99
1 Accounting and Finance for Non-Profit Organizations

Account Non Profit

Embed Size (px)

DESCRIPTION

Ebook on accounting

Citation preview

Page 1: Account Non Profit

1

Accounting and Finance forNon-Profit Organizations

Page 2: Account Non Profit

2

Table of Contents

Page

Part 1 – 1 hour (1 –2 PM) Basic Accounting - Optional1. Cash Accounting and the Bank Reconciliation 32. Accrual Accounting – Payables and Receivables 43. Capital Assets and Inventory 134. Accounting for Revenues – an Overview 155. Simply Accounting and Quickbooks Demonstration 176. Working Papers and Adjusting Entries 18

Part 2 - 1.5 hours (2:15 – 3:45)7. Accounting for the GST – 10 minutes 328. Accounting for Payroll – 15 minutes 379. Other Reporting to CRA, and the Alberta Government – 30 minutes 4610. Internal Controls – 15 minutes 3811. Budgets, Business Plans and Performance Measures – 20 minutes 5312. Other Resources and Final Questions – 5 minutes 62

Part 3 - 1 hour (4 –5 PM) Advanced Financial Accounting - Optional13. An Overview of the Canadian Accounting System for NPOs 6314. Reporting Entity 6715. Fund Accounting 6916. Expense Recognition 7517. Revenue Recognition 8018. The Statement of Changes in Net Assets and Cash Flows 8419. Wrap Up: Options available for NPOs 90

Page 3: Account Non Profit

3

1. Cash Accounting and the Bank Reconciliation

The bank statement – debits and credits

Using a synoptic journal to do your accounting – the Toy Club

Page 4: Account Non Profit

TransferBank to/from Control

Date Item Debit Credit Chequing total

Jan 1/05 Balance Forward 1000.00Jan-06 Transfer (to chequing) 200.00 200 0.00

1000.00 200.00 200.00 0.00

Total debits less credits 800.00

Balance per bank statement 800.00

Savings Account - Synoptic

Page 5: Account Non Profit

Toy Club - Synoptic Bank Bank Receipts DisbursementsChequing Account Debit Credit Transferaccounting on a cash basis from Toy Control

Date Item Description Credit Debit Savings Donations Office Purchases Delivery totalCr Dr Cr Cr Dr Dr Dr

01-Jan-05 Balance Forward 500.0001-Jan-06 Transfer (from savings) 200.00 200.00 0.0010-Jan-05 Donations 1000.00 1000.00 0.0011-Jan-05 Cheque 1 toy purchase 650.00 650.00 0.0011-Jan-05 Cheque 2 toy purchase 345.00 345.00 0.0017-Jan-05 Cheque 3 delivery 122.00 122.00 0.0028-Jan-05 Cheque 4 photocopies 65.00 65.00 0.0030-Jan-05 Donations 500.00 500.00 0.00

1182.00 2200.00 200.00 1500.00 65.00 995.00 122.00 0.00

Total debits less credits 1018.00

outstanding cheques

cheque 2 345.00

Bank statement 1363.00

Page 6: Account Non Profit

Toy ClubStatement of Financial Position January 31Cash Basis

Assets

Cash - Chequing 1,018.00$

Cash - Savings 800.00

1,818.00$

Net Assets

Unrestricted net assets 1,818.00

1,818.00$

Page 7: Account Non Profit

Toy ClubStatement of Operations Month EndingCash Basis January 31

Receipts

Donations 1,500.00$

Disbursements

Office 65.00

Toy purchases 995.00

Delivery 122.001,182.00

Increase in Cash 318.00

Cash, beginning of month 1,500.00

Cash, end of month 1,818.00$

Page 8: Account Non Profit

4

2. Accrual Accounting – Receivables and Payables

Why use accrual accounting?

When are amounts receivable?

When are amounts payable and when do we record accrued liabilities?

The Toy Club general ledger – sample accruals- setting up a receivable and payable- recording the subsequent payments

Page 9: Account Non Profit

Assets Liabilities Deferred Net Assets Revenues Expenses

ContributionsContributions Toy Accounts Boys Girls Unrestricted Toy Control

Date Item Description Savings Chequing Receivable Inventory Payable Toys Toys Net Assets Donations Office Distributions Delivery total

01-Jan-05 Balance Forward 1000.00 500.00 -1500.0001-Jan-06 Transfer (from savings) -200.00 200.00 0.0010-Jan-05 Donations 1000.00 -600.00 -400.00 0.0011-Jan-05 Cheque 1 toy purchase -650.00 650.00 0.0011-Jan-05 Cheque 2 toy purchase -345.00 345.00 0.0017-Jan-05 Cheque 3 delivery -122.00 122.00 0.0028-Jan-05 Cheque 4 photocopies -65.00 65.00 0.0030-Jan-05 Donations 500.00 -500.00 0.0031-Jan-05 Payables delivery 0.0031-Jan-05 Receivables promised donation 0.0031-Jan-05 Inventory distributions 0.0031-Jan-05 Deferred Cont recognize rev 0.00

Totals 800.00 1018.00 0.00 995.00 0.00 -600.00 -400.00 -1500.00 -500.00 65.00 0.00 122.00 0.00

outstanding cheques

cheque 2 345.00

Bank statement 800.00 1363.00

Toy ClubGeneral Ledger

Page 10: Account Non Profit

Assets Liabilities Deferred Net Assets Revenues Expenses

ContributionsContributions Toy Accounts Boys Girls Unrestricted Toy Control

Date Item Description Savings Chequing Receivable Inventory Payable Toys Toys Net Assets Donations Office Distributions Delivery total

01-Jan-05 Balance Forward 1000.00 500.00 -1500.0001-Jan-06 Transfer (from savings) -200.00 200.00 0.0010-Jan-05 Donations 1000.00 -600.00 -400.00 0.0011-Jan-05 Cheque 1 toy purchase -650.00 650.00 0.0011-Jan-05 Cheque 2 toy purchase -345.00 345.00 0.0017-Jan-05 Cheque 3 delivery -122.00 122.00 0.0028-Jan-05 Cheque 4 photocopies -65.00 65.00 0.0030-Jan-05 Donations 500.00 -500.00 0.0031-Jan-05 Payables delivery -145.00 145.00 0.0031-Jan-05 Receivables promised donation 300.00 -300.00 0.0031-Jan-05 Inventory distributions -400.00 400.00 0.0031-Jan-05 Deferred Cont recognize rev 100.00 300.00 -400.00 0.00

Totals 800.00 1018.00 300.00 595.00 -145.00 -500.00 -100.00 -1500.00 -1200.00 65.00 400.00 267.00 0.00

outstanding cheques

cheque 2 345.00

Bank statement 800.00 1363.00

Toy ClubGeneral Ledger

Page 11: Account Non Profit

Toy ClubStatement of Financial Position January 31

Assets

Cash 1,818.00$

Contributions Receivable 300.00

Inventory 595.00

2,713.00$

Liabilities

Accounts Payable 145.00$

Deferred Contributions

Toy donations 600.00

Net Assets

Unrestricted net assets 1,968.00

2,713.00$

Page 12: Account Non Profit

Toy ClubStatement of Operations Month Ending

January 31

Revenues

Donations 1,200.00$

Expenses

Office 65.00

Toy Distributions 400.00

Delivery 267.00732.00

Increase in Net Assets 468.00

Net Assets, beginning of month 1,500.00

Net Assets, end of month 1,968.00$

Page 13: Account Non Profit

13

3. Accounting for Capital Assets and Inventory

What is a capital asset?

Do we need to account for them and why? The Alternatives.

Accounting in the financial statements – Canadian Foodgrains Bank example. Recordingthe asset purchase and depreciation.

What is inventory?

Consumable inventory and inventory held for resale.

Do we need to account for it and why?

Journal entries made to the Toy Club

Page 14: Account Non Profit

14

Capital AssetsCurrent policy is to capitalize or

gross revenues > $500,000?

NO YES

Set Policy

Expense: Capitalize:1. Provide note

disclosure(description, age,useful life, amountexpensed in period)

1. Determinethreshold

2. Set classes(furniture, building,computerequipment, land)

-Non-depreciable -Depreciable3. Determine useful

life for each classand amortize.

Page 15: Account Non Profit

15

4. Accounting for Revenues – an Overview

The accounting rules are complex and discussed in greater detail in the advancedfinancial accounting session.

The basic principles however are that sales and service type, “commercial like”revenues are recognized when “earned,” as in the for-profit world.

Contract revenues are recognized over the period of the contract, unless expenses areunclear then the revenues and expenses are deferred.

The primary method of accounting for contributions is the deferral method ofaccounting for contributions.

Under the deferral method, restricted donations and grants are recognized whenreceived or receivable.

Example: Canadian Foodgrains Bank

There is another method of accounting for restricted contributions, which we willdiscuss in the advanced section.

You have the option of accounting for contributed materials and services.

You must account for contributed capital assets, and at their value.

Page 16: Account Non Profit
Page 17: Account Non Profit

17

5. Simply Accounting and Quickbooks Demonstration

Simply Accounting- an overview of the modules in Simply Accounting- the reports that can be produced- project report for the Toy Club

Quickbooks- income summary by class for the Toy Club

Differences between the Software- reversing entries in Simply- no account codes in Quickbooks- deceptive bank reconciliations- accrual vs. cash basis in Quickbooks- more typical NPO type default accounts in Quickbooks- Simply is more widely accepted among NPOs

Other software and accounting options

Page 18: Account Non Profit

18

6. Year-End Working Papers and Adjusting Entries

Working papers document the support for year end balances, and• Are useful for review by the board and management• Are useful for the auditor, and result in less costly audits• May be needed to support future audits

A lead schedule should be prepared that lists the account balances included in eachfinancial statement category. This should be referenced to the supportingdocumentation for year end balances.

Cash and Investments

Cash• Bank reconciliations are needed for all bank accounts• The only items remaining on a bank reconciliation should be those reconcling

items required to facilitate an accrual basis of accounting for cash, ieoutstanding deposits, cheques, and transfers

• there may be uncorrected bank errors left on the reconciliation• The accounting needs to adjusted for all other reconciling amounts including

unrecorded interest or service charges

Investments• The lead schedule should be supported by investment certificates• Accrue interest, even if not paid, because we want all revenue earned in the

year recorded in the proper period.

Page 19: Account Non Profit

19

Lead ScheduleCash

Bank 1 $150.00Bank 2 $200.00Bank 3 $100.00Total Cash $450.00

Cash total on Financial Statements $450.00

Page 20: Account Non Profit

20

Bank ReconciliationAny Not-for-profit

December 31

Balance per bank $200

Add/SubtractOutstanding cheques $ 50

Outstanding deposits $ 0

Outstanding transfers $ 0

Other reconciling items* $ ?

Balance per general ledger $150

Outstanding transfers would be transfers between accounts.

*There should not be any other reconciling items, unless there is an error onthe bank statements. All other reconciling items should be adjusted inpreparing the year-end statements.

Page 21: Account Non Profit

21

InvestmentsAny Not-for-profitDecember 31, 2002

Investment AmountGIC #1 $ 511.25GIC #2 $1,014.99Total $1,526.24

Interest Accrual

Investment 1- Purchased January 1, 2002- 2.25% interest- Year-end December 31, 2002

(Amount X Interest Rate) X # months held / 12 months(500 X 2.25%) x 12/12$11.25 accrued interest

Investment 2- Purchased April 1, 2002- 2% interest- Year-end December 31, 2002

(1,000 X 2%) X 9/12$14.99 accrued interest

Page 22: Account Non Profit

22

Accounts Receivable and Contributions Receivable

Accounts Receivable• Usually not substantial, except where there is significant sales and service

revenue• An aged accounts receivable listing may be useful if substantial receivables

exist

Contributions Receivable• Grants or pledges that are promised but not received• Should have documentary evidence that pledges existed at year end (eg. letter)

Accounts ReceivableAny Not-for-profit

December 31

Name Current 30-60 60-90 > 90 TotalGST

Receivable100 100

John Doe 30 30Total 100 30 0 0 130

Total per G/L $130.00

Contributions ReceivableAny Not-for-profit

December 31

Name Amount WhenPledged

Description

Nancy Roo 100 November 5 Purchase of newtheater supplies

Kent Talkman 50 December 1 Purchase of newtheater supplies

Total 150

Total per G/L $150.00

Page 23: Account Non Profit

23

Prepaid Expenses• Expenses paid for in advance are prepaid expenses, and recorded as assets• Examples: prepaid insurance, and rent• Insure prepaids set up in the previous fiscal year are expensed if appropriate• List of all prepaid and supporting calculations

Prepaid ExpensesAny Not-for-profit

December 31

Prepaid Amount CalculationInsurance 200 $2400 X 1/12 months (Feb 1 – Jan

31) record Jan insurance as prepaidRent 2000 Last months rent, January rentTotal 2200

Total per G/L $2,200

Prepaid RentExample

• Year-end Dec 31.• Moved into your new office on October 1• Signed a one-year lease• Paid your first and last months rent• All other payments had to be made before the first of the month• Monthly rent is $1,000• January’s rent was paid on December 31

October 1 entry: December 31 entry:DR rent expense 1000 DR prepaid rent 1000DR prepaid rent 1000 CR cash 1000 CR cash 2000

To record October rent expense and To record January’s rent aslast months rent as prepaid prepaid

Page 24: Account Non Profit

24

Capital Assets• Capital assets provide a service or benefit that is used up over an extended

period of time• Recommend that you keep a record or list of capital assets even when such

assets are expensed• A listing should include: whether the asset was donated or purchased,

description, amortization rate, date put into service, and cost/fair value

Page 25: Account Non Profit

25

Capital Asset ListingAny Not-for-ProfitDecember 31, 2002

Donated /Purchased

Description Date put inService

AmortRate

OpeningCost

Additions Disposals

Ending Cost OpeningAmort

Amort Ending Amort Net BookValue

D - fair value Office desks 01-Jan-02 1/5 375 375 0 75 75 300P Filing Cabinets 01-Jan-01 1/5 200 200 40 40 80 120

Total Office Furniture 200 375 575 40 115 155 420

P Computers 01-Jan-01 1/3 300 300 100 100 200 100Total Office Equipment 300 300 100 100 200 100

Policy is to take full year's amortization in the year of acquisition and none in the year of disposal.

Page 26: Account Non Profit

26

Restricted Contributions

• It is important to account for the use of contributions that have been restrictedas contributions are governed by trust law

• Restricted contributions need to be accounted for throughout the year toensure conditions are met by the organization. This should be documented.

• Similarly, the ending balances of unspent and unamortized contributionsshould be supported by letters from donors and other supportingdocumentation

Restricted contributions need to be accounted for regardless of whether they areincluded in ending restricted fund balances or deferred contributions.

Page 27: Account Non Profit

27

Deferred Contributions Deferred Capital Contributions

For Youth Work 3000 For New Admin Building 5000For Youth Worker's Salaries 500 For Vehicles 2000

3500 7000

Unamortized Deferred Capital Contributions

DescriptionDate put inService

AmortRate

OpeningDeferredCapitalContributions Additions Disposals

Ending DeferredCapitalContributions

OpeningAmort Amort Ending Amort

EndingUnamortizedDeferredCapitalContributions

Office desks 01-Jan-02 1/5 375 375 0 75 75 300Total Office Furniture 0 375 375 0 75 75 300

Capital Assets

Donated /Purchased Description

Date put inService

AmortRate

OpeningCost Additions Disposals Ending Cost

OpeningAmort Amort Ending Amort

Net BookValue

D - fair value Office desks 01-Jan-02 1/5 375 375 0 75 75 300P Filing

Cabinets01-Jan-01 1/5 200 200 40 40 80 120

Total Office Furniture 200 375 575 40 115 155 420

P Computers 01-Jan-01 1/3 300 300 100 100 200 100Total Office Equipment 300 300 100 100 200 100

Policy is to take full year's amortization in the year of acquisition and none in the year of disposal.

Page 28: Account Non Profit

28

Payables, Accrued Liabilities

An account payable is a liability that arises when an invoice is received at the yearend and unpaid• Insure all invoices received and not paid by the fiscal year end are recorded in

the year

An accrued liability is a liability where you do NOT have an invoice but thegoods or services were received prior to year-end• The accrual may often be an estimate but accruals should be as accurate as

possible

• Procedures to follow to ensure all accruals are recorded: If you issue PO’s, review them to see if any relate to work that has been

completed by the year-end but no invoice has been received Review invoices received after the year-end, looking for invoices for work

that was completed at the year end, and goods received by the year end

To accrue or not to accrue:

1. You had someone come in to fix your photocopier on December 20th.You did not receive the bill till January 15th. The bill is dated January 7th. DoI accrue this bill if my year-end is December 31?2. You ordered some office supplies on December 15th. The goods were onback order. You received them on January 10th with the bill. Do I accrue thisbill?

Page 29: Account Non Profit

29

Accounts PayableAny Not-for-profit

December 31

Name AmountJill’s Printing 150Jack’s Maintenance 50Total 200

Total per G/L $200

Accrued LiabilitiesAny Not-for-profit

December 31

Name AmountGas 50Payroll 100Total 150

Total per G/L $150

Accrued liabilities example:(assume December 31 year end)

Payroll – employees get paid every two weeks. They worked December 17 to 31and were paid on January 7th. You would need to accrue the payroll expense forDecember 17 – 31 by DR payroll expense and CR accounts payable/accruals.

Gas – you receive a $100 gas bill in January that is for the period December 15-Jan 15.

To accrue a half of a month’s gas bill you could just divide the bill by 2. Or youcould prorate the bill over the number of days in the fiscal year (16/31X100 =$51.61).

Page 30: Account Non Profit

30

Loans

Current amounts (payable within one year) and long-term amounts (payable forall periods over one year) must be broken out separately.

Example

The fiscal year end is December 31. You received a $5,000 loan onJanuary 1, to be repaid annually over five years with an interest rate of5%.

At the year end you would need to ensure any amount repayable within ayear is reclassified to the current liabilities.

At the year end, you will need to make the following entry to record thecurrent portion of the loan repayable:

DR Long Term Debt 1000CR Current Portion of Long Term Debt 1000

And you will need to accrue the interest payable on the loan:

DR Interest Expense 250 CR Current Portion of Long-Term Debt 250

The Balance Sheet at December 31, would show:

Current portion of Long-Term Debt $1250

Long-term Debt $4000

Page 31: Account Non Profit

31

Disclosures to keep in mind throughout the year

There are a number of disclosures required by generally accepted accounting principles.Below we have listed the significant disclosures that you may want to keep in mindduring the year, as it may be difficult to gather this information after the fact. Please seewww.cassfraser.ca for a more comprehensive listing of the disclosure requirements byfinancial statement category

The Details of External Restrictions and Inter-Fund transfersThe nature and amount of any external restrictions of net assets and contributions needsto disclosed in the year end statements. Also the details of inter-fund transfers need to bedisclosed.

Contributions by Major SourceContributions by major source need to be detailed in the statements or notes. There issignificant leeway allowed in this regard. Disclosure may be in general categories, forexample: Government of Alberta, individuals, and corporations, or it may identify largedonors. Ideally the accounting coding will facilitate this disclosure if there are significantcontributions to track.

Contributions of Materials and ServicesWhen someone donates an item (eg. Computer, books for a library) or a service (eg. Anaccountant preparing your financial statements for free, a carpenter volunteering torenovate old office space into a classroom) your policy may be to record the value of theitems/services donated.

Capital AssetsIf you are not recording capital assets you need to disclose certain information about thecapital assets in the notes to the financial statements. (description, age, expected life,amount expensed during the period, etc.).

Cash FlowsThe details of investing and financing activities, including investment sales and purchasesneeds to be disclosed in the statement of cash flows at the year end. Normally capitalasset purchases and sales are recorded on a schedule detailing the additions, disposals andamortization of capital assets.

Related Party TransactionsTransactions that involve members of the board or family members or companies relatedto members on the board need to be disclosed in the statements or notes, except forreimbursements. You should keep track of these transactions as they occur, and themethod of valuing these transactions.

Page 32: Account Non Profit

32

7. Accounting for the GST

- We will just cover the basics of the GST here- The GST can be quite specific for some organizations, especially

hospitals, and some quasi-government organizations. We won’t discussthose special circumstances.

- Also there are a number of reporting options that can be used including“simplified” calculations allowed

- You are best to first consult CRA’s guides RC 4081 GST/HSTinformation for Non-Profit Organizations and RC 4082 GST/HSTinformation for Charities for more detailed discussion

- However, for most NPOs the two things that need to be considered are:- Do I have to register for the GST? And- Am I eligible for the Public Service Bodies Rebate?

Do I have to register for the GST?You have to register if taxable supplies exceed $50,000 in four quarters, a one yearperiod. Charities can be exempted if gross revenues are less than $250,000 a year.

So what is a taxable supply? It is basically revenue that is received for goods andservices, unless that revenue is exempt.

The Excise Tax Act defines what is exempt. Two good rules of thumb are:• It won’t be exempt if the service or sale is likely to be offered by a commercial profit

orientated enterprise• The government makes special rules to be nice to NPOs and Charities

If you’ve got a suspicion something may be exempt, it’s almost as easy to just call CRAand ask them. They have rules you would not imagine. See the list of exempt activitieson page 35:

If you are not exempt, you must register, collect the tax and you can claim any GST paidon the expenses associated with providing the taxable supplies. There is a generousformula for charities.

Am I eligible for the Public Service Bodies Rebate?You are eligible for the Public Service Bodies Rebate if 40% of revenue in the fiscalyear, or previous two fiscal years, was from government, or if you are a registered charity

If you are eligible you can receive 50% of the GST paid on eligible expenses, whichinclude general operating expenses and so on.

The key here is that you cannot claim the credit on expenses paid for taxable supplies.

Page 33: Account Non Profit

33

Typical Journal Entries for the GST- if you are registered- if you are claiming the public service bodies rebate

Page 34: Account Non Profit

34

The GST

Register for the GST?- if taxable sales are > $50,000 in

four consecutive quarters- charities only need to register if

taxable sales exceed $50,000 andgross revenues exceed $250,000

- you may register if input taxcredits on commercial activitiesare desired

Public Service Bodies Rebate – 50%- available for all charities, and- organizations with at least 40%

government revenues in the year,or previous two years

Page 35: Account Non Profit

35

Some Exempt Taxable Supplies

Some Exemptions for Non-Profit Organizations admission to a place of amusement where the maximum price is less than $1 admission to athletic events or performances where 90% of the performers or

athletes are neither directly or indirectly paid; government grants and expensereimbursements are not considered pay

goods and services provided for free (blood and blood derivates are zero-rated)

the sale of goods in fundraising where: 1-the organization is not in the businessof selling the goods 2-the salespeople are volunteers 3-each item costs $5 orless 4-the goods are not sold at an event in competition with those in thebusiness of selling those goods

admission to gambling events that are not conducted in a commercial hall, and90% of the assistants are volunteers

lottery, raffle tickets, bingo cards, and casino bets (except the sale of provincialtickets)

goods sold at an amount less than or equal to the direct cost certain memberships, see the CCRA guide most sales and leases of real property, see the CCRA guide recreational fees for children 14 and under, except where there is substantial

overnight supervision recreational services for underprivileged persons food, beverages and short-term accommodation to relieve poverty, suffering or

distress donations, grants and subsidies most sponsorships, for example the use of logos etc, but not for example

advertising in a newsletter library cards of public libraries

Some Exemptions for Charities all of the above, and: most services sales of used and donated goods short-term residential accommodation meals-on-wheels programs parking space rentals short-term facility rentals catering services for private functions (eg. Wedding receptions) total admission to fundraising events most goods and services sold and provided in fundraising activities (unless the

activity is regular or continual for a significant part of the year.

Some taxable supplies are "zero-rated," and the tax charged is 0%. Examples of"zero-rated" supplies are basic groceries, prescription drugs, and certain medicaldevices. An organization is entitled to the full input tax credits for the GST paid

Page 36: Account Non Profit

36

on purchases relating to the provision of these "zero-rated" taxable supplies.

Page 37: Account Non Profit

37

8. Accounting for Payroll

The payroll rules- contractor vs employee- the TD1- deductions to be made in the year, using the tables- payroll remittances- completing the T4- taxable vs non-taxable benefits- the ROE

- record the employer’s liability

Page 38: Account Non Profit

38

9. Internal Controls

Control Environment

- effective control starts with management’s attitude to controls- this begins at the Board level- does the Board understanding the risks relating to fraud and

error, and the controls that mitigate those risks?- The CICA’s audit standards suggest that the Board should

understand management’s process for identifying andresponding to the risks of fraud and error

- A finance and audit committee should be considered, to ensuresufficient attention is given to financial matters and to fiduciaryresponsibilities of a financial nature; this also allows the Boardto focus its efforts more efficiently

- The Board should review financial results including budgetversus actual results

Page 39: Account Non Profit

39

Control Systems and Procedures

The Key Financial Controls of any systeminclude:

• segregation of duties

• reconciliations within and outside theaccounting system

• approval of transactions

• a review of transactions and financialresults, including budgets

• a review supporting schedules, and othersupporting documentation for transactions

• policies with respect to the treatment oftransactions

Page 40: Account Non Profit

40

Control Systems

Donation Example

$ Mail

Expense example

Person A & B

open mail and recorddonations on a “blotter”

Person C

prepares bank depositand deposits cash

Person D

ensures the total bankdeposit agrees to thelisting

Person A

Approves expense andaccount coding

Reviews coding in FS

Person B

Enters transactions togeneral ledger

Person C

Signs the cheque afterreviewing invoice

Page 41: Account Non Profit

41

Revenue and Receipt Controls

The basic objectives are to ensure:- revenues are completely and accurately recorded- receipts are safeguarded- restrictions are complied with

We’ve included on page 44, some common and useful revenuecontrols you may wish to consider. We’ve focussed on donationcontrols. Donations can be the most difficult to obtain assurance over,especially where there are a lot of minor cash donations. Often auditopinions are qualified with respect to cash donations.

Page 42: Account Non Profit

42

Develop policies to determine the fairvalue of donated assets and record themin the organization’s records.

Develop specific policies regarding therecording of donated materials andservices and estimating their fair value.

Develop procedures to detect and accountfor restrictions on contributions:

- Keep letters etc on file, so they canbe accessed and reference fromaccounting records.

Page 43: Account Non Profit

43

Expense and Expenditure Controls

The basic objectives are to ensure:• a record of all disbursements is made• authorized persons approve the disbursements, and• all payables are recorded at the period end

- Someone should review and approve the invoiceaccount distribution and approve the invoice forpayment

- Supporting documentation should accompanycheques presented for signature

- Invoices should be marked as paid to preventduplicate payments

- Pay from invoice only, and not the statement- Only authorized persons should have access to

blank cheques- Cheque signers should be authorized by the board

of directors- Cheques should not be signed in advance or made

out to cash- Cheques should be signed by two persons- Bank reconciliations should be prepared and

reviewed- Procedures should be in place to ensure all

invoices pertaining to the fiscal year are accrued

Page 44: Account Non Profit

44

Typical Controls required in an NPO Environment

Membership Fees and Sales

Membership fees, and sales revenues- attempt reconcile these revenues independently of the accounting system

- Examples i. Inventories, reconcile to items sold and cost of sales ii. membership fees, reconcile to membership database iii. Ticket sales

1. Reconcile sales with expected revenues2. Use pre-numbered and preprinted ticket booklets with

detachable stubs3. Control the distribution and sale of tickets or tokens

- Segregate where possible the record-keeping from the accounting function,those responsible for making deposits etc

Donations

Donations can be the highest risk as these amounts cannot be reconciled to revenuegenerating activities. It is therefore necessary to have strong controls to ensure theseamounts are completely recorded.

In all cases, where possible, segregate of incompatible tasks: for example canvassing,receipt of revenues within the organization, bookkeeping, bank deposits

Donations received through the mail- Mail opened by two people- Immediate endorsement of cheques for deposit only- Preparation of a list of the amounts received, signed by preparer- Forward a copy of the list to the person preparing the deposit slip, and to the

person in charge of bookkeeping- Segregation of incompatible tasks: opening mail, bookkeeping, bank deposits

Donations received through door-to-door or direct solicitations- Door-to-door solicitation or collection by two-person teams- Use of pre-numbered envelopes to collect donations, which are sealed on the spot

when the donation is received; the envelopes may then be forwarded to theorganization with a list of donations received

Page 45: Account Non Profit

45

Donated property, plant and equipment- Develop policies to determine the fair value of the property and record it in

the organization’s records

Donated materials and services- Develop specific policies to record donated materials and services and to

estimate their fair value- Implementation of procedures for the registration and compilation of donated

materials and services (signed and approved time sheets, records of donatedmaterials)

Detection and recording of restrictions of donations- Develop procedures to detect restrictions: review of documents supporting

donations, contributions or grantso Keep letters etc on file, so they can be accessed and reference from

accounting records- Create procedures to ensure that restrictions are respected: record of restrictions,

communicate restrictions to those in charge of budgeting etc, periodically reviewrestrictions in place

- Separate recording of restricted donations, contributions or grants

Payroll- Attendance and time records should be used, this becomes important for tracking

vacations etc, the detail of this will depend on the policies of the organization,staff arrangements etc

- Time should be approved by a person knowledgeable of the actual time worked- Variances between actual and budgeted payroll should be investigated

Capital Assets- Policies should distinguish between capital items and a repairs and maintenance

expenses, determine a cutoff amount below which items are expensed, establishamortization basis, and the method for determining the fair value of contributedcapital assets

- Detailed capital asset records should include the description, date purchased orreceived by contribution, cost or fair value at dates of contribution, contributor orfunding source restrictions on use or disposition, etc

- At least annually, a physical inventory of property and equipment should be madereconciliations prepared and reviewed and any discrepancies followed up

Page 46: Account Non Profit

46

10. Reporting to CRA and the Alberta Government

T2 Corporate Tax return and the GIFI return- every organization incorporated in Canada, except registered charities, must

file this, regardless of whether there is taxable income- have within six months of year-end to file, however there is no penalty unless

there is tax owing- Can use the T2 short and GIFI short for this purpose, the T2 Short is only 2

pages long

Not for Profit Information return- Must be filed if

- revenues from taxable dividends, interest, rentals, or royalties is more than$10,000

- total assets were more than $200,000 at the end of the previous fiscalperiod

- or, had to filed last year: continues forever- has to be filed within six months, or can be fined $25 per day. CRA has been

fining some organizations for being late.

The T3010- The new T3010 is only 4 pages instead of 12: good news

- You may want to consult CRA’s rules charitable donations to ensure youremain in compliance, as compliance questions have now been droppedfrom the return. The rules are nicely summarized in RC4108, a guide putout by CRA, which discusses all the rules for receipts, the disbursementquota and so on. You can download this from the web if you like. Seealso CRA receipt samples.

- Also there are new more generous rules on split receipting that you maywant to be aware of: eg where a person pays for a golf tournament where aportion of the fee is actually a donation, a receipt can be issued

- A regime of fines is in place for late filing etc

- Filling out the T3010

Page 47: Account Non Profit

T2 SHORT RETURN(2001 and later taxation years)

200

This form serves as a federal and provincial or territorial corporation income tax return, unless the corporation is located in Quebec, Ontario, or Alberta. If the corporation is located in one of these provinces, you have to file a separate provincial corporate return.

Parts, sections, subsections, and paragraphs mentioned on this return refer to the Income Tax Act. This return maycontain changes that had not yet become law at the time of printing. If you need more information about items on thereturn, including proposed legislation, see the corresponding items in the 2001 T2 Corporation Income Tax Guide.

Send one completed copy of this return, including schedules, and the General Index of Financial Information (GIFI) to yourtax services office or to the tax centre that serves the corporation. You have to file the return within six months after the endof the corporation’s taxation year. See items 1 to 5 in the guide for more information on when and how to file T2 returns.

(Ce formulaire existe en français.) Page 1 of 2T2 Short E (02)

Identification

Address of head office (item 13)

Mailing address (if different from head office address) (item 14)

c/o

City

Postal code/ZIP code

022

023

025Province, territory, or state

026

027 028Country (other than Canada)

Has the address changed since the last time we were notified?

020

021

Location of books and records (item 15)

City

Postal code/ZIP code

011

012

015Province, territory, or state

016

017 018Country (other than Canada)

Has the address changed since thelast time we were notified?

1 Yes 2 No

Business Number (BN) (item 11)

002

Has the corporation changed its name since the last time we were notified?

If yes, do you have a copy of the articles of amendment? 1 Yes 2 No

To which taxation year does this return apply? (item 17)

Taxation year start Taxation year-end

004

Has there been an acquisition of controlto which subsection 249(4) applies sincethe previous taxation year?

065

063 1 Yes 2 No

061060

Is the corporation a professionalcorporation that is a member of a partnership? (item 18) 067 1 Yes 2 No

Has there been a wind-up of a subsidiary under section 88 during thecurrent taxation year? (item 21)

If yes, please provide Schedule 24

Is this the first year of filing after:

Is this the final taxation year beforeamalgamation? (item 22)

If yes, please provide Schedule 24

Incorporation? (item 19)071 1 Yes 2 NoAmalgamation? (item 20)

. . . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . .If yes, provide the date control wasacquired

. . . . . .

. . . . .

. . . . . . . . . . .

. . . . . .

. . . . . . . . . . . . .

1 Yes 2 No003

010 1 Yes 2 No

070 1 Yes 2 No

078 1 Yes 2 No

Corporation’s name (item 12)

. . . . . . . . . . . . .

076 1 Yes 2 No

. . . .

YYYY MM DD

YYYY MM DD YYYY MM DD

072 1 Yes 2 No

001 R C

Is this the final return up todissolution? (item 23) . . . . . . . . . . . . . . . .

Do not use this area

097

091 092 094093 095 096

300 (

"Nil" or "net loss" for income taxpurposes from Schedule 1, financialstatements, or GIFI . . . . . . . . . . . . . . . . .

Provincial or territorialjurisdiction (item 131)

)

. . . . . . . . . . . . . . . .

Tax instalments paid (item 158) 840 . . . . . . . .

750

894

Refunded,1

2 Transferred to next year’s account, or

3 Applied to another liability. (attach instructions)

If there are excess payments in this year’s instalment account,please indicate whether they should be: (item 159)

Canada Customs and Revenue Agency

Agence des douanes et du revenu du Canada

S

Type of corporation at the end of the taxation year (item 16)040

City

Postal code/ZIP code

031

032

035Province, territory, or state

036

037 038Country (other than Canada)

Other corporation(please specify, below)5Canadian-controlled

private corporation (CCPC)1

3

4Certain farmers’ and fishermen’s insurers

2 Non-profit corporations for scientific research and experimental development

Exempt under other paragraphs of section 149 (please specify)

1 An agricultural organization, a board of trade or a chamber of commerce; or,a non-profit club, society or association

If the corporation is exempt from tax under section 149 tick one ofthe following boxes: (item 25)

085

Do not use this area055

Code 0101

Page 48: Account Non Profit

GENERAL INDEX OF FINANCIAL INFORMATION – SHORT

Balance Sheet information

Name of corporation

LiabilitiesAssetsCurrent Current

Bank overdraft

Amounts payable and accrued liabilites

1000

Business Number Taxation year-end

DayMonthYear

1060

1061Accounts receivable

Allowance for doubtful accounts

Cash and deposits 2600

2620

(Ce formulaire existe en français.)

* Required line items must be completed.

** Required if any of line items 3660 to 3745 completed.

Page 1

( )

. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. .

Form identifier

T1178 E (01)

100/101

Agence des douanes et du revenu du Canada

Canada Customs and Revenue Agency

Long term

*Total assets

Due from shareholder(s)/director(s)

Due from/investment in related parties

Long term investments

Long term loans

Other long term assets

Total long term assets

Assets held in trust

2010

2011

2070

2071

2178

2179

Investment in joint venture(s)/partnership(s)

2180

2200

2240

2300

2360

2420

2589

Intangible assets

Accumulated amortization of intangible assets

Resource rights

Accumulated amortization of resource rights

Total intangible capital assets

Total accumulated amortization ofintangible capital assets

2590

2599(add 1599, 2008, 2009, 2178, 2179,

2589, and 2590)

( )

( )

( )

. . . . . . . . . . . . . . . . . . . . . . . . . .

. . .

. . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

. . . . .

. . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans and notes receivable

1180

1240

1300

1480

1599

Short term investments

Due from shareholder(s) / director(s)

Other current assets

Total current assets

Due from / investment in related parties 1400

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . .

1120Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amounts receivable from members of NPOs . . . . . 1073

Shareholder equity

Common shares

Preferred shares

Contributed and other surplus

Retained earnings (deficit)

*Total shareholder equity

Total liabilities and shareholderequity (Add 3499 and 3620)

3500

3520

3540

3600

3620

3640

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . .

Deferred income

Long term

Long term debt

Deferred income taxes

Due to related parties

Other long term liabilities

Total long term liabilities

Due to shareholder(s)/director(s)

Amounts held in trust

*Total liabilities (Add 3139, 3450, and 3470)

3140

3220

3240

3260

3300

3320

3450

3470

3499

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

Taxes payable

Short term debt

Due to shareholder(s)/director(s)

Due to related parties

Current portion of long term liability

Other current liabilities

Total current liabilities

2680

2700

2780

2860

2920

2960

3139

. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . . . . . . . . . .

. . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . .

Amounts payable to members of NPOs 2630

Statement of Retained earnings (deficit)

Retained earnings (deficit) – start

Net income/loss

Dividends declared

Other items affecting retained earnings

3660

3680

3700

3740( )

. . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. .

**Retained earnings (deficit) – end 3849. . .

Interfund transfer 3745

. . . . . . . . . . . . . . . . . .

. .

Capital1600

1620

1621

1680

1681

1740

1741

1900

1901

2008

2009

Buildings

Total tangible capital assets

Land

Accumulated amortization of buildings

Machinery and equipment

Accumulated amortization of machineryand equipment

Other tangible capital assets

Accumulated amortization of other tangiblecapital assets

Total accumulated amortization oftangible capital assets

Depletable assets

Accumulated amortization of depletable assets

Furniture and fixtures 1787

Accumulated amortization of furnitureand fixtures 1788

( )

( )

( )

( )

( )

( )

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . .

. . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

Page 49: Account Non Profit

116

Total liabilities (add lines 117 and 118)

(Ce formulaire existe en français.)

Do not use this area

107

Membership dues, fees, and assessments received

Federal, provincial, or municipal grants and payments received

Interest, taxable dividends, rentals, and royalties received

Gross sales and revenues from organizational activities

Total receipts (add lines 100 to 106)

100

Other receipts(please specify)

Section B – Amounts received during the fiscal periodAmounts received

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . 101

. . . . . . . . . . . . . . . . . . . . . . . . 102

Proceeds of disposition of capital property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

104

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

106

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109

Section C – Statement of assets and liabilities at the end of the fiscal periodAssets

110

111

112

113

114

108

Liabilities

Section A – Identification

Cash and short-term investments

Amounts receivable from members

Inventory

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amounts receivable from all others (not included on line 109)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other assets(please specify)

Fixed assets

Method used to record assets

Name of organization

117

118Amounts owing to all others(please specify)

119 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amounts owing to members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

NON-PROFIT ORGANIZATION (NPO) INFORMATION RETURNThis return is for:

To determine if your organization has to complete this return, please see the guide calledIncome Tax Guide to the Non-Profit Organization (NPO) Information Return.

Mailing address

City

Province Postal code

T1044 E (02)

Trust (T3) number, if any T

Business Number (BN), if any

Type of organization(see the related guide)

Is this the final return to be filedby this organization? If yes,please attach an explanation.

Canada Customs and Revenue Agency

Agence des douaneset du revenu du Canada

Fiscal period

toYear DayMonth

FromYear DayMonth

NoYes1 2

Total assets (add lines 108 to 115) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

organizations described in paragraph 149(1)(e) of the Act (agricultural organizations,boards of trade, or chambers of commerce).

These organizations may have to file this return if they received or were entitled to receive gross investment revenuegreater than a certain amount or assets which are more than a certain amount, or if the organization had to file the NPOreturn for a preceding fiscal period.

l non-profit organizations (NPOs) described in paragraph149(1)(l) of the Income Tax Act; andl

. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . .

Page 50: Account Non Profit

You must attach a list with the last name, first name, and initial of each director/trustee and like official, home address (including street number, streetname, city, province or territory, and postal code), position in the charity, whether or not they were a director/trustee at the end of the fiscal period,telephone number, if they are at arm's length from all other members of the governing board and their date of birth. Only the Public informationsection on the worksheet is available to the public. The Confidential information section is for the CCRA's use only and remains confidential.Use the worksheet included in the guide or a sheet with the same information in the same format to enter this information, and attach it to this return.See the guide for an explanation of the term arm's length. Have you attached the list required above?

(Ce formulaire existe en français.)T3010A E (05)

REGISTERED CHARITY INFORMATION RETURN

C3 For programs carried on in Canada, check the appropriate box to show where the programs were carried on.

In more than one province or territory2020A single rural, city, or metropolitan area2000 Provincially or territorially2010

Has the charity made any changes to its governing documents during the fiscal period (e.g., letters patent, articles ofincorporation, constitution, trust, or by-laws)? (If yes, see the guide.)

A1

A2 Was the charity an internal division regulated by the governing documents of another charity (i.e., it had no governingdocuments establishing its independent existence)? If yes, what is the name and BN/registration number of the other charity?

Was the charity linked in a subordinate way to a provincial, national, or international organization? If yes, what is the name ofthis organization and its BN/registration number (if applicable)?

A3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A4 Has the charity wound-up, dissolved, or terminated operations? (If yes, see the guide.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A5 Has the charity amalgamated, merged, or consolidated with another organization? (If yes, see the guide.) . . . . . . . . . . . . . . . . . . .

Section C – Programs and General InformationC1 Was the charity inactive during the fiscal period? If yes, please explain why in the "Ongoing programs" space below.

Describe how the charity carried out its charitable purposes during the fiscal period. Give detailed information so a reader can clearly understand whatthe charity actually did to fulfill its mandate. Describe the charity's ongoing programs and new programs in the spaces provided below. Do not attachadditional sheets of paper or annual reports. Do not include a description of fundraising activities in this section. Grant-making charities should describethe types of organizations they support. Please number each program. (See the guide for instructions on how to describe your programs.)

. . . . . . . . . . .C2

Name BN/registration number (##### ####RR####)

Name BN/registration number (##### ####RR####)

Section B – Directors/Trustees and Like OfficialsB1

NoYes1500

NoYes1510

NoYes1540

NoYes1570NoYes1580

NoYes1800

Except for yes/no questions, if a question does not apply to your charity, please leaveit blank.

Section A – Identification

To complete this form, you will need the guide called Completing the RegisteredCharity Information Return, T4033A.

The Privacy Act protects personal information given on this form, which is kept in apersonal information bank.

Please attach a bar code label here beforeyou mail this return. If no label, enter:

New programs

Ongoing programs

1. Fiscal Period Ending

Year Month Day2. BN/registration number

. . . . . . . . . . . . . . . . . . . . . .

Canada Customsand Revenue Agency

Agence des douanes et du revenu du Canada

NoYes1700

Page 51: Account Non Profit

C4 Did the charity carry on programs, directly or indirectly, outside Canada?If yes, were any carried out:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

by employees or volunteers of the charity?under agency agreement, contract, joint-venture, or similar arrangements?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

through gifts to qualified donees?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C5 For programs the charity managed directly, outside of Canada, list the countries or regions where programs were carried on. Do not include countries orregions where programs were managed by a qualified donee.

by other means?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C7 A charity may pursue political activities that are non-partisan, related to its charitable purposes, and limited in extent. During thefiscal period, did the charity carry out political activities or provide assistance to another organization to carry out politicalactivities? (See the guide for information on political activities.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C9

C10 Did the charity charge fees for, or otherwise receive regular revenue from goods, services, or the use of the charity's assets? . . .

C6 Did the charity issue scholarships, bursaries, awards, prizes, or honoraria to an individual during the fiscal period? . . . . . . . . . . . . .

Did the charity use incentive-based compensation (e.g., bonuses, commissions, finder's fees, honoraria) for fundraisers? If yes, were these incentives paid to:

contracted fundraisers?staff or volunteers?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . NoYes

Section D – CompensationNote: Compensation includes all forms of remuneration (e.g., salaries, fees, and honoraria) and benefits (e.g., personal use of a car or office space).

D1 On average, how many permanent, full-time, compensated positions did the charity have in the fiscal period?

D2 For the five highest compensated positions indicate the number of positions in each of the following annual compensation categories. Include onlythose positions that are permanent, full-time positions.3700 $1 – $39,999 3710 $40,000 – $79,999 3720 $80,000 – $119,999 3730 $120,000 and over

. . . . . . . . . . . . . . . . .

D3 On average, how many part-time or part-year employees did the charity employ in the fiscal period? . . . . . . . . . . . . . . . . . . . . . . . .

D4 What was the total expenditure on compensation for part-time or part-year employees in the fiscal period? . . . . . . . . . . . . . . . . . . .

D6 Except for compensation, did the charity, directly or indirectly, transfer any part of its income or assets to individuals ororganizations not at arm's length to the charity?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D5 Did the charity compensate any of its directors/trustees or like officials, during the fiscal period?. . . . . . . . . . . . . . . . . . . . . . . . . . . .

C8 If the charity carried on fundraising activities, check all fundraising methods that it used during the fiscal period.Advertisements/posters/flyers/radio or TV commercials2500

251025202530

AuctionsBingo/casino nightsCollection plates/boxesDoor-to-door solicitation2540

2550 Draws/lotteries

Fundraising dinners/galas/concertsFundraising sales (e.g., cookies, chocolate)Mail campaignsPlanned-giving programsTargeted corporate donations/sponsorshipsTargeted contacts

Telephone solicitationsTournaments/sporting eventsWalk-a-thons/bike-a-thons (etc.)Other

Specify:

NoYes2100

NoYes2110NoYes2120NoYes2130NoYes2140

NoYes2300

NoYes2400

NoYesNoYes

3600

3800

3850

NoYes3950

NoYes3900

256025702580259026002610

2620263026402650

2700

27102720

$

2660

.00

NoYes2800

C11 Did the charity make gifts to qualified donees? If yes, you must attach a list with the name of each qualified donee and its location, BN/registration number, the total amount of the gift for the fiscalperiod, the amount, if any, of specified gifts, and whether or not it is an associated charity. List the qualified donees in the order of the total amount ofthe gifts made, starting with the largest. Use the worksheet included in the guide or a sheet with the same information in the same format and attach it tothis return.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NoYes

C12 If the charity received non-cash gifts (gifts in kind) for which it issued tax receipts, check all the types of gifts that apply.Artwork/wine/jewelleryBuilding materialsClothing/furniture/foodVehicles

Cultural propertyEcological propertyMachinery/equipment (including computers/software)Hedge funds/life insurance policies

Publicly-traded securities/mutual fundsPrivately-held securitiesOther

2900

Specify:

308030903100

3040305030603070

3000301030203030 3110

Page 52: Account Non Profit

Section E – Financial InformationE1

E2 Please show figures to the nearest single dollar. Do not show cents. See the guide for an explanation of the terms.AssetsCash, bank accounts, and short-term investments

Amounts receivable from all othersInvestments in non-arm's length parties

Amounts receivable from non-arm's length parties

LiabilitiesAccounts payable and accrued liabilities

Amounts owing to non-arm's length partiesOther liabilities

Deferred revenue

Total liabilities (add lines 4300 to 4330). . . . . . . .

. . . . . . . . . . . .

. . . . .. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .. . . .

.00

.00

.00

.00

.00

.00

.00

.00

.00

4100411041204130

Page 53: Account Non Profit

Section F – Other Required Information

Printed in Canada

Section I – Confidential Data

I2 Location of the charity's books and records

Number, street, apt. no., or lot and concession no.CityProvince or territory and postal code

Name

Name and address of the person who completed this return

Firm name (if applicable)Number, street, apt. no., R.R. no., or P.O. box no.CityProvince or territory and postal code

Phone number ( ) Fax number ( ) Postal code:

Postal code:

Number, street, apt. no., or lot and concession no.CityProvince or territory and postal code Postal code:

I1 Physical location (address) of the charity (Do not use rural route or post office box numbers.)

I3

$F1 What were the total expenditures on programs outside Canada during the fiscal period, excluding gifts to qualified donees? . . . .F2

F3

$the gross revenues collected by the fundraiser(s) on behalf of the charity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$the amounts paid to and/or retained by the fundraiser(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$the net fundraising revenue received by the charity (line 5450 minus line 5460) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

a.b.c.

If the charity retained contracted fundraiser(s), enter:

F4the total eligible amount of tax-receipted non-cash gifts (gifts in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .the total eligible amount of tax-receipted tuition fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

If the charity has written permission to accumulate property, enter:$the amount accumulated for the fiscal period, including income earned for the fiscal period on previously accumulated funds$the amount disbursed for the fiscal period for the specified purpose we have granted permission for . . . . . . . . . . . . . . . . . . . .$the amount deemed to be a tax-receipted gift for the fiscal period

the total eligible amount of tax-receipted enduring property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5400

545054605470

560056105640

550055105520. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

. .

F5 Enter the amount, if any, of enduring property spent in the fiscal period. (See the guide.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5710 .00

Of the tax-receipted gifts received by the charity for the fiscal period, enter:$$

Section H – Certification

SignatureName (please print) Position in charity

Date signed

H1 To be completed by a director/trustee or like official of the charity. It is a serious offence under the Income Tax Act to provide false or deceptiveinformation.I certify that the information given on this form, the basic information sheet, and any attachments is, to the best of my knowledge, correct, complete, andcurrent.

Did the charity acquire a non-qualifying security or allow a donor to use any of the charity's property under the circumstancesdescribed in the guide during the fiscal period? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5800 NoYes

Section G – For Foundations OnlyNote: See the guide for an explanation of the terms and requirements of this section.

G1 In the fiscal period, did the foundation acquire control of a share-capital or for-profit corporation? . . . . . . . . . . . . . . . . . . . . . . . . . . NoYes6000G2 Did the foundation incur debts at any time during the fiscal period other than for current operating expenses, in purchasing or

selling investments, or in administering charitable programs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NoYes6100G3 For private foundations only: At any time during the fiscal period, did the foundation hold any shares, rights to acquire such

shares, or debts owing to it that meet the definition of a non-qualified investment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NoYes6150

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5750 .00

F6 Enter the capital gains from the disposition of enduring property in the fiscal period. (See the guide.) . . . . . . . . . . . . . . . . . . . . . . $5720 .00

F9

F10 Indicate the average value of property not used for charitable activities or administration during:

the 24 months before the end of the fiscal period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .the 24 months before the beginning of the fiscal period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$$

59005910

.00

.00

F7 Is the charity claiming an amount that is less than the maximum capital gains reduction? (See the guide.) . . . . . . . . . . . . . . . . . 5730 NoYes

If yes, enter the amount from line 11 of form T1259. (See the guide.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5740 .00

F8 If the charity is taking a special reduction, which we have approved, to its disbursement quota, enter the special reductionamount for the fiscal period.

Page 54: Account Non Profit

Sample – Official Donation Receipts There have been changes to the requirements for official donation receipts. To make issuing receipts as simple as possible for charities and still meet the necessary requirements, we have provided sample official donation receipts. Different receipts correspond to different circumstances. Please note that these receipts contain the information that must be provided according to the Income Tax Act. However, they are only a guide and your receipts do not have to appear exactly as presented but must contain all the relevant information.

Sample 1 Cash gift (no advantage) This is the most common scenario. The items in this sample receipt should be included on your official donation receipt if the donor or any other person receives nothing in return for the gift. For example, the donor makes a cash (or cheque) gift of $20. There is no advantage received or receivable by the donor or any other person for the gift. Therefore, the eligible amount of the gift is $20.

Sample # 1 Cash Gift (no advantage) Official Donation Receipt For Income Tax Purposes 0001 Charity name Canadian charity address Charity BN/ Registration # Date donation received_______________ Donated by ______________________ First name, initial, last name Address ______________________ ______________________ ______________________ Eligible amount of gift for tax purposes_________________________ Date receipt issued ________________ Location receipt issued _____________ Authorized signature ______________

For information on all registered charities in Canada under the Income Tax Act please contact:

Canada Revenue Agency www.cra.gc.ca/charities

Sample 2 Cash gift with advantage The items in this sample receipt should be included on your official donation receipt if the donor or any other person receives something in return for the gift i.e., meal, golf tournament, book etc. For example, the donor pays $50 to attend a fundraising luncheon where the only consideration received is a meal valued at $20. The total amount received by the charity is $50 and the value of the advantage (the meal) is $20. Therefore, the eligible amount of the gift is $30.

If the amount of the advantage exceeds 80% of the fair market value of the gift, the charity is advised to contact the CRA before issuing a receipt.

Page 55: Account Non Profit
Page 56: Account Non Profit

For information on all registered charities in Canada under the Income Tax Act please contact: Canada Revenue Agency www.cra.gc.ca/charities

Sample 4 Non-cash gift with advantage The items in this sample receipt should be included on your official donation receipt for a non-cash gift if the donor or any other person receives something in return for the gift. For example, the charity receives a house valued at $100,000 and the donor receives an advantage of $20,000 in cash. Therefore, the eligible amount of the gift is $80,000.

If the amount of the advantage exceeds 80% of the fair market value of the gift, the charity is advised to contact the CRA before issuing a receipt.

Sample #4 Non-cash Gift with advantage Official Donation Receipt For Income Tax Purposes 0001 Charity name Canadian charity address Charity BN/ Registration # Date donation received_______________ Donated by ______________________ First name, initial, last name Total amount received by charity___________________________A Address _______________________ (fair market value of property) _______________________ _______________________ Value of advantage______________________________________B (cash/ fair market value of property or services) Date receipt issued _______________ Location receipt issued _____________ Eligible amount of gift for tax purposes____________________C (line A minus line B) Authorized signature _______________ Description of property received by charity___________________ Appraised by____________________________ Address of appraiser______________________

For information on all registered charities in Canada under the Income Tax Act please contact: Canada Revenue Agency www.cra.gc.ca/charities

Official Donation Receipt For Income Tax Purposes Statement that the receipt is official for tax purposes. 001 Sample serial number of receipt. Charity name Name of charity as recorded with the Minister.

Page 57: Account Non Profit

Canadian charity address Canadian address of charity as recorded with the Minister. Charity BN/ Registration# The registration number as assigned by the Minister. Date donation received If the donation is a cash donation, use either the day on which or the year during which the donation was received. If the donation is a non-cash gift, use the day on which the donation was received. Total amount received by charity The fair market value of property received from the donor. Fair market value generally means the highest price, expressed in dollars, that a property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are knowledgeable, informed, and prudent, and who are acting independently of each other. If the amount of the gift is in excess of 5,000, the charity is required to obtain specific information from the donor. Please contact the CRA for more information. (Exceptions include ecological gifts, inventory, real property situated in Canada, publicly traded securities or cultural property, the value of which is certified by the Cultural Property Export Review Board.) Value of advantage Total amount of all benefits provided to donor or any other person for the gift. (i.e.,value of books, meals, golf tournaments etc.) Eligible amount of gift for tax purposes This is a new term used in the Income Tax Act to refer to the amount that the donor can claim for tax purposes for the donation. Description of property A brief description of property received by charity. Appraised by Name of appraiser if property is appraised. It is recommended that property be appraised if the value is over $1,000. However, there is no legal requirement to have property appraised. If the property has been appraised, the name and address of the appraiser must be provided. If the property has not been appraised, the charity must be able to substantiate the value of the property.

Page 58: Account Non Profit

Address of appraiser Address of appraiser if property appraised. It is recommended that property be appraised if the value is over $1,000. However there is no legal requirement to have property appraised. If the property has been appraised, the name and address of the appraiser must be provided. If the property has not been appraised, the charity must be able to substantiate the value of the property. Donated by Name of the donor including, in the case of an individual, the donor’s first name and initial. Address Address of the donor. Date receipt issued The day on which the receipt was issued. Location receipt issued Place or location receipt was issued. Authorized signature The signature of an individual who has been authorized by the charity to acknowledge donations. Canada Revenue Agency www.cra.gc.ca/charities A listing of all registered charities under the Income Tax Act.

Page 59: Account Non Profit

52

Alberta Government Filings

- there are a number of filings that are potential including filings under theCharitable Fund Raising Act, and various reports for Arts organizations etc.

- the Casino report

- the Society Annual Return

Page 60: Account Non Profit

53

11. Budgeting, Business Planning and Performance Measures

Budgeting Considerations

- Budgeting is Good Financial Planning

For which of you, intending to build a tower, does not sitdown first and count the cost, whether he has enough tofinish it – Luke 14:28

- Don’t faith budget, be realistic since some areas of your service maysuffer

- Consider previous results in forming expectations- Budget on the same basis as your financial reporting

- A supplemental cash flow budget can account for the non-cashitems such as capital, and deferred contributions

- Budgeting should be timely- May want to consider a supplemental revision process- Consider a 3 to 5 year plan

- Which would account for the use of a built up surplus/deficit,capital expansions, large one time programs that do not occurannually

- Budget to ending surplus and not net income- Once you’ve established the appropriate ending surplus as

determined through the long range plan.

Page 61: Account Non Profit

54

Year End

Page 62: Account Non Profit

55

Budgeting to Ending SurplusUnrestricted Net Assets

Budget Actual

Revenues 80 85

Expenses 100 100

Excess (Deficiency) of Revenues over Expenses -20 -15

Investment in Capital Assets 0 0

Transfer from (to) Internally Restricted Net Assets 20 20

Net Increase in Unrestricted Net Assets 0 5

Unrestricted Net Assets, beginning of year 15 15

Unrestricted Net Assets end of year 15 20

Page 63: Account Non Profit

56

Use Managerial Accounting Techniques

• Zero Based Budgeting vrs Incremental Budgeting• Prioritize Goals and then Resources

• Discretionary vrs Non-Discretionary Expenses

• Fixed vrs Variable Costs

• Consider the Appropriateness of the Cost Structure• Is Overhead too High?

• Budgets for Special Projects and FundraisingCampaigns

• Analyze Historical Gross Margins

• Monitor Actual Results against Expected Results

Page 64: Account Non Profit

57

Business Plans – Goals and Performance Measures

You may want to consider this model of planningand reporting

1) Determine what you consider to be goals ofyour organization

- no more than 5 or 6

2) Determine your strategies for achieving thosegoals

3) Determine how you will measure the success inachieving those goals

- Performance Measures

4) Report against the Results- Planned and Actual Expenditures- Planned and Actual Performance

This form of planning and reporting may beespecially useful as a way of reporting to donors notinvolved in the operations.

Page 65: Account Non Profit

58

Camrose Church

Goals

1) Increase the Quality of Worship2) Share the Message of Christ3) Brotherly Love4) Care for the Lonely5) Heal the Sick6) Instruct the Church

Page 66: Account Non Profit

59

Camrose Church

Goal 1

Increase the Quality of Worship

Strategies

• Encourage the Church to spend more time in prayer forthe worship team and the worship.

• Encourage the worship team to pray prior to the service.• Sing songs that express devotion to God.• Find a worship leader with a gift of leading people into

worship of God.• Find out what other churches do successfully in

worship.

Page 67: Account Non Profit

60

Camrose Church

Goal 1

Increase the Quality of Worship

Performance Measures

Outcome Orientated Measures:

1. Survey the congregation with respect to the quality ofworship.

Target: 80% believe there is an Improved Quality ofWorship

Output Orientated Measures

1. % of Songs that express Personal Devotion to God

Target: 2/3 of Songs express Personal Devotion andCommitment to God

2. Length of time the Church spends in worship

Target: 30% increase in time spent in worship as acongregation

Page 68: Account Non Profit

61

Camrose Church Annual ReportPage 4

Goal 1

Improve the Quality of Worship

Performance Measure

Survey Congregation:- Target: 80% believe there is an improvement in the quality of

worship over the past year

Results:- A survey was conducted in February of 2003. 86% per cent of

those surveyed believed there was an increase in the quality ofworship.

Page 69: Account Non Profit

62

12. Other Resources and Final Questions

- Incorporation and Alberta Government Filingrequirements– www.gov.ab.ca

- Registering a charity and Federal Governmentrequirements – www.cra-adrc.gc.ca

- All Forms are Online- Guides are Online

- RC4108 Registered Charities and theIncome Tax Act

- RC4081 GST for Non-Profit Organizations- RC4082 GST for Charities

- Accounting – www.cassfraser.ca- Accounting Tutorial explaining common

journal entries under the different methods ofAccounting

- Sample Financial Statements- Dissertation on Accounting Principles and

Disclosure Requirements sorted by MainCategories

Page 70: Account Non Profit

63

13. An Overview of the Canadian Accounting System for NPOs

- the double entry accounting system was invented by Fra Luca Pacioli in 1494- basically it consists of a balance sheet where “debits” are the things you own and the

offsetting “credits” show how those assets are spoken for- to decrease a debit balance we make a “credit” entry and vice versa- an asset is something with a future benefit- the benefit of an asset can be received over time as in the case of a capital asset- in an NPO, the balance sheet shows the total assets on hand and the availability of

those assets for future services ( a profit organization would show the availability ofassets for distribution to shareholders – retained earnings as opposed to “net assets”)

- at the highest level, NPO accounting is simple, we simply show the assets availablefor future services and the change in the assets available for future services, thechange is explained in the statement of operations

- revenues are an increase in the assets available for future services, and expenses aredecreases in the assets available for future services

- expenses are debits because they reduce the balance available for future services- the most confusing area in NPO accounting is the treatment of temporarily restricted

contributions.- Many accountants see temporarily restricted contributions as analogous to “unearned

revenues and do not wish to recognize these revenues in the statement of operationsuntil the related expenses are incurred. This is the predominant view in Canada. Theprimary method of accounting in Canada is the “deferral method of accounting forcontributions” which presents temporarily restricted donations just outside “netassets.” No recognition of these revenues is made in the statement of operations untilthe related expenses are incurred. Even where the restrictions have been fulfilled,these contributions continue to be deferred until the related expenses are incurred.

- Other accountants believe that since restricted donations represent an increase in theassets available for future services they should be recognized as revenue immediately.This is the predominant view in the US. However, the US model, while recognizingtemporarily restricted contributions immediately, still attempts to show somematching of restricted revenues with related expenses in the statement of operationsby including and reversing these (this can be horrendously complicated to the readerof the statements).

Page 71: Account Non Profit

64

BEGINNING of YEAR

DR CR

ASSETS AVAILABILITY OF ASSETS things with a benefit FOR FUTURE SERVICES

Assets not availablefor future services

Assets available $70 thousandfor future services

CASH

RECEIVABLES

INVENTORY

CAPITALASSETS

PAYABLES ANDDEBT

NET ASSETS

Page 72: Account Non Profit

65

END of YEAR (U.S. Model and Canadian Restricted Fund Method)

DR CR

ASSETS AVAILABILITY OF ASSETS things with a benefit FOR FUTURE SERVICES

Assets not availablefor for future services

Assets available $70 thousandfor future services

CASH

RECEIVABLES

INVENTORY

CAPITALASSETS

PAYABLES ANDDEBT

NET ASSETS

CR

$70K

Revenues- Economic events

resulting inincreases inavailable assets $350K

contributions ofcash, capital assets,promises of cash

Expenses- Economic events

resulting indecreases inavailable assets

DRs -270K

$150K

Page 73: Account Non Profit

66

Deferral Method of Accounting for Contributions

DR CR

ASSETS AVAILABILITY OF ASSETS things with a benefit FOR FUTURE SERVICES

Assets not available END of YEARfor future services

Assets associated withtemporary restrictions

Assets availablefor future services(except as above)

CASH

RECEIVABLES

INVENTORY

CAPITALASSETS

PAYABLES ANDDEBT

NET ASSETS

CR

$70K

Revenues- Economic events

resulting inincreases inavailable assets $300K

contributions ofcash, capital assets,promises of cash

Expenses- Economic events

resulting indecreases inavailable assets

DRs -270K

$100K

DEFERREDCONTRIBUTIONS

Page 74: Account Non Profit

67

14. Reporting Entity

- What are we accounting for?

Controlled Organizations- The first fundamental principle of accounting is that an accounting should

be made for the activities under the control of a person or group ofpersons, which is normally a board of directors

- Concept can be quite significant in the for-profit sector- Definition of control is similar in the not-for-profit sector

- the ability to determine strategic operating, investing and financingactivities- presumed to exist where the organization can appoint the

majority of the board- control may also be deemed to exist if

- changes to bylaws or charter require consent,- significant economic interest exists- or the purposes of the organizations are integrated

- consolidation or note disclosure is required

Significantly Influenced Organizations- the ability to influence strategic operating, investing and financing

activities- proportionate consolidation of for profit entities- otherwise note disclosure of relationship and organization’s

purpose, community of service, tax status and any economicinterest

Economic Interest- another organization holds resources to generate revenue or

services, or if there is an obligation to fund the liabilities ofanother organization

- note disclosure

Funds held in trust- the accounting rules are not clearly defined- generally an asset only belongs to an organization if it can control

it- note disclosure may be the most appropriate

Page 75: Account Non Profit

68

Control

The ability to control the financial decisionsof another organization

Presumed to be present if there is the abilityto appoint the majority of board members of

another organization

Other Indicators of Control

Significant Economic Interest

Ability to Change Bylaws

Common and Complimentary Objectives

Page 76: Account Non Profit

69

15. Fund Accounting

- Once you’ve established what you are accounting for, the next step is todecide how you want to account your activities

- Unlike for-profit accounting which allows only one method of accounting,there are a number of choices

- Perhaps the most common set of NPO financial statements presents a singlecolumn balance sheet and a single column statement of operations- Example: Canadian Foodgrains Bank

- The alternative is Fund Accounting

What is Fund Accounting?- Example: Dalhousie Medical Research Foundation

- Like there are separate sets of books, separate sets of statements withinthe statements

- The common method of fund accounting is the restricted fund methodthat is used to account for specifically identified externally restrictedrevenues. We will discuss revenue recognition under fund accountinga bit later.

- Not necessary to show the balance sheet in separate funds, only totalsneeded

- How this works in the accounting- A look at the trial balance- A Fund is a self balancing set of accounts

Page 77: Account Non Profit
Page 78: Account Non Profit

34…

Financial Statements ofDalhousie Medical Research FoundationStatement of Operations and Changes in Fund BalancesYear Ended March 31, 2003

2003 2002

General Restricted EndowmentFund Fund Fund Total Total

RevenueInvestment

income (Note 4) $ 398,599 $ 723,346 $ (234,518) $ 887,427 $ 2,484,306Donations 1,319,066 516,491 311,122 2,146,679 3,319,033Write-down of investments (465,879) (267,953) (333,344) (1,067,176) (373,186)

1,251,786 971,884 (256,740) 1,966,930 5,430,153Expenses

Research activities:Equipment grants 226,097 - - 226,097 159,850

Less: recovery of grants (4,701) - - (4,701) (8,800)Associateships 96,091 - - 96,091 87,458Fall River health forum - - - - 104,076(Note 5)

Fellowships - 59,442 - 59,442 151,826Studentships - 45,782 - 45,782 56,851Prizes and awards 3,000 84,175 - 87,175 78,994Research

Grants 492,750 340,690 - 833,440 154,957Laboratory renovations 850,000 - - 850,000 500,000

Travel and other (Note 5) - - - - 10,4671,663,237 530,089 - 2,193,326 1,295,679

Administrative andsupport cost 555,884 - - 555,884 418,858

2,219,121 530,089 - 2,749,210 1,714,538

Excess of revenue over expenses(expenses over revenue) (967,335) 441,795 (256,740) (782,280) 3,715,616

Statement of Net AssetsFund balances, beginning

of year 1,441,489 1,887,900 37,244,645 40,574,034 36,858,418

Interfund transfers (Note 5) (152,772) 82,436 (235,208) - -

Fund balances, end of year $ 626,926 $ 2,412,131 $36,752,697 $ 39,791,754 $ 40,574,034

See accompanying notes to the financial statements.

Page 79: Account Non Profit

…35

Dalhousie Medical Research FoundationStatement of Financial Position

March 31, 2003

2003 2002

General Restricted EndowmentFund Fund Fund Total Total

AssetsCurrent

Cash and cash equivalents $ 30,688 $ - $ - $ 30,688 $ 119,060Prepaid expenses 3,300 - - 3,300 -Receivables

Accrued investment income 3,716 232,119 - 235,835 247,583Commodity tax receivable` 64,125 - - 64,125 28,340Foreign taxes recoverable 545 55,603 - 95,837 61,784

Due from Dalhousie University 95,837 - - 95,837 61,784198,211 287,722 - 485,933 456,767

Investments (Note 3) 620,530 2,387,523 36,377,768 39,385,821 40,210,331Interfund (176,815) (198,118) 374,933 - -

$ 641,926 $ 2,477,127 $36,752,701 $39,871,754 $40,667,098

Liabilities and Fund Balances

LiabilitiesCurrent

Payables and accruals $ 15,000 $ 65,000 $ - $ 80,000 $ 93,064

Fund Balances 626,926 2,412,131 36,752,697 39,791,754 40,574,034

$ 641,926 $ 2,477,131 $36,752,697 $39,871,754 $40,667,098

On behalf of the Board

Director Director

See accompanying notes to the financial statements.

Page 80: Account Non Profit

73

Here we present a trial balance for a fictitious organization. We have bolded the accountsfor the capital fund, the rest of the accounts are the operating fund.

Trial Balance - all accountsdr cr

Bank - operating account 350Bank - capital account 150Contributions receivable 100Flower Pin inventory 300Capital assets 2000Accumulated ammortization 800Accounts payable 100Bank loan - current portion 130Bank loan - long term 500Deferred capital contributions 400Deferred contributions 200Net assets 450Flower Pin sales 450Flower Pin cost of sales 150Capital contributions recognized 50Unrestricted contributions 100Spring fling contributions recognized 500Administration costs 65Amortization 100Interest expense 65Spring fling expenses 400

3680 3680

Below we separate out the operating fund accounts, note that we need to restate theopening net asset balance, pulling out the opening balance for the operating fund, in orderto balance the accounts.

Operating Fund

dr crBank - operating account 350Contributions receivable 100Flower Pin inventory 300Accounts payable 100Deferredcontributions

200

Operating Fund - opening balance 15Flower Pin sales 450Flower Pin cost of sales 150Unrestricted contributions 100Spring fling contributions recognized 500Administration costs 65Spring fling expenses 400

1365 1365

Page 81: Account Non Profit

74

Below we present the capital fund accounts, with the opening balance of the capital fund.See the opening balance of the two funds equals the opening net assets we presentedearlier, under the deferral method.

Capital Fund

dr crBank - capital account 150Capital assets 2000Accumulated ammortization 800Bank loan - current portion 130Bank loan - long term 500Deferred capital contributions 400Capital Fund - opening balance 435Capital contributions recognized 50Amortization 100Interest expense 65

2315 2315

Operating Fund - opening balance 15Capital Fund - opening balance 435

= Net Assets 450

Page 82: Account Non Profit

75

16. Expense Recognition

Cash accounting is no longer permitted except under very strict circumstances- almost anything was permitted for NPO’s prior to 1996- an audit can no longer give an opinion on a basis other than GAAP, except

for purposes of reporting compliance with agreements etc.

In accounting for expenses, accrual accounting must be used- expenses are recognized when services are received, liabilities are incurred, or

resources are used- the accounting for the use of resources is described on the next page

Page 83: Account Non Profit

76

Capital Assets- are amortized but may be expensed when

purchased if total revenues are less than $500,000- cannot revert to this policy one assets have been

capitalized- amortization should be straight-line over the

expected life of the asset- can use a threshold

Collections- collections of rare, preserved and protected items

such as works of art and historic treasures do notneed to be capitalized if there is a policy to maintainthe collection

Capital Leases- the asset cost and liability needs to be recognized in

the period of the inception of the lease if:- the present value of minimum lease payments

is at least 90% of fair value- the lease period is at least 75% of the

economic life- there is a bargain purchase option- title to the asset transfers

Inventory- the exception for capital assets does not apply to

inventory- inventory of consumable items and items held for

resale should be recorded if material

Page 84: Account Non Profit

77

Expense Presentation

Level of detail can be an issue in NPOs, depending on who the users are

Expenses can be reported by object, function, or program: but preferably not amix of these methods.

Presentation by object and function is required by government organizations.

In the United States, FASB No. 117 requires the functional classification ofexpenses, and for certain non-profits, voluntary health and welfare organizations,it requires the additional disclosure of the natural classification of expenses. Forother organizations, FASB only suggests this as desirable disclosure. The naturalclassification of expenses shows expenses by the nature of the expense, forexample salaries, professional fees, interest and so on. This disclosure wouldtypically be presented in a supporting schedule that reconciles to the expensesreported in the statement of operations.

Page 85: Account Non Profit

81

Sta

tem

en

t of O

pe

ratio

ns

Dep

artm

ent o

f Reso

urce D

evelo

pm

ent

Department of Resource Development

Department of Resource Development ■

Statement of Operations For the year ended March 31, 2001(in thousands)

2001 2000Actual

Budget Actual (Restated, Note 12)

Revenue: (Schedules 1 and 2)Non-renewable resource revenue $ 4,048,000 $ 10,585,955 $ 4,681,284

Freehold Mineral Rights Tax 135,000 255,968 133,599

Internal government transfers – – 8,200

Other revenue 1,086 3,562 4,139

4,184,086 10,845,485 4,827,222

Expenses: directly incurred (Note 2b and Schedules 6 and 7) Voted (Schedules 2, 3 and 4)

Ministry support services 2,631 2,965 2,553

Resource development and management 65,761 61,118 61,040

Energy and utilities regulation 16,879 16,879 15,338

Northern development 1,843 1,899 1,307

87,114 82,861 80,238

Valuation Adjustments

Provisions for doubtful accounts 35 185 (70)

Provisions for vacation pay – (29) 30

35 156 (40)

Total expenses 87,149 83,017 80,198

Net operating results $ 4,096,937 $ 10,762,468 $ 4,747,024

The accompanying notes and schedules are part of these financial statements.

Page 86: Account Non Profit

91

Sc

he

du

le o

f Exp

en

se D

irec

tly In

cu

rred

Dep

artm

ent o

f Reso

urce D

evelo

pm

ent

Department of Resource Development

Department of Resource Development ■

Schedule of Expense Directly Incurred - Detailed by Object For the year ended March 31, 2001 (in thousands)

Schedule 3 2001 2000

Budget Actual Actual

Voted:

Salaries, wages and employee benefits $ 33,706 $ 32,143 $31,743

Supplies and services 25,925 21,027 19,560

Grants 23,494 26,365 25,088

Financial transactions and other 71 64 77

Amortization of capital assets 4,558 3,846 4,388

Total voted expenses before recoveries 87,754 83,445 80,856

Less: Recovery from support service arrangements with related parties (640) (584) (618)

Total Voted Expenses $ 87,114 $ 82,861 $ 80,238

The Department provides financial services to Alberta Environment and Alberta Agriculture Food and RuralDevelopment. Costs incurred for these services are recovered from Alberta Environment.

Page 87: Account Non Profit

80

17. Revenue Recognition

Revenue Recognition of Investment, and Sales and Service Revenue

Everything other than contributions is accounted for using for-profit accountingrules

- Interest income over time when earned, royalties when received, dividendswhen declared

- Sales and service revenues when earned- Membership fees over the period of the membership, if there is an

obligation to be fulfilled by the organization- Contract revenue matched proportionately against the expenses, however

the revenues and expenses may be deferred until completion if there aresignificant uncertainties about progress to completion

Contributions

A contribution is a non-reciprocal transfer, and would include grants,contributions of capital assets, materials and services, and the forgiveness of debt

Contributions can be unrestricted or restricted

The donor’s designation can be implicit or explicit

Not required to record contributed materials and services- may record either or both, no option on contributed capital assets- must disclose policy- must otherwise be purchased- amounts must be reasonable estimable- can use note disclosure of volunteer hours etc.

Contributions Receivable must be recorded

- No different than any other receivables.- Pledges are recorded when the organization has been promised the money- Grants are receivable when approved- There should be evidence the pledge or grant existed at year-end and was

approved eg verbal evidence is likely insufficient for audit purposes- There must be assurance of collection to recognize a pledge, through history

or the actual receipt after the year-end, there should also be reasonableassurance regarding the amount to be received, a percentage of amounts to bereceived might be based on past history

Page 88: Account Non Profit

81

Accounting for Unrestricted Contributions

An unrestricted contribution would be recognized as revenue when it is receivedor receivable. This is the case under the deferral and restricted fund methods.

Accounting for Restricted Contributions under the Deferral Method ofAccounting for Contributions

- Under deferral method of accounting for contributions, a restrictedcontribution can only be recognized as “earned” when the organization usesthe contribution on the purpose designated by the donor, the contribution isrecognized when the related expense occurs- Until the expense occurs the amount received is treated as a type of

liability- When the money is received the entry is debit cash, credit deferred

contributions: a balance sheet account, like unearned revenue or accountspayable

Sample Journal Entries, for Canadian Foodgrains Bank on Page 70

Accounting for Restricted Contributions under the Restricted Fund Method

- This method is typically used by Foundations and organizations wantingto separate the accounting for certain activities – Dalhousie Example onPage 72

- When a contribution is received into a restricted fund and not spent, itbecomes part of the ending fund balance- The amount of unspent externally restricted contributions held in a

restricted fund needs to be tracked as there may be internally restrictedtransfers to a restricted fund

- An organization may chose to set up as restricted funds at any time for anypurpose.

- There must be a general fund for the organization’s “general operations.”If a contribution is received and there is no restricted fund set up for it, thecontribution must be accounted for in the general fund which will use thedeferral method of accounting for contributions

- All unrestricted revenues should be recognized in the general fund,including unrestricted sales and service revenues: however externalrestrictions may exist for example by way of gaming license requirements

Page 89: Account Non Profit

82

Sample Journal Entries – Contribution Recognition under the Deferral Method

Someone makes a $1,000,000 contribution to pay for wheat for Afghanistan.

1) On receipt of the donation

DrCr

2) When the expense is recognized

DrCr

Dr Cr

Someone makes a $20,000 contribution to pay the insurance invoice for oneyear’s insurance Sept 30 to Sept 30.

1) On receipt of the donation

DrCr

2) On purchase of the insurance

Dr Cr

2) When the current year’s expense is recognized

DrCr

Dr Cr

Page 90: Account Non Profit

83

Someone makes a $15,000 donation to purchase a tractor for harvestingwheat.

1) On receipt of the donation

DrCr

2) When the asset is purchased

DrCr

Dr Cr

3) As the asset is amortized

DrCr

Dr C r

Page 91: Account Non Profit

84

18. The Statement of Changes in Net Assets and the Statement of Cash Flows

The Statement of Changes in Net Assets:Accounting for Internally Restricted Amounts, and Changes in theInvestment in Capital Assets.

- Graph of the Balance Sheet- We can separate the net asset balance into a number of categories

- Investment in Capital Assets- Externally restricted net assets

- Contributions- Other External Restrictions, eg. Lottery Money

- Internal restrictions- Unrestricted Balances

- We account for the changes in the net asset balance on the statement ofchanges in net assets- Athabasca University example

The Statement of Cash Flows

- details the sources and uses of cash- the indirect or direct method may be used- examples- the direct method may be preferable in that it shows exactly who the money

came from and was distributed to, mirrors the statement of operations- the indirect method may be effective in showing how operations were

financed – through the management of receivables, payables etc, focus is onthe balance sheet

Page 92: Account Non Profit

85

Graph of the Balance Sheet of an NPO

Net Assets plus Deferred Contributions on the Deferral Method= Net Assets or Fund Balances on the Restricted Fund Method

40

60

40

20

20 20

Assets Liabilites and Net Assets

thou

sand

s

unrestricted

internally restricted

invested in capital assets

Net Assets onthe DeferralMethod

DeferredContributions orExternally restrictedfund balances

Liabilities

CapitalAssets

NetAssets orFundBalanceson theRestrictedFundMethod

Page 93: Account Non Profit

Liabilities and Net Assets

Current Liabilities

Accounts payable and accruals $1,834 $1,693

Salaries and benefits payable 4,455 3,755

Deferred revenue (Note 8) 7,682 6,995

Deferred contributions (Note 9) 957 1,639

Due to Joint Venture (Note 4) 398 -

Current portion of obligation under capital lease (Note 10) 47 429

15,373 14,511

Obligations under capital lease (Note 10) 153 200

Unamortized deferred capital and deferred course development contributions (Note 11)

13,878 13,038

Deferred capital contributions (Note 12) 1,261 -

30,665 27,749

Net assets

Investment in capital assets (Note 7) 9,471 8,472

Endowments (Note 13) 1,089 1,089

Internally restricted (Note 14) 4,735 5,763

Unrestricted - 1,274

15,295 16,598

$45,960 $44,347

Page 1 of 1Athabasca University Annual Report 2002 - Statement of Financial Position

11/11/2004http://www.athabascau.ca/report2002/financ.htm

Page 94: Account Non Profit

Annual Report 2001-2002: Statement of Changes in Net Assets For the year ended March 31, 2002 (thousands of dollars)

2002 2001

Investmentin Capital

Assets EndowmentsInternallyRestricted Unrestricted Total Total

Balance, beginning of year $8,472 $1,089 $5,763 $1,274 $16,598 $17,205

Excess of expenses over revenue - - - (1,478) (1,478) (607)

Investment in capital assets 2,345 - - (2,345) - -

Repayment of obligations under capital lease 429 - - (429) - -

Capital contribution for land 175 - - - 175 -

Less amortization of internally funded assets

(1,950) - - 1,950 - -

Interfund transfers - - (1,028) 1,028 - -

Balance, end of year $9,471 $1,089 $4,735 $ - $15,295 $16,598

Page 1 of 1Athabasca University Annual Report 2002 - Statement of changes in Net Assets

11/11/2004http://www.athabascau.ca/report2002/assets_print.htm

Page 95: Account Non Profit

SpringTime Statement of Cash Flows For the Year Ending December 31, 2000

2000 1999

Cash Flows from Operating Activities

Cash received from contributors $ 800 $ 700

Cash received from flower pin sales 200 500

Cash paid to suppliers (500) (550)

Loan interest paid (60) (70)

440 580

Cash Flows from Financing and Investing activities

Contribution for endowment 10,200 -

Purchase of bond (10,200) -

Contribution for debt repayment 100 -

Contribution of desk 200 -

Contributed desk put in service (200) -

Repayment of loan principal (100) (100)

- (100)

Net increase in cash 440 480

Cash at beginning of year 500 20

Cash at end of year $ 940 $ 500

Page 1 of 1Cass Fraser Accounting

11/11/2004http://www.cassfraser.ca/html/gaap/direct_method.html

Page 96: Account Non Profit

REAL ESTATE COUNCIL OF BRITISH COLUMBIA

Statement of Cash FlowsYear Ended June 30, 2004

2004 2003

Cash flows from (used in) operating activities Excess of revenue over expenditures for the year $ 458,003 $ 705,204 Items not involving cash: Amortization 124,410 94,081 Loss (gain) on sale of equipment (10,305) 5,108

572,108 804,393 Change in non-cash working capital Increase in accounts and accrued interest receivable (32,998) (14,622) Decrease (increase) in prepaid expenses (7,264) 477 Increase (decrease) in accounts payable and accrued liabilities 35,716 (33,206)

567,562 757,042

Cash flows from (used in) investing activities Purchase of equipment, net of contributions applied (227,461) (67,728) Sale proceeds of equipment 21,000 595

(206,461) (67,133)

Net increase in cash 361,101 689,909

Cash, beginning of year 2,006,164 1,316,255

Cash, end of year $ 2,367,265 $ 2,006,164

Cash is comprised of: Cash and cash equivalents $ 1,168,450 $ 806,455 Short term investments 1,198,815 1,199,709

$ 2,367,265 $ 2,006,164

Page 97: Account Non Profit

90

19. Accounting Principles Wrap-up: Options Available to NPOs

An accounting change must result in a more appropriate presentation

The First option is whether or not to follow generally accepted accountingprinciples (GAAP).

If you are not seeking an unqualified audit opinion or review engagement reportand you do not feel the readers are going to be well served through the applicationof Canadian GAAP, you may want to prepare your monthly statements or annualstatements on a cash basis or simple accrual basis. I would recommend at least thefollowing:- accrue all payables and receivables to get a better picture of your financial

position- maintain good records of the cost of purchased assets and fair value of

donated assets- account for the use of all externally restricted donations and grants

Otherwise See Chart for GAAP

Page 98: Account Non Profit

91

The OptionsPro’s and Cons

Restricted Fund Method

Pros Cons

A good way to separate the revenuesand expenses, and ending surplusesof given activities or cost centres

An easy method of trackingexternally restricted contributions

Revenue recognition rules are easy tounderstand

Net Assets – Fund Balancesrepresent the assets available forfuture operations

Statements are “bigger,” and it maybe more difficult to capture thewhole picture

It is not possible to add funds acrossthe statement of operations, andtherefore total revenues and expensescannot be shown on a line by linebasis

Requires accounting staff to have aknowledge of fund accounting

Deferral Method

Pros Cons

Can present a single columnstatement of operations andstatement of financial position

Revenue recognition may be moreappropriate for not-for-profits with a“net-income” focus

The most widely used method inCanada

More complicated revenuerecognition rules

Revenue recognition follows “forprofit” model

Results in a net asset balance on thestatement of financial position that isnot representative of the ability toprovide future services

Page 99: Account Non Profit

92

The OptionsPro’s and Cons

Capitalizing AssetsOrganizations with Gross Revenues < $500,000

Pros Cons

May need to capitalize assets in thefuture once revenues exceed$500,000

A better representation of the trueservice potential on the statement offinancial position

Encourages more accuraterecordkeeping for capital assets andpossibly better control over assets

Requires more complex accounting,in terms of recording depreciationand the amortization of deferredcapital contributions

Accurate historical records may notbe available

Organizations with significant realestate may be showing undervaluedassets

Recording Contributed Materials and Services

Pros ConsShows a more complete picture ofthe resources received and used

Establishing the value of resourcesrequired may help in planning,especially if these resources mayneed to be purchased in the future

Provides more donor recognitionwith respect to the value ofcontributed materials and services

Requires valuations to be made.This may be time consuming andpossibly impractical.

Disclosure of amounts subject tosignificant uncertainty is appropriateonly in the notes