If the donor stipulates that the funds are to be spent on a particular item/activity or within a particular period of time, then the contribution is temporarily restricted. If the contribution is never to be spent, as in the case of certain endowments, the contribution is permanently restricted, thus increasing permanently restricted net assets. These permanently restricted net assets generate investment income that can be spent, but the investment income may have donor restrictions to consider as well.

Recording a contribution increases cash and increases revenue. Therefore the asset account is debited and the revenue account is credited. The revenues are classified based on the donor’s intent. When the donor’s restriction has been met then the funds are released and classified as unrestricted support.

There are two different methods utilized in recording temporarily restricted revenues. The first method allows temporarily restricted contributions to be recorded as unrestricted support if the purpose or timing is met in the same year as the receipt.  The second method requires the full amount of temporarily restricted contributions to be recorded as restricted support when received and then released as the restriction has been met.

For more information on recording and classifying contributions, see FAS 116, Accounting for Contributions Received and Contributions Made.

Does it seem like some people often appear to be in the right place at the right time? Could it be that they have the willingness to use their experience and follow their instincts.

For more information on leadership qualities, read The 21 Indispensable Qualities of a Leader by John Maxwell.

What is the difference between cash basis, modified cash and accrual basis of reporting? 

In cash accounting money is recorded as it enters and leaves the building (or account).

Accrual accounting records revenue and expenses as it is earned/incurred. For example, if work has taken place of if a viable donor has unconditionally promised to give a contribution, then we record it as revenue earned. The money is not in the building yet, but the actions that created that money have occurred “unconditionally”, therefore it is earned. It is basically the same with expenses. Under the accrual method, expenses are not recorded when the bill is paid. Expenses are recorded when the action has taken place that caused that expense. Accrual accounting gives certain financial statement users a clearer picture of what is going on within the organization, not just how cash is moving around.

What is modified cash…good question. Watch for further discussion.

Once your mission is set everything you do should point in that direction. Everything should be born from that idea. Long-term strategies should be striving to achieve this mission. Shorter-range measurable goals should further the mission. In a nonprofit organization the mission is the purpose. The mission is what keeps the needs of those you are helping in the forefront of your mind.

Do you know your mission? Do you have it memorized? Can you paraphrase it accurately? Is it in your mind daily? Do you start your planning meetings with it? Do you measure the performance of your organization by it?

All members of management, all members of the board, all key employees should be able to reiterate the mission. And not just reiterate, but discuss it with passion. If you believe in it, if the key people in your organization are enthusiastic about it, others will become passionate about it also. And when others are passionate about it, when your staff, your donors, the community are passionate about it, can you imagine the consequences?  Can you define PASSION?

The mission is a pretty important thing. Much thought should be put into the creation of a mission statement. It should be clear, concise, and to the point. Many good mission statements are a paragraph or less in length. There is no set rule, but the more specific your mission statement, the easier it will be to build a framework for your organization, the easier it will be to set the strategic goals of your organization.

Remember – If you believe in something, there is no reason not to be passionate about it. It’s the reason you chose nonprofit work in the first place, now isn’t it.

THE MAN WHO SOLD HOT DOGS

There was a man who lived by the side of the road and sold hot dogs.
He was hard of hearing, so he had no radio.
He had trouble with his eyes, so he read no newspaper.
But he sold good hot dogs.
He put signs up on the highway telling how good they were.
He stood on the side of the road and cried “Buy a hot dog, Mister?”
And people bought.
He increased his meat and bun orders.
He bought a bigger stove to take care of his trade.

He finally got his son home from college to help him out.
But then something happened.
His son said, “Father, haven’t you been listening to the radio?”
“Haven’t you been reading the newspaper?”
There’s a big depression.”
“The European situation is terrible.
The domestic situation is worse.”
Whereupon the father thought, “Well, my son has been to college: he
reads the papers and listens to the radio, he ought to know.”
So his father cut down on his meat and bun orders, took down his
advertising signs, and no longer bothered to stand out on the highway
to sell his hot dogs.

And his hot dog sales fell almost overnight.
“You’re right, son.” the father said to the boy.
“We are certainly in the middle of a great depression.”

Now I am not advocating not listening to the radio and not reading the newspaper. I am not saying you shouldn’t prepare for and make decisions about your organization in light of the economy. What I do think this story is saying is if your hot dogs are still selling, why take down your signs, why stop spreading the word. There are still opportunities out there to sell hot dogs!

In my next few articles I will give some very basic information about the four financial statements and some financial ratios to help evaluate them. Don’t worry. This will be simple and valuable information. Who knows? You might even find it interesting and fun. Be careful. You might be an accountant in the making.

In today’s regulatory environment, a nonprofit’s audit committee function is vital. It should be comprised of dedicated board members and can also include independent external parties. There should be no member of management on the audit committee. All of the audit committee members should have a basic understanding of financial statements. It is imperative that at least one of the members be an expert at reading and preparing financial statements and be knowledgeable about GAAP (generally accepted accounting principles).

This financial literacy allows the committee to evaluate the preparation of the NPO’s financials, the effectiveness of internal auditors and internal controls, as well as being able to converse openly with the external auditors.The nonprofit benefits when the committee functions correctly.

Al Weber, CPA and partner of McGladrey and Pullen has written an Audit Committee Guide for Not-for-Profit Organizations that you might find helpful.www.nam.org/~/media/Files/s_nam/docs/233000/232980.pdf.ashx

The rules have changed recently so it might be a good time to recheck them. FDIC insurance covers checking, NOW, savings, and money market accounts as well as CD’s. Currently the amount insured is $250,000 per depositor per bank. This means that it might be a wise decision to have a maximum limit of $250, 000 in total per bank your nonprofit uses. The FDIC will sum all the insured accounts per bank, so just opening new accounts in the same bank or in a different branch of the same bank isn’t a safeguard.

For more information see: www.fdic.gov/deposit/Deposits/insured/faq.html