L recognized in current earnings.
• From HTM to AFS: Unrealized G/L recorded in OCI.
• From AFS to HTM: Unrealized G/L from OCI is amortized over the remaining life of the security.

Sale of Security

Trading: Realized G/L = Selling Price - CV at sale. JE: DR: Cash, CR: Trading Security, CR/DR: Realized Gain/Loss.

AFS: Realized G/L = Selling Price - Original Cost. Any unrealized G/L in OCI must be reversed.

Impairment of Debt Securities

• Trading: Not applicable (already at FV through NI).
• AFS: ECL recognized on I/S. Any excess loss (FV drop > ECL) goes to OCI.
• HTM: ECL recognized on I/S. Asset is written down.

JE: DR: Credit Loss, CR: Allowance for Credit Losses

Consolidation (>50%) Adjustments

At acquisition, 100% of sub's net assets are recorded at FV. Parent's basis is acquisition price.

• Eliminate sub's Common Stock, APIC, & Retained Earnings.
• Eliminate parent's Investment in Sub account.
• Create Noncontrolling Interest (for portion not owned).
• Adjust sub's Balance Sheet assets & liabilities to Fair Value.
• Record identifiable Intangible Assets at Fair Value.
• Record Goodwill (or Gain if acquisition price < FV of net assets).

Eliminating Intercompany Transactions (100% eliminated)

• Inventory/Sales: Eliminate intercompany sales/COGS. Defer unrealized profit in ending inventory.
• Bonds: Treat as if debt is retired. Eliminate intercompany interest/amortization and recognize G/L on extinguishment. (DR: B/P, DR: Premium, CR: Investment in Bonds, CR: Gain).
• Land/Fixed Assets: Eliminate intercompany G/L. Restore asset to original cost and restore accumulated depreciation to its pre-sale balance. (DR: Intercompany Gain, CR: Asset/AD).

Partnership Accounting

Statement of Cash Flows (Indirect Method)

Operating:

Investing: Non-current assets (e.g., sale/purchase of PP&E, investments).

Financing: Debt and Equity (e.g., issuing stock/bonds, paying dividends, repaying principal).

PPE T-Chart for CFs

Can be used to find cash paid for acquisitions.

Advanced Tax Topics

Intraperiod Tax Allocation: Income tax expense is allocated to continuing operations, discontinued ops, OCI, etc.

Uncertain Tax Position: A two-step process. 1) Recognize if >50% likely to be sustained ("more-likely-than-not"). 2) Measure as the largest benefit with a >50% cumulative probability.

Changes in Tax Status: If a non-taxable entity becomes taxable, recognize DTA/DTL. If taxable becomes non-taxable, write off existing DTA/DTL.

Deferred Taxes

Permanent Differences

Do not create DTA/DTL. (e.g., Muni-bond interest, life insurance proceeds/premiums, fines, dividends-received deduction).

Dividends-Received Deduction (DRD): A permanent tax difference based on the percentage of ownership one corporation has in another.

All DTA/DTLs are reported as non-current on the balance sheet.

GASB GAAP Hierarchy

The Governmental Accounting Standards Board (GASB) establishes accounting and reporting standards for governments. The hierarchy for selecting accounting principles is as follows:

1. GASB Accounting Standards Board Statements.
2. GASB Bulletins, implementation guides, and literature cleared by the AICPA.

Gov & NFP Specifics

Enterprise Fund Criteria

An Enterprise Fund is required if any one of the following criteria is met:

1. The activity's debt is secured by a pledge of its own fee revenue.
2. Laws or regulations require the activity's fees to be adequate to recover its costs.
3. Pricing policies are established to produce fees intended to recover costs.

NFP Unconditional Contributions

For a transfer of assets to be considered an unconditional contribution, it must meet the following criteria:

• It must be voluntary.
• It must be nonreciprocal.
• It must be an unconditional transfer of assets.
• The title to the assets must pass.

Conditional Contribution Barriers

A conditional pledge is not recognized until barriers are met. Specific barriers include:

• Specified levels of service are required.
• Specific outcomes or outputs must be achieved.
• A matching provision is attached to the gift.
• An outside event must occur or be resolved.

Governmental Accounting Foundations

Objectives of Governmental Accounting

The primary objective is to demonstrate the accountability of each organization for the resources entrusted to it. It is designed to show fiscal accountability in external reporting.

GASB Conceptual Framework

Outlined in GASB Concepts Statements 1-6, this framework establishes the objectives of governmental accounting, including:

• Public Accountability: Providing financial info to citizens to justify raising resources.
• Interperiod Equity: Ensuring the government lives within its means and doesn't shift the burden to future taxpayers.

Needs of NFP Financial Statement Users

Users (donors, members, creditors) need information to assess:

1. The amount and nature of an organization's assets, liabilities, and net assets.
2. The effects of events that change the amount and nature of net assets.
3. The amount and kinds of inflows and outflows of economic resources.
4. The relationship between the inflows and outflows.
5. How an organization obtains and spends cash.
6. The service efforts of an organization.

Qualitative Characteristics of Gov. Info

Per the GASB framework, information in governmental financial statements should possess the following characteristics:

• Understandability: Can be understood by those without deep accounting knowledge.
• Reliability: Verifiable, free from bias, and represents the subject matter faithfully.
• Relevance: Makes a difference in user decisions.
• Timeliness: Issued in time to have an effect on decisions.
• Consistency: Accounting principles should not change from year to year.
• Comparability: Reports should be comparable between different entities.

NFP Statement of Cash Flows: Detailed Classification

Governmental Accounting Concepts

• Standard Setter: Governmental Accounting Standards Board (GASB).
• Objective: To demonstrate fiscal accountability for public resources.
• Qualitative Characteristics: Information should be understandable, reliable, relevant, timely, consistent, and comparable.

Not-for-Profit (NFP) Concepts

• Basis of Accounting: Full Accrual.
• Standard Setter: Financial Accounting Standards Board (FASB).
• Characteristics: Revenues come from contributions, the purpose is not to make a profit, and ownership interests are different from business enterprises.
• User Needs: Users, such as donors and creditors, need information to assess the services an NFP provides and to evaluate the performance of its management.

Fund Accounting Overview

Modified Accrual Basis

• Revenue: Recognized when measurable and available (collectible within current period or 60 days after year-end).
• Expenditures: Recorded when the liability is incurred. No long-term assets/liabilities recorded on fund F/S.

Fund Financial Statements

• Governmental: Balance Sheet; Statement of Revenues, Expenditures, and Changes in Fund Balances.
• Proprietary: Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; Statement of Cash Flows.
• Fiduciary: Statement of Fiduciary Net Position; Statement of Changes in Fiduciary Net Position.

Not-for-Profit (NFP) F/S

Required Statements:

• Statement of Financial Position: Assets, Liabilities, Net Assets (With/Without Donor Restrictions).
• Statement of Activities: Reports changes in each net asset class.
• Statement of Cash Flows: Operating (includes charitable contributions and receipts of unrestricted resources), Investing, and Financing (includes receipts from contributions restricted for long-term purposes) sections.

NFP Contribution & Revenue Recognition

NFP Recipient & Beneficiary Accounting