Chapter 12 – Case 3

Board of Directors

Canoes Are Us

Memo Re: Recommendations for changes in accounting and reporting in order to comply with GAAP for NFOPs

Fund Accounting

It is recommended that the financial statements for Canoes Are Us be presented using fund accounting, with two separate funds. The first is the general fund which would include the $45,000 of cash donations received as well as the $20,000 in pledges which are both unrestricted and can be used to carry out the normal activities of the organization as needed. The second fund would be the New Program – Children of Low-Income Families where the $250,000 in funds received from the municipal government and the lottery commission are restricted to the following uses; $50,000 to be used to purchase a new truck and trailer to transport the canoes, $150,000 to be used for the purchase of new canoes and safety equipment, and $50,000 restricted to covering operating costs such as salaries, advertising and campaign costs. By separating out the restricted and unrestricted funds, this will fulfill the stewardship reporting objective and allow Canoes Are Us to meet the conditions outlined by the one-time grant given to them by the municipal government and lottery commission. In order to comply with GAAP for NFPOs, Canoes Are Us should prepare financial statements at the end of each fiscal year for each fund.

Accounting for Contributions

CICA Handbook Section 4420: Contributions Receivable

A contribution receivable should be recognized as an asset when it meets the following criteria:

a) The amount to be received can be reasonably estimated; and

b) Ultimate collection is reasonably assured. [4420.03]

It is recommended that contributions be recognized using the deferral method in order to match contribution revenues with related expenses. The recommendation would be to use the deferral method combined with fund accounting in order to show the restricted funds and unrestricted funds. Accordingly,...