What is an exchange transaction under NFP accounting?

An exchange transaction is when a NFP exchanges value for donations in return. For example, if a museum donates free tickets in exchange for cash donations, then that is considered an exchange transaction. When not-for-profits recognize revenues in exchange for services provided to the resource’s provider, they will be classified as increases to net assets without donor restrictions.

What is the journal entry to record a donation of services for a NFP entity?

When someone donates their services, they are really just donating their time. However, the key thing to note that is that donated services must be for skilled labor and not unskilled labor. For example, a lawyer, accountant, or healthcare professional would donate services in the form of their time to provide advice. The professional would estimate what the fair-market-value of their time is worth (i.e. based on normal billing rate), and debit contributed asset and credit contribution revenue. The donated service could be restricted or unrestricted.

What is the journal entry to record a contribution of assets for a not-for-profit entity?

When a donor contributes assets (cash, equipment, car, etc.), the value of the donation is measured at fair-market-value (“FMV”). Donations can either be restricted or unrestricted. As you can see in the example below, medical equipment was donated and the FMV was $25,000. For a donation with no restrictions (i.e. unrestricted), the NFP entity would debit contributed asset for $25,000 and credit contribution revenue for $25,000. For a restricted asset, the journal entry would be very similar except it would be recorded to accounts that were related to restricted use.

What is included in the statement of activities?

The statement of activities is issued by a not-for-profit organization and is similar to an income statement (issued by for-profit organizations). Th statement of activities will include the following: 1) Changes in net assets – Similar to net income in the sense that it’s the summation of revenue and expenses. If revenue exceeds expenses, then net assets will increase. If expenses exceed revenue, then net assets will decrease 2) Revenues – An NFP can have a variety of revenue streams, which is basically how the NFP receives cash. Cash can come from donations/contributions, grants, memberships, etc. 3) Expenses – Represents any cash outflow the NFP incurs to run the organization.

What are the key financial schedules that a not-for-profit (NFP) entity must prepare

The financial statements for not-for-profit organizations are listed separately than what you are accustomed to seeing on the financial reports for for-profit entities. The required external financial statements that non-for-profit organizations will include a statement of financial position, statement of activities, and statement of cash flows: