Financial Accounting for Local and State School Systems: 2009 Edition Chapter 5: Financial Reporting Government-Wide Statements Reporting of Expenses

To better grasp functional expense allocation, it helps to understand why it’s important for nonprofit organizations in particular to report their expenses by function. Functional expenses are reported by their functional classification.

Since this forms the last line of the income statement, it is informally called “bottom line.” It is important to investors as it represents the profit for the year attributable to the shareholders. Depreciation / amortisation - the charge with respect to fixed assets / intangible assets that have been capitalised on the balance sheet for a specific period. It is a systematic and rational allocation of cost rather than the recognition of market value decrement. Adding to income from operations is the difference of other revenues and other expenses. When combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which finally produces the net income for the period measured. In place of an equity section, the Statement of _______ _______ presents separate totals for net assets with and without donor restrictions.

Components of an Income Statement

The government-wide statements bring the financial activity together in one place and report accrual-based economic resources information. The government-wide statements organize information by whether it relates to governmental activities or business-type activities. The fiduciary funds are not included in the government-wide statements, because the resources they account for do not belong to the government. The governmental and business-type activities combine to represent the total primary government. Additionally, discretely presented component units—legally separate entities for which the primary government is financially accountable—are shown on the face of the government-wide statements but are not included in the total for the primary government. Financial statements for nonprofits are a set of reports that demonstrate how well a nonprofit is doing financially. They show how much money the organization has, how it spends its money, and what its assets and liabilities are.

• A good indicator of the activity’s significance may be comparing pledged revenues or fees and charges to total revenue.
• Net assets with donor restrictions – The part of net assets of a not-for-profit entity that is subject to donor-imposed restrictions .
• For nonprofits, the accounting methods differ in terms of accountability and compliance.
• Annual/biennial appropriated budget – A fixed budget adopted for the government’s fiscal period.
• However, transactions which are unusual and infrequent but within control of management should be also reported as extraordinary items.
• Expenses are shown by major program activity, management, and fundraising.

The columns provide current period, last year and budget comparisons and variances. The year-to-date columns can also be expanded to see the individual months that make up the YTD amounts. The expenses in the upper left of the statement are presented by major function or program, beginning https://www.bookstime.com/ with the governmental activities, then the business-type activities and the total for the primary government. The expenses of discretely presented component units—legally separate entities for which the government is financially accountable—are shown below the primary government total.

Programs

Because of its importance, earnings per share are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions.

• GASB Statement 61 modified the criteria for when blending is required.
• Funds used to account for tax collections on behalf of other entities should be accounted for in agency funds and, therefore, excluded from the government-wide financial statements.
• GASB Statement 34 did not amend the definition of component units or the general reporting requirements.
• Expenditures should be recognized in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest on general long-term liabilities, which should be recognized when due.
• Extraordinary items are increases or decreases in net assets that are both unusual in nature and infrequent in occurrence.
• Because restrictions on revenue are a key element to be recorded in your statement of activities, let’s explore them a bit further.

PrefaceThis Statement establishes new financial reporting requirements for state and local governments throughout the United States. When implemented, it will create new information and will restructure much of the information that governments have presented in the past. We developed these new requirements to make annual reports more comprehensive and easier to understand and use. A description of currently known facts, decisions, or conditions expected to have an impact on financial position and results of operation. The term currently known is limited to events or decisions that have occurred, or have been enacted, adopted, agreed on, or contracted as of the date of the auditor's report.

Chapter 5: Financial Reporting — Financial Statements

Often on the SOA, users can perform an actual budget variance analysis on the financial performance of the organization. For the term in dancing, see Glossary of partner dance terms § Top line. Last year a private not-for-profit organization received cash of $2,500 that was designated to purchase playground equipment. Recording this transaction will require a journal entry that (debits/credits) ______ Reclassification to Net Assets Without Donor Restrictions in the amount of $______. Last year a private not-for-profit organization received cash of $1,500 that was designated to purchase musical instruments. Recording this transaction will require a journal entry that (debits/credits) _____Reclassification from Net Assets with Donor Restrictions in the amount of $_______. As you can see, the column headings highlighted in green show the expenses by function.

• Variances between the approved budget and the year-end forecast are shown both in dollar amounts and in percentages, and significant variances are noted and explained.
• The component unit's total debt outstanding, including leases, is expected to be repaid entirely or almost entirely with resources of the primary government.
• Flexible budgets – Are usually regarded as managerial tools, which do not set a ceiling on expenses or expenditures but establish a plan for them at various levels of service.
• Showing budgetary compliance is an important component of government's accountability.

In order to allocate costs from fund-raising to a program function, three conditions must be met. -The activity must call for specific action by the recipient that will help accomplish the organization's mission. -The audience must be selected based on the ability or likelihood to make contributions. -The purpose of the joint activity must include accomplishing program functions. The Statement Of Cash Flows reports on all cash flowing into and out of the nonprofit organization. Specifically, the statement demonstrates the extent to which the organization’s programs and activities generate and use money. In the world of nonprofits, the Statement of Financial Position serves a similar role to that of a balance sheet for businesses.

Recommended SOA Internal Report Format

While the goal of a nonprofit isn’t to turn a profit, if you don’t bring in more than you spend, you won’t be able to survive. And a little “profit” helps build your operating reserves to help you survive a slow-fundraising quarter or unexpected expenses.

The requirements of this Statement are effective in three phases based on a government's total annual revenues in the first fiscal year ending after June 15, 1999. Governments with total annual revenues of $100 million or more should apply this Statement for periods beginning after June 15, 2001. Governments with at least $10 million but less than $100 million in revenues should apply this Statement for periods beginning after June 15, 2002. Governments with less than $10 million in revenues should apply this Statement for periods beginning after June 15, 2003. Governments that elect early implementation statement of activities of this Statement for periods beginning before June 15, 2000, should also implement GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, at the same time. If a primary government chooses early implementation of this Statement, all of its component units also should implement this standard early to provide the financial information required for the government-wide financial statements. Fiduciary Fund Financial Statements.Fiduciary fund financial statements should be prepared using the economic resources measurement focus and the accrual basis of accounting.