Acct 5102 W
Codification Research System Written Assignment
Engagement Letter for Accounting Services:
February 19th, 2015
This letter is meant to state the responsibility of services that will be provided to your organization, City of Lakes, a public non-profit: The services provided to your organization consist of a Summary of General Accepted Accounting Procedures (GAAP). This will outline the basic principles of GAAP that relates to public non-profits and how it may differ from for-profit businesses. Following, will be a basic overview of Accounting Practices that will help the reader gain insight of basic accounting principles. The goal of the section is to enable the individual to utilize the foundation when working to understand complex fundamental aspects of nonprofit accounting- described throughout the rest of this document. The majority of the document constitutes the descriptions of the Journal Entries relating to the events that have occurred for City of Lakes. Each entry is described in detail while referencing the codification from the Financial Accounting Standards Board (FASB). This enables the individual to understand why certain accounts are used, and why journal entries are recorded the way it is. Lastly, to wrap up the overview of our service, we have included for your organization, the Statement of Activities. This statement captures a summary of the various accounts utilized after transactions occurred throughout the year. Summary
While basic accounting procedures still apply to public nonprofits, there are various aspects that differ from accounting methods of corporations. The General Accepted Accounting Procedures (GAAP) is the framework that outlines the standards and rules for accounting. The Financial Accounting Standards Board is a public nonprofit with the objective to establish and improve GAAP standards. FASB notes the various different accounting procedures for both corporations and nonprofits while showing how the two differ. For nonprofit accounting, various regulations that for-profit businesses do not apply, subsequently, there are additional practices that only nonprofits adhere to. Journal entries for the operations City of Lakes follow GAAP standards in which research was executed under fasb.org. With the journal entries that are explained in this letter, a citation of each FASB code is listed as “FASB ASG (code number & section)”.
Basic Accounting for Non-Profits
When journal entries are recorded for each transaction, like mentioned earlier, FASB requires nonprofits to follow the basic standards such as revenue and expense recognition with small exceptions. While most examples will be mentioned in detail below in the journal entries section, one of the key aspects of non-profit accounting is recording contributions. Contributions are a major aspect of nonprofits, it is ultimately how they generate revenue. While recognizing a contribution is important, it is also critical to appropriately classify such contribution as unrestricted, temporarily restricted, and permanently restricted. This solely depends on if the donor, the giver of the contribution and whether they impose any restriction. If there are no restrictions to when and how the money or donated asset should be used, a “unrestricted contribution occurs”. If the contribution is to be used for a specific program or there is a time limitation on when the funds are to be used, it is ultimately a “temporary restricted asset”. This is because the contribution is restricted to a particular “use” and only that use. Funds put aside for permanent investments and endowment funds will lastly be classified as “permanent restriction contributions. What is important to keep in mind relates to debits and credits of accounting and how at the end of each transaction, the numbers must equal no matter what value they are. For example, when a business receives cash for inventory worth $100, cash will be debited...
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