Accounting standards for not-for-profit organizations

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Our association falls under the not-revenue driven substance class. As indicated by Irvine, such substances don’t have adaptable possession interests. Moreover, asset suppliers are not qualified for advantage by prudence of their commitments. They are worked solely for reasons for not making acquires like social, wellbeing, altruistic, expert or training. Since January 2012, all not-revenue driven elements should plan budget summaries according to the set rules like the Accounting Standards for Not-revenue driven Organizations or International Financial Reporting Standards. Quite is the Accounting Standard Code 958-205-05-5 (FAS-117) that requires these associations to give fiscal reports in a total set containing the statement of activities, statement of financial condition, and statement of cash flows, as well as the accompanying notes. Thus this memo serves to focus and discuss financial statements of SPARK for the year 2015. Further it will discuss how accounting for SPARK compares or differs with those of government and private for profit firms.
Analysis of Operations
Statement of Activities and Statement of Functional Expenses
The statement of activities resembles the statement of income in the case of for profit and it serves to enable its readers to gage the firm_x0092_s service efforts and its capacity for a continuous delivery, determine the organization_x0092_s performance over a given period, and evaluate the management_x0092_s performance and stewardship (Delta Publishing Company, 2013).
Since nonprofit_x0092_s focus is mission fulfillment, its performance is assessed by looking at its annual surpluses or deficits. Following the preparation of 2015 annual statements, I am pleased to inform you that SPARK recorded surplus net assets totaling $115,540. These results indicate that SPARK is in a position to continue offering its services.
To further understand SPARK_x0092_s results of operation, a look at the statement of functional expenses is necessary. Basically, this statement indicates allocation of operational expenses on functional and natural categories with the major ones being program and support services (Marsh & Fischer, 2011). Program services comprise expenses relating to the public health education, adding up to $65,261 and those relating to community services at $46,615. Support services have management and fund raising expenses of $37,292 each. From Table 1, the program spending ratio by SPARK was 60%, implying that it spent much money on its core activities. The fundraising ratio is also good as the value of 12% show that SPARK used $0.12 to raise a dollar of contribution.
Table 1 Program spending and fundraising ratios
Program spending ratio = program expenses/total expenses (The Urban Institute and Indiana University, 2004)
60.00% Fundraising efficiency = fundraising costs/Total contributions (The Urban Institute and Indiana University, 2004) 12%
Analysis of SPARK_x0092_s Financial Position
Statement of Condition
The report was prepared to show SPARK_x0092_s financial position by disclosing its assets, liabilities and available net assets. From the 2015 results of statement of financial condition, SPARK_x0092_s financial position is good as its net assets were $115,540. Regarding its liquidity, SPARK also remained health as its current assets were $126,500 against current liabilities of $21,800.
Differences between Accounting for SPARK and a Private for-profit
In a simplified, but a broad way, the main differences between the two, are in the governing standards that define the statement to be prepared. Therefore, even though all entities aim at providing useful information to various users, these parties are different. The main users of not-for-profit financial reports are resource providers, oversight bodies and constituents. On the other hand, r private for profit entity data is useful to customers, employees, government, owners and management (Delta Publishing Company, 2013). The naming, components and presentations of financial statements also differ.
Statement of Financial Condition
It is also called the statement of financial position and resembles that of for-profit firm. Whereas the main sections in for profit setting cover assets, liabilities and equity, that for nonprofits differs in equity where it is referred to as the net assets. A typical for profit entity presents its equity as a composition of common stock and retained earnings. However, for a non-profit entity such as SPARK, the equity, popularly called net assets is obtained by the difference between assets and liabilities (Keating & Frumkin, 2008). Net assets are classified as being permanently restricted, temporarily restricted and unrestricted. Permanently restricted net assets are those that donors have placed restrictions that would not expire through organizations actions or passage of time. Temporarily restricted net assets have some limitations of their use imposed by donors, but later expire based on fulfillment of some actions by non-profit firm or expiry of the set time. Finally, unrestricted net assets have no donor-imposed restrictions (Delta Publishing Company, 2013).
_x000c_Statement of Activities and Statement of Functional Expenses
The statement shows how net assets changed over time by focusing on revenues and expenses. Basically, net assets rise with increase in revenues and drop when expenses increase. It should be noted that the balance is either a deficit or a surplus (Keating & Frumkin, 2008). In contrast, revenues less expenses for a for-profit organization results in net profit or net income. To better present expenses, a non-profit firm prepares a functional statement of expenditure, which is not the case with a for-profit entity.
Statement of Cash flows
Preparation of cash flow statement by non-profit entities is covered by ASC 230, FAS-95 and FAS-117, whereas that of for a profit firm is governed by IAS 7(Delta Publishing Company, 2013). Though the two types of entities may use either direct or indirect method, non-profit organizations are required to reconcile the two approaches. In addition, the two entities will differ in the items included under every section of cash flows statement.
Differences between Accounting for SPARK and a Government Entity
Financial reports prepared by SPARK differ from those of government organizations such as colleges and universities. Reporting by governmental institutions is guided by the Government Accounting Standards Board 34. Special-purpose government entities produce enterprise funds financial statements to be included as the state_x0092_s components units. The difference also arises because government entities use fund accounting in their bid to abide by the set requirements. As noted by Delta Publishing Company (2013), the fund comprises self-balancing accounts of liabilities, assets and fund balances or net assets. The main funds used include current funds, loan funds, endowment funds, agency funds, plant funds and annuity and income funds.
_x000c_Conclusion
The memo served to highlight the financial position and performance of SPARK organization. From the statement of financial condition, the entity has more net assets and a health liquidity level. Results from the statement of activities have revealed that SPARK has surplus net assets, implying that it can continue offering its services. Further, the memo has shown that SPARK_x0092_s reporting differs from the one used by for-profit and government-operated entities.
_x000c_References
Delta Publishing Company. (2013). Not-for-profit accounting: Reporting and analysis. Los Alamitos: Delta Publishing Company.
Irvine, W. (2014). An introduction to not-for-profit financial statements. Institute of Corporate Directors.
Keating, E. K., & Frumkin, P. (2008). How to assess nonprofit financial performance. Evanston, IL.
Marsh, T., & Fischer, M. (2011). FASB/GASB recognition and reporting differences: A nonprofit sector perspective. Journal of Accounting and Finance, Vol. 11 (1), 21-30.
The Urban Institute and Indiana University. (2004). Special Issues in nonprofit financial reporting. Retrieved October 2, 2017, from The Urban Institute and Indiana University: http://www.nonprofitaccountingbasics.org/sites/default/files/Special_Issues_in_Nonprofit_Financial_Reporting.pdf

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