Discussion:Match Expenses and Revenue in Restricted Funds
From TaxAlmanac
Discussion Forum Index --> Accounting Questions --> Match Expenses and Revenue in Restricted Funds
| 14 March 2007 | |
| Hello. I have a question regarding how to match expenses with revenue in restricted funds. If the non-profit organization receives temporarily restricted funds and it wants to recognize the revenue in the same month as the expense, how would it be booked (received and released)? | |
| March 15, 2007 | |
| No, no, no, I don't think so. I'm assuming these "restricted funds" are donations. If the organization is following GAAP, it must recognize donations, whether restricted or not, when they are received (and if unconditional). The expense is recognized when incurred. | |
| March 15, 2007 | |
| Grants can be tricky. Some grants are considered contributions -- either restricted or unrestriced. Other grants are considered exchange transactions, i.e., the purchase of goods/services in exchange for some compensation. If this grant is a contribution, then yes, it would be reported as I indicated above. If it is an exchange transaction, it would be treated as a for-profit entity would with deferred revenue. You need to determine what type of transaction this is. And if you think it is an exchange transaction, my next question would be, then why do you think it is restricted? | |
| 18 March 2007 | |
| Stacy - check out FAS116 - there are some good definitions in there that will help you out. You can print it off for free in the FASB web-site. | |
Bushmaster (talk|edits) said: | 20 March 2007 |
| You recognize the income and expense as it is expensed. Temporarily restricted assets get their own income statement so to speak in the net asset section. Once they are released, they are brought into income with the offsetting expense below. The only place temporarily restricted assets are recognized is straight into the Net Assets Temporarily Restricted section of the Net Asset section. | |
| March 21, 2007 | |
| Bushmaster, I think you're confusing the issue here. Income is either recognized when earned (in the case of an exchange transaction) or when it has been received (in the case of an unconditional promise or contribution), not when an expense is expensed. | |
Bushmaster (talk|edits) said: | 23 March 2007 |
| Since the discussion is about temporarily restricted assets, income is recognized when as the money is expensed for the purpose it was restricted. Temporarily restricted assets are NEVER recognized merely when received, but rather when they are earned, ie, you spend the money for its intended purpose.
Unconditional promises are a different animal all together. If those monies are NOT to be used for a specific purpose, then revenue is recognized at that time. If they are restricted for a specific purpose, those monies are segregated in teh Net Asset section of the balance sheet. | |
| March 25, 2007 | |
| Are we talking SFAS 117 here? If so, the temporarily restricted donations are recognized as income when received, not earned. I will pull the citation for you later.
As far as | |
| March 26, 2007 | |
| Proper citation regarding when to record contributions is SFAS 116. Per 116, contributions are "recognized as revenues in the period received." [[1]]. | |
Bushmaster (talk|edits) said: | 27 March 2007 |
| We are talking apples and oranges. From SFAS 116 "Therefore, under SFAS No. 116, contributions with donor-imposed restrictions are reported as restricted revenue, which increase either permanently restricted or temporarily restricted net assets. As restrictions are fulfilled or the stipulated time period for the restriction has expired, the amount should be reclassified to unrestricted net assets."
It doesn't flow to unrestricted net assets until the restriction has been fulfilled. That is what I was talking about having 3 "income statements" above, one each for unrestricted net assets, temporarily restricted assets, and permanently restricted assets. They are carried straight to the restrcited part of the net asset section and once released, go thru to the unrestricted part. | |
Bushmaster (talk|edits) said: | 27 March 2007 |
| No, don't give up. I think we are talking two different things here. If you are the controller for a non profit and I give you money that I tell you can ONLY be used XYZ, how would you book the entry? | |
| 27 March 2007 | |
| Guess I will chime in here because I do sooo much work with church fund accounting. If a gift is received by a donor with a restriction placed on it, either it is permanently or temporarily restricted. Permanent restrictions then are listed in one "fund" or balance sheet and temporarily restricted funds are listed as well in another "fund" or balance sheet.
All non restricted gifts are INCOME when received...modified cash basis and the net income/expenses flow to the fund balance "general fund" at year end. The other net assets and liabilities have their own separate and distinct balance sheets and cash flow statements because they are restricted and they do not close out at year end. I agree with Bush in that when a donation is restricted, it is NOT income to the non profit...they have an obligation to use the funds as the restriction states and the expenses then are just a reflection of the amount of income that the non profit recognizes as it expenses the funds. Natalie is also correct in that the restrictions ARE revenue, but they are not recognized revenue...maybe apples and oranges is the way this is going....now I threw in my peach :) | |
| March 27, 2007 | |
| It would be helpful is Stacy chimed back in and indicated what method of accounting is being used (GAAP, fund or something else) and whether this is a donation or an exchange for services transaction.
Bush, if I'm a nonprofit following SFAS 116 and 117 and you give me a temporarily restricted donation, I would debit cash and credit donations temporarily restricted revenue. As you noted above, this would increase my temporarily restricted net assets that are reported on the balance sheet. | |
Bushmaster (talk|edits) said: | 27 March 2007 |
| If that is the case Natalie, then we are in total agreement. Once that condition is met, it is reported in the revenue section of the unrestricted net asset section as "Net assets released from temporary restrictions" and will offset dollar for dollar the expense that shows up below. I read that she received temporary restricted funds which would require teh entry you stated above. When she spends that money for its restricted purpose, the restriction is lifted at the time the expenses hit the P&L thus creating a matching affect. | |
Bushmaster (talk|edits) said: | 27 March 2007 |
| Statement of Activities is the term for P&L I was looking for. It starts out with Unrestricted Net Assets and works it way to Increase (decrease) in Unrestricted Assets. Below that, you have the Increase (decrease) in Temporarily restricted assets that reconciles to its Net Asset account. Once the restriction is released, it is moved from Temporarily restricted assets to the top of the page as "Net assets released from donor restrictions" where is offsets against the expense OR the capital asset those monies purchased. Since Stacy hasn't chimed back in yet, I will assume this horse is sufficiently beaten. | |
