[Anonymous]

Hi,

I am studying on F9 now, for unrestricted contributions, I don’t understand below journals, why the cash will be reversed? How to interpret these journals? The purpose? Thank you so much!

Unrestricted pledges(with implied time restriction)-temporarily restricted:

DR Pledge receivable- temporarily restricted

CR Allowance for doubtful accounts

CR Contributed revenue-temporarily restricted

Later, when collected-temporarily restricted assets are adjusted:

DR Cash-temporarily restricted

CR Pledge receivable-temporarily restricted

DR Satisfaction of time restriction-temporarily restricted

CR Cash-temporarily restricted

[Anonymous]

Anybody can help? Thanks!

[Anonymous]

I'm am currently reading about this from my college textbook. It's challenging to interpret your JE's bc you have not given any background information for the question.

1st Entry:
Very straightforward. Clearly a contributor is pledging money to your organization for a temporary purpose. In other words, money is coming into your organization for a designated purpose or time restraint. However, you have NOT received the money or it has not been qualified to increase as a cash asset. The account for Allowance for Doubtful Accounts is very strange, unless you believe this contributor will not follow through with the full amount to be contributed. This account is a contra account (lowers) your related Receivable. You credit Contributed Revenue because it is as though the NFP earned the money (even though they did not).

2nd Entry:
Very easy. This is the same idea as a regular account receivable and cash. You have now physically received the cash from the contributor or certain requirements have been met (debit cash) and this lowers your respective receivable (credit receivable to close). Same as a for profit entity.

3rd Entry:
A little confusing. Ok – so the “Time Restriction” for the contributed cash has been met. For example, the contributor says “hold cash for at least 6 months,” Now, the cash can be spent by your NFP (cash changes to unrestricted). I haven't gotten to this part of the book for why you debit “Satisfaction of time restriction – temporary.” Maybe because the cash has changed to unrestricted and is now used or can be used by your NFP? As a result, the cash is spent, so you credit cash to show it being spent.

All of this is new to me and I am reading about it now before I purchase my Becker Books. Some of the terminology and logic may not be absolutely correct. But, that is my interpretation of your question… Hope it helps!

[Anonymous]

@allisonchang88
I'm reading through the rest of the chapter and some of my analysis is not right – although the logic of the increases and decreases in the accounts are correct. I'll post later tonight when I fully understand your question. However, the reason you have an “Allowance Account” in JE 1 is because the contribution is only a Pledge that may be received/satisfied in more than one year. The NFP has no method on enforcing the donor to fulfill the Pledge,so some of it is deemed Uncollectable and measured at its Net Realizable Value. Also, the “Pledge Receievable” is discounted to the Present Value by using an Allowance Account to reduce the value. In other words, a pledge of $100 would not be worth $100 in 3 years (Time Restriction) due to the Time Value of Money and the NFP Dicount Rate. So, the Allowance account reduces your Pledge Receivable Account to recognize the lower Present Value according to the 3 year restriction. I know it's confusing…

Hope that helps. Someone else should answer this question who has a better understand of NFP. I gave it a shot though!

[Anonymous]

@cpa4928,

Thank you so much for your valuable time and input! I will try to understand:)

[Anonymous]

I've been bitten by this advice, but I'd be really surprised that a question would ask for this kind of detail with regard to NFP accounting. (Spoken by the person who color blocked the government wide statement of activities so I could understand it.)

But anyway, just my 2 cents.

[Anonymous]

Not trying to boast, but it really isn't too complicated. The JE's are very similar to a “For Proft” Entity except the names of the accounts are changed. This is very similar to JE's we covered in Intermediate I.

Basically you have a Receievable (debit), Allowance for bad debts (credit – contra account to account receivable), and a Revenue Account. No actual transaction has taken place with the contributed cash. The donor still holds it.

NFP:
DR Receievable
CR Allowamce Bad Debt
CR Revenue

Next, the donor actually transfers the cash to the NFP. Debit cash (received) and close your receivable (credit).

NFP:
DR Cash
CR Receivable

I'm still confused about the last JE though. I think something is missing. Logically you would close the Allowance bad debts account (debit) from the 1st JE, then credit the cash (going out and being spent), and i don't know “satisfaction of time restriction” account is. I don't have my Becker Books yet otherwise I could figure it out. In “for profit” you would simply use an Expense account in place of the satisfaction account.

(JE for FOR PROFIT):
DR Expense
DR Allowance bad debt
CR Cash

Hopefully this helps.

[Anonymous]

becker made a “mistake” they assume it is the ‘net'value of the receivable. basically they forgot the ADA no big deal. doesnt change the nature of the 2nd entry as others explained.

OP missed the final (fourth) entry in that BEcker F9 example which reclassifies the restricted cash to unrestricted cash:

Dr. Cash-Unrestricted
Cr. Satisfaction of time restriction-temp restricted

so basically all you are left with after netting everything out is
Dr. Cash UNrestricted
Cr. Contributed Revenue

pretty straightforward

[Anonymous]

@eesti

Right, so the last entry (4th) reclassifies the Restricted Cash to Unrestricted Cash so the NFP can appropriate the cash for their use?

One more question @eesti: Don't you need to close the “Allowance for Doubtful Accounts” by issuing a debit in one of the entries? I may be completely wrong, so OP be careful… GOVT/NFP is my weakest area.

[Anonymous]

iassumed becker just forgot about closing the ADA in that transaction…

but on second though i am pretty sure its done at the end of the year?

for example, what happens in FOR PROFIT enterprises: ADA has nothing to do with what people actually paid you in cash- its just based on historic rates of delinquency and it gets adjusted at year end. I think same thing happens here:

say our original entry was

Dr.A/R 100
Cr. ADA 2
Cr.Revenues 98

we got paid 100 though so Dr. Cash 100 Cr, A/R 100…(what would you do with the 2 in that J/E?? you can't make cash 98 and ADA 2 on the debit side because you never actually got 98! you got the 100. remember even though we received 100 and our revenues are still at 98. so i think at the end of the year the ADA will get adjusted: by the following entry

Dr, ADA 2
Cr. Bad Debts Expense 2

and here our balances will be correct. we received 100 bucks cash and our income shows Revenues 98 + negative expense 2 = 100.

but more likely it just never gets reversed/adjusted…. the NFP (just like in full accrual for for profit entities) will just adjust ADA @ the end of the year to 2% of sales and thats it. doesnt matter if we collected 100% on this particular sale, we will still show 98 in revenues because thats our historic rate.(some sales we collect 100 on some we collect 96 on, we cant be adjusting ADA for each particular one) YEA! thats it forget everything i wrote before this LOL, this is the right way to go. Becker DID NOT mess up-they correctly ignored ADA in the A/R reversing cash collecting JE because ADA has nothing to do with the cash collected on a particular transaction- duh!! year nevermind what i wrote before this paragraph but i dont feel like deleting it in case you want to follow my train of thought- sorry for wasting your time.

[Anonymous]

@eesti

Haha! No, thanks for leaving your previous thoughts because that is exactly what I thought! I believe you are 100% right about not debiting ADA and instead EXPENSING with Bad Debt Expense (for For Peofit!). Thanks for your clarification about my mistake. I took Intermediate I 4 semesters ago, so I need to brush up and get my Becker Books. Thanks again! 🙂

[mpcammar]

Whats funny is Not for profit to me was the most dry class,but I remember that type of entry like it took it yesterday. Like others have said above, treat it like a for profit accounting entry and things will become familiar.

[Author]

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