Financial Statements and Analysis Test - 4

If a donor does not specify a restriction on his or her contribution, the amount received by the nonprofit is recorded as an asset and these are called unrestricted net assets. Unrestricted contribution revenues (reported on the statement of activities) also cause the amount of unrestricted net assets to increase.

Hence, A nonprofit organization's assets that have been designated by its board of directors for a specific project should be reported on the external financial statements as unrestricted net assets.

A nonprofit's statement of activities is issued instead of the income statement which is issued by a for-profit business which shows revenue such as contributions, program fees, membership dues, grants, investment income, and amounts released from restrictions.All these contribution are shows under the head revenues in the statement of activity.

Income and expenditure account shows the amount earned and incurred during a year after adjusting all prepaid and outstanding amount. 

Legacy is an amount of money or property left to someone in a will of a decased person. It is an liability for NPO which is to be shown in balance sheet.

NPO are allowed to take debt for meeting their capital expenditure.

NPO are those which have service motive and dont have any profit motive. examples - School, Hospital ,charitable organisation etc.

The receipt and payment account is Summary of cash book on that basis it is a real account.

NPO make only Receipt and Payment account, income and expenditure and Balance sheet but income statement is prepared by profit making entity.

NPO make income and expenditure account which shows surplus if income exceeds exp. or Surplus if Exp. exceeds income.

Annutity is a fixed sum of money paid to someone each year, typically for the rest of their life of that name beneficiary. 

Annuities may be created under a trust or they may be purchased from a life insurance company.