NFP Accounting Standards on Late Night
As you may have read in our previous article, there was a FASB update last year that directly impacted nfp accounting standards. Although there were treasure troves of small wave impacts and minutia to mind, a few changes stand out among the rest.
We’ve already done a deep dive on the new donor restrictions on net assets and how to free them, but we here at Qbix leave no stone unturned. You cannot be sure of your nfp accounting standards without first understanding liquidity and the “nature” of expense.
Although you may be familiar with the concept of asset liquidity, you may not be use to having to define and report the liquidity of your assets. FASB’s most recent Update to nfp accounting standards now requires organizations to disclose what assets are available. Well that’s all well in good, but what do we mean by “available”?
Assets must be disclosed as available – or on hand – if they could be used for an expense within the time frame of one year.
Great! Leave it to FASB to really define the perimeter of a situation. Still, what does this mean for your nonprofit?
Liquidity and Late Night
Although liquidity disclosure most likely won’t have major impacts on your nonprofit’s accounting, there are a couple of cases to watch out for. It’s time for a hypothetical!
Imagine you currently have some assets tied up in donor restrictions, something you know all about from your lemonade stand. Typically, you would list these assets as unavailable because the gift intent form clearly states that the funds must be used for an event hosted by a Mr. David Letterman. Luckily, you ran into Mr. Letterman at your local Chipotle. Dave – yeah, you call him Dave now – has agreed to host an event within the next twelve months, and you have tangible correspondence, in this case a napkin. Consequently, the new nfp accounting standards dictate that you disclose these restricted and currently frozen assets as available because they will be available within the next year. I wonder if Dave would be interested in your excellent nfp accounting standards?
NFP Accounting Standards on the Nature of Expense
The final major change we’ll be touching on in this post relates to expense. Specifically, FASB now requires that you include the “nature” of the expense. This is, of course, in addition to the the requirement of a breakdown by the three functional categories:
- Program Services
- Management and General
What does that leave nature to describe? It’s not too bad. This just means your not-for-profit must now list the line items the money was spent on. For example, these line items may include personnel expenses like salaries. You might also see occupancy expenses like rent. It’s just one added little bit of detail to give your reader a better idea to the reality of your nonprofit’s situation.
This admittedly small hurdle probably isn’t new to you if you’ve filled out a Form 990 before, but this can be an opportunity! Think of how happy your donors would be when they see how your non-essential administrative expenses are dwarfed by the expenses of your actual projects. Never settle for the minimum. What would Letterman do?
Non Profit Accounting Solutions
Qbix's goal is to provide the latest cloud-based accounting technology while delivering real-time visibility into your nonprofit's financials 24/7. Numbers are our passion, but providing your nonprofit with the financial expertise needed to facilitate growth and profitability is our top priority. And because no two organizations are the same, Qbix offers the flexibility you need to accomplish your nonprofit's goals.
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