Video Transcript:

"Hello. My name is Richard Weeks. I am your instructor for this class, accounting for not-for-profit organizations. You already know about debits and credits, so this course will focus on both the macro and micro levels of NFP accounting. You will learn what differentiates not-for-profit accounting from for-profit accounting. We will review four Financial Accounting Standard Board and see how they apply to not-for-profit organizations.

Features of Not-for-Profits; It is important to realize why a not-for-profit is in existence versus a for-profit. A for-profit exists to make a profit through providing a service that is desired by other entities. A not-for-profit exists to meet a need for the community which could be defined as a small community or a large community.

As you can see from the screen, the receipt of voluntary contributions for support are a very important aspect of not-for-profits. Finally, restrictions are imposed upon these donations and regarding the use of these contributions.

The Financial Accounting Standard Board decided in the 1990s to standardize accounting rules, because at that time the ability to analyze and compare financial statements was very difficult. A not-for-profits objective in producing financial statements is, one, to analyze if a program is costing money over and above their budget, to see if services in a given area is financially feasible, and, finally, to see if the organization has sufficient resources to carry out its mission.

We will be studying, as I mentioned, four FASBs that I believe will help us understand in more detail these objectives of a not-for-profit.

The fourth FASB that we will be studying is the FASB number 157. In the 2000s FASB was approved. It also dealt with comparativeness for the ability to improve analysis.

FASB 116, entitled Accounting for Contributions Received and Made, one of the unique features of a not-for-profit is the receipt of voluntary contributions. Contributions have posed one of the most vexing reporting problems. This is because a percentage of contributions carry restrictions on how the donations may be used. Also, when should a not-for-profit recognize a multi-year contribution?

FASB 116 was created to define how these transactions should be recorded and when. The main points of FASB 116 are, one, it is for accounting standards for contributions, second, it applies to all entities receiving or making contributions, and, third, when is revenue recognized.

Another example would be if the not-for-profit had received a loan. If a Mrs. Smith loaned an organization $50,000 to meet its payroll, this was recorded as a liability, not as revenue. If in time she forgives this debt the liability would be transformed into a contribution of $50,000.

The main points of FASB 116 are also the when conditional promises to give are recognized when conditions of the gift have been substantially met. It requires a distinction between contributions having permanent, temporary, or no restrictions. Finally, the recognition of expiration of donor imposed restrictions and when these expiration occur."

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