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Acct. Class 7

MNA Managerial Accounting Class 7 Expense & Loss

Define Expense Outflows or other using up of assets or incurrences of liabilities (or a combo of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations. Expenses ar
Define Losses Decreases in an org's net assets from peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the org except those that result from expenses. Guide 13.02
5 Factors for determining if major & central or peripheral & incidental 1. Normal part of org's activity 2. Normal activity 3. Related revenue is significant in relation to annual budget 4. Related expense is significant in relation to annual budget 5. Event or circumstance is beyond control of the particular org and mgt
4 Examples of Losses 1. Change in value of investments 2. Losses from fire, floods or other natural disasters 3. Losses from sale of land, building or other assets no longer needed from ops 4. Losses from settling a lawsuit
3 Steps to Reporting Distinctions 1. Reporting gross or net 2. Impact on Net Asset 3. Reporting by Functional Area
How Expenses and Losses are Reported when Reporting Gross or net E: Reported gross; L: May be reported net
How Expenses and Losses Impact Net Asset E: Always decrease unrestricted net assets; L: May change other classes of net assets, if use of losses is restricted by donor or law
How Expenses and Losses are Reported by Functional Area E: Must be reported by functional classification; L: Need not be reported by functional classification
Overview of Functional Reporting of Expenses NFP orgs must report info about the functional classification of expenses, either on the face of the statement (Margot-preferred) of activities or in the notes to the financial statements
Define Natural (Object Classification) Expenses Represents TYPE of expense
13 Examples of Natural (Object Classification) Expenses Salaries; fringe benefits; taxes; professional fees; supplies; utilities; postage; occupancy; travel; conferences; printing; insurance; depreciation
Define Functional Classification Represents the PURPOSE for which expenses were incurred
2 Examples of Functional Classifications Program services; supporting services
Define Program Services The activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes of mission for which the org exists. Those services are the major purpose for and the major output of the org and often r
Define Supporting Services All activities of a NFP org other than program services. Generally, they include mgt and general, fund-raising and membership-development activities. FASB 117
Define Management and General Expenses that are not identifiable with a single program, fundraising activity, or membership development activity.
4 Examples of Mgt and General Exp 1. Salaries and expenses related to governing board, president, support staff 2. Costs of disseminating info to public 3. General recordkeeping 4. Budgeting
Define Fundraising Expenses to induce potential donors to make contributions
5 Examples of Fundraising Expenses 1. Cost of publicizing and conducting events 2. Maintaining donor lists 3. Conducting fundraising events 4. Preparing fundraising materials 5. Other activities related to soliciting funds
Define Development Activities Expenses related to development of members
2 Examples of Development Activities 1. Soliciting members (if a benefit for members) 2. Maintaining membership relations
Define Joint Activities SOP 98-2 Accounting for Costs of activities of NFP orgs and state and local govt entities that include fundraising
Define Direct Identifications Assigning expense to program or supporting service bc it is specifically identified w that program or service
Define Joint Activities Activities that combine fundraising and other type of activities
What are criteria for Joint Activities If below criteria are not met - all costs reported as fundraising except: costs of goods or services provided in exchange transactions that are part of joint activities (e.g. meal) should not be reported as a fundraising activity
Define incidental activities If the fundraising component of a "joint" activity is insignificant and incidental, the costs of the costs may be reported as other than fundraising w
o allocation 3 General Categories of Criteria for Allocating Joint Activities Purpose, Audience, Presumption Overcome
Define Joint Activities Purpose Purpose of joint activity includes accomplishing program or management purpose
3 Purposes of Joint Activity Seek specific action by audience to fulfill org's mission; A similar program activity or mgt activity is being conducted w
o the fundraising component using the same medium & on a similar or greater scale; But not if the compensation or fees for any party's performance varies based on contributions raised for that discrete joint activity
Define Audience for Joint Activities Looks to whether the audience is prior donor
Three rules about audience for Joint Activities Presumption - a rebuttable presumption exists that the audience criteria is not met if the audience includes prior donors or is targeted based on its likelihood to contribute; if audience does not include prior donors & is not selected based on likelihood
New Donor Criteria for Joint Activities Audience's need for use of program activity; audience's ability to take a specific action to help org meet the program goals; org must direct particular activity to audience or audience has potential to use the mgt control
What content does joint activity support? Program and Mgt & General
Define program services in regards to content w
Joint activities Calls for specific action that will help fulfill mission
Define Management & General services in regard to content w
Joint activities Fulfills one of org's management and general responsibilities
What Disclosures are Required w
Joint Activities? Types of joint activities; statement that costs of joint activities have been allocated; total amount allocated to fundraising, program, and management
3 purposes for Statement of Functional Expenses Required for voluntary health and welfare orgs; shows how natural expenses are allocated to significant program and supporting services; other nfps must report expenses on a functional basis in the statement of activities or notes, and encouraged to prese
Created by: MNA
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