Types Of Net Assets
Posted by: V.Weber
Net assets are unique to the nonprofit world of accounting. In this article I would like to dive into what net assets are and what they are used for and how to account for net assets.
According to FASB master glossary net assets are – the excess or deficiency of assets over liabilities of a not-for-profit entity, which is divided into two mutually exclusive classes according to the existence or absence of donor-imposed restrictions.
Net assets that are subject to donor restrictions are called net assets with donor restrictions and part of the net assets that are not subject to donor restrictions those are called net assets without donor restrictions. It is of paramount importance to get the classification between the two categories right for the correct financial statements' presentation and classification.
Funds that are treated like an endowment for investment and spending purposes but established by management and / or the board rather than by a donor – considered to be net assets without donor restrictions.
Below is an example of a statement of financial position (this example is a single year presentation and was provided by FASB). In this example, there is $300,000 of net assets without donor restrictions and $20,000 of net assets with donor restrictions (either for a purpose or for restricted for a particular time).
Resource:https://www.fasb.org/
Next, let’s take a look at a statement of financial activities (this example was provided by FASB). As it is shown below, there are two columns – one that shows revenue with donor restrictions and one that shows revenue without donor restrictions. As you can see below, the not-for-profit Entity A had various revenue streams including Contributions in total of $17,030 from which $8,640 were received without donor restrictions and $8,390 with donor restrictions. Fees received without donor restrictions, Investment return net of fees for a total of $24,950 from which $6,650 were received with donor restrictions and $$18,300 without donor restrictions, some Gain on sale of equipment as well as other revenue. All amounts shown in thousands.
As you can see below those revenue streams presented Net assets released from restrictions which detail out net assets that were released from restrictions for the year. Some of those included satisfaction of program restrictions in the amount $8,990, satisfaction of equipment acquisition restrictions in the amount of $1,500, expiration of time restrictions, appropriation from donor endowment and subsequent satisfaction of any related donor restrictions in the amount of $7,500. All amounts shown in thousands.
As you can see the total of net assets released from restrictions for the year was $19,240 these two amounts net to zero – the positive amount within the column “without donor restrictions” and negative amount within the column “with donor restriction”. The net effect on the total column is zero.
Moving on from the statement we can see the presentation of different types of expenses. The most important thing to remember with expenses is that expenses are always unrestricted. Moving down there are some losses shown and then all the way down we come up with the total for change in net assets for the year in the amount of $15,450, from which $8,030 is change in net assets with donor restrictions and $7,420 is change in net assets without donor restrictions.
Resource:https://www.fasb.org/
In conclusion, I want to say that this is a very high-level overview of net assets with and without donor restrictions. Is it of paramount importance to keep track of net assets releases for correct financial statements' presentation. If you need additional guidance on this topic – be on the lookout for future articles related to this topic. I will go into much more detail on each of these. If you need help figuring out an of this sooner – do not hesitate to contact us directly.