Appendix - Glossary of Terms

To provide a framework for financial reports of nonprofit organizations, FASB developed a Statement of Financial Accounting Concepts (SFAC) No. 6, "Elements of Financial Statements" in which it defined appropriate elements for use. These elements and their definitions are quoted below:

Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entities to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Equity or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities.

Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.

Losses are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from expenses or distributions to owners.

SFAC No.6 breaks the element net assets" into three categories whose characteristics are determined by the presence or absence of donor-imposed restrictions. These are quoted below:

Permanently restricted net assets is the part of net assets of a nonprofit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization, 9b) from other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) from reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations.

Temporarily restricted net assets is the part of net assets of a nonprofit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization pursuant to those stipulations, 9b) from other asset enhancements and diminishments subject to the same kinds of stipulations, and 9c) from reclassifications to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or fulfillment and removal by actions of the organization pursuant to those stipulations.

Unrestricted net assets is the part of net assets of a nonprofit organization that is neither permanently restricted nor temporarily restricted by donor-imposed stipulations-that is, the part of net assets resulting (a) from all revenues, expenses, gains, and losses that are not changes I permanently or temporarily restricted net assets and 9b) from reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the organization pursuant to these stipulations. The only limits on unrestricted net assets are broad limits resulting from the nature of the organization and the purposes specified in its articles of incorporation (or comparable document for an unincorporated association) or bylaws and perhaps limits resulting fro contractual agreements-for example, loan covenants-entered into by the organization in the course of its operations.

 
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