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CHARITIES
V O L U N T A R Y H E A L T H A N D W E L F A R E
O R G A N I Z A T I O N S ( V H W O )

FASB
Charities follow FASB rules

Statement of...
...Financial Position
...Activities
...Cash Flows
These are the three financial statements required of not for profits

Statement of
Functional
Expenses
A VHWO also needs one of these. It tells the user what the
charity spends on program, administration, and fund raising.

NET
ASSETS
The equity section of the statement of financial position
is the net asset section. There are three categories of
net assets

PERMANENTLY
RESTRICTED
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href="http://photopin.com">photopin</a> <a href="https://creativecommons.org/licenses/by-nd/2.0/">(license)</a>
Consists of endowments -
assets that cannot be spent.

TEMPORARILY
RESTRICTED:
TIME OR
PURPOSEThese will be available at some point. A time restriction means that the assets is not available in the
current period. A purpose restriction means that assets are available only for specified activities.

RESTRICTIONS
ARE EXTERNAL
ONLY.
Only an outside party can impose restrictions on assets. Management cannot impose
restrictions on the assets of the charity.

UNRESTRICTED
The charity can use these assets right now.

STATEMENT
OF
ACTIVITIES
Is the equivalent of an income statement.

RESTRICTIONS
DON'T
MATTER
Restrictions are either time or purpose as stated earlier. Restrictions on
assets received does not prohibit a charity from recognizing revenue.

CONDITIONS
MATTER
Conditions are requirements that must be met before the charity has
access to contributed assets. The charity cannot recognize revenue
until the requirements have been met.

FAIR
MARKET
VALUE
Contributions are recorded at fair value.

PRESENT
VALUE
Where time is an issue, assets and revenue are discounted to
present value and revalued every accounting period. The change
in value is recorded as contribution revenue, not interest income.

SERVICES
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href="http://www.flickr.com/photos/64053619@N07/5832256543">
Dr. Arnold Plotnick</a> via <a
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</a>
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href="http://www.flickr.com/photos/75124455@N07/6815000574">M
hairi and Ilona and the Elephants!</a> via <a
href="http://photopin.com">photopin</a> <a
href="https://creativecommons.org/licenses/by-sa/2.0/">(license)</a>

Donated services are revenue to the charity when provided by a
professional.
Furthermore, the services must represent something that the charity
would have had to pay for otherwise.
For example - the services of a veterinarian to charity that focuses on
animals might be a donated service that qualifies for revenue
recognition. The services of volunteers that require no special training
would probably not qualify.

EXPENSES
ARE ALWAYS
UNRESTRICTED
You can think of a charity as having three different sets of financial statements - one for each of
the net asset categories. Revenue of a charity can fall in any of the three categories, but the
expenses will always be unrestricted. When restricted money is spent, a reclassification of net
assets must be recorded - DEBIT Permanently Restricted or Unrestricted Net Assets, CREDIT
Unrestricted Net Assets.

FIXED
ASSET
POLICYCharities can record fixed assets either as temporarily restricted or unrestricted. If they are
recorded as restricted, a reclassification must take place every time depreciation is recorded
(expenses are always unrestricted).

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