As per the requirement of the FASB, No. 116 of the SFAS should address the Accounting for Contributions Made and Received. On the other hand, No. 117 should address the Financial Statement of non-profit making organizations. The above statements illustrate how non-profit making companies should make reports on their contributions. Furthermore, it indicates how the contribution of such companies is presented in the financial statements. Therefore, this paper will assess the requirements of the Statement of Financial Accounting Standards (SFAS 116 and 117) and how they influence the financial statements.
Statement No. 116 establishes the standards of accounting for contributions, and it applies to all entities that either receives or make contributions (FASB, 1993). The contributions received include unconditional promises of giving that are recognized as revenues during the periods that they were received at their fair values. On the other hand, the contribution made include the unconditional promises of giving, and they are recognized as expenses in the periods that they were made at their fair values. Therefore, No. 116 provides that all conditional promises to give whether they are received or made should be recognized at the time they become unconditional. That is at a time when all conditions are met substantially.
According to the above statement, it is a requirement for non-profit making organizations to provide the difference between the contributions received that may increase permanently and temporarily as per the total assets that are restricted, and the remaining assets that are not restricted. Therefore, statement No. 116 addresses accounting for both Contributions received and contributions made. The contributions are made up of gifts of cash, property and equipment, supplies, marketable securities, utilities, and intangible assets such as patents and property rights and services provided by professionals and knowledgeable employees. The contributions must be accounted for at their fair values. Otherwise, there is a particular collection or contributed services.
The SFAS 116 requires not for profit making organizations to determine the difference that may exist between the contributions received with the permanent and temporary increment in net assets that are restricted and the free net assets (FASB, 1993). It also requires such organization to recognize the expiry periods of the restrictions that are imposed by the donors. That is the not for profit companies should disclose the collection of non-capitalized items and the receipts of contributed services and promises.
Statement No. 117 comprises a detailed information concerning the Generally Accepted Accounting Principles (GAAP) particularly to how contributions are reported on financial statements. Statement No. 117 require all non-profit making organizations to provide the statement of financial position or balance sheet, a statement of financial activities, and a statement of cash flows. Similarly, statement No. 117 also require non-profit making institutions to report all amounts for the total assets, liabilities, and net assets in the statement of financial position of the organization.
SFAS sets some general standards majorly for the external financial statements that are given by the non-profit making organizations. The objective of no. 117 is to make some improvements on the relevance, comparability, and understandability of the financial standards that is issued by non-profit making companies. Therefore, the financial statements of such companies have to give basic information that is focusing on the whole entity to meet the mutual needs of the external users of the financial statements.
According to SFAS 117, an organization should classify its total assets, expenses, revenues, profits, and losses depending on whether there are restrictions imposed by the donors or not. Moreover, SFAS 117 requires that all long-lasting, provisional, and free values of net assets be indicated in the statement of financial position. That is the figures for the three classes of the assets above must be shown in the activities of the financial statements.
It is a requirement under SFAS117 that all non-profit making organizations should produce a balance sheet or statement of financial position, cash flow statements, and a statement of activities. It also requires that the reporting figure for the net assets and liabilities of the company should be on the balance sheet also known as the statement of the financial position (FASB, 1993). Additionally, the change in net assets in a statement of activities of the organization must be reported in the activity statements that requires the change in the cash and cash equivalents of the organization to be reported in a cash flow statement.
SFAS 117 has also provided for the amendment of the No. 95 of the cash flow statements through the extension of its provisions to non-profit making organizations. Similarly, it has also expanded the description of the cash flow statements mainly from the financing activities to make the inclusion of some restricted donor cash that is needed to be used for long-term activities (FASB, 1993). Moreover, SFAS 117 requires that both voluntary health and welfare firms should give a statement of functional expenses. That is they should report the expenses through natural and functional classifications. Therefore, complete financial statements of non-profit making organizations should have a balance sheet, statement of activities at the end of the reporting period with notes to financial statements.
FASB: Statement of Financial Accounting Standards No. 117. (1993). Financial Statements of Not-For-Profit Organization.
FASB: Statement of Financial Accounting Standards No. 116. (1993). Accounting for Contributions Received and Contributions Made.