AMAE 3305 quiz 1 guide PDF

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Study Guide for Quiz 1 AMAE 3305...

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AMAE 3305: BUDGETING AND FINANCIAL LITERACY IN THE ARTS QUIZ #1 Review – Chapters 1-4, 8-9 and class notes 1. Know the difference between an employee and an independent contractor, the difference between exempt and nonexempt employees, and who gets paid overtime if they work > 40 hours per week. Independent contractor has multiple jobs/gigs; may have irregular hours, works off-site; employee is trained, has supervisor, typically works on site. Contractor pays both employee and employers taxes exempt/non-exempt - most workers are non exempt - salaried. Non exempt get paid overtime (1.5 pay if over 40 hours). Exempt are exempt from overtime 2. Responsibilities of the Treasurer/CFO of an organization: a.Complying with federal and state reporting and regulatory requirements b.Preparing and implementing a budget and anticipating financial problems c. Safeguarding assets and providing effective internal controls d. Communicating with executive management and the Board of Directors 3. A Treasurer / CFO is responsible for preparing accurate and meaningful financial statements. A good test to evaluat whether this objective is met is the “nonaccountant” test. 4. A nonprofit organization is allowed and encouraged to have a net profit (“increase in net assets”) at end of year. 5.

A nonprofit may be required to be consolidated with related organizations.

6. Board members and management may be personally liable for unpaid payroll taxes if a nonprofit employee is incorrectly treated as an independent contractor. 7.

A stringent gift policy makes good business sense for a nonprofit - avoid extra costs or liabilities.

8. Cash basis accounting - similar to keeping a checkbook, records cash inflows and outflows only - smaller otgs. NO receivables or payables.. 9. Accrual basis accounting - Provides a more accurate financial picture with respect to payables and receivables, is usually used in medium- to large- sized organizations, conforms to GAAP (Generally Accepted Accounting Principles), & can be achieved by adjusting cash-basis financial statements to accrual-basis statements. May include non-cash items like depreciation or amortization, accounts payable and accounts receivable. 10. Indications of nonprofit organization: terms such as “Pledges receivable” or “contributions receivable” on the Statement of Financial Position, and terms such as “contributions”, “grants” or “unearned income” or “fundraising expenses” on the Statement of Activity. Only nonprofits receive donations. 11. Indications of for-profit organization: no indication of any contributions, donations, pledges, grants or gifts. 12. Indications of accrual basis accounting: includes receivables and payables, may include depreciation or Amortization, accruals or deferrals (non-cash entries).

13. Indications of cash basis accounting: no receivables or payables, only cash transactions recorded. 14. Arts organizations are businesses. If it cannot pay its expenses, it cannot survive to produce the art. 15. Internal financial reporting (for management use) vs. external financial reporting (required by outside organizations).

INTERNAL REPORTING – Reporting for management’s internal use for the purpose of monitoring and managing the financial operations of the organization. Format may be flexible, depending on management’s needs. EXTERNAL REPORTING – Required financial reporting such as annual audited financial statements, IRS tax reporting (Form 990, 990-T, Form 5500 etc.) May be required by governmental authorities, bankers, granting organizations , donors, and others. Generally must follow GAAP (Generally Accepted Accounting Principles).

16. Recognize for-profit vs. nonprofit financial statements (pledges, contributions, fundraising indicate nonprofit)

17. Cash vs. accrual basis accounting (receivables, payables, accruals or deferrals indicate accrual basis) 18. Recording “bargain” rent expense – record at FMV - fair market value. Charged way less, record rent FMV, cash recorded and the difference is an in kind contribution 19. 2 types of restrictions on contributions – time & purpose

If a seller allows a nonprofit to purchase goods or services at a reduced price not available to for-profit organizations, the nonprofit must record the difference in selling price as a contribution. Example: bargain rent.

20. Recording restricted contributions initially and once the restrictions are satisfied – initially record in tempora Restricted (income in full in year received). When restrictions are satisfied, move to unrestricted contribution Revenue. **the portion spent on its restricted

purpose is deducted from temporarily restricted contributions and added to unrestricted contributions with a description of “Net Assets Released from Restrictions.” 21. Recording In-Kind gifts of assets - FMV (fair market value)

RECORD In-Kind Gifts of Assets as both Contribution Revenue AND as the appropriate Expense IF it is legitimate business expense that you budgeted and the nonprofit business would have been required to purch the items had they not been donated as In-Kind gifts.

22. Recording In-Kind gifts of services – review rules to see if it meets requirements to record or not record

contributed services of volunteers MUST be recorded as contribution revenue (& the related expense) in the financial statements if EITHER of the following 2 criteria are met:

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The services create or enhance nonfinancial assets (building sets or costumes, constructing building improvements, writing computer programs for the company’s use, etc.) Services: require specialized skills (dr, lawyer, CPA, etc); are provided by people with these skills; Would typically have to be purchased if not donated

23. Contra-asset accounts, including “allowance for doubtful accounts” and accumulated depreciation (reduce value of fixed assets) – know what Assets they reduce. Based on historical collections… Pledges receivable, allowance for doubtful accounts, net assets 24. Recording conditional pledges – when the donor's stipulated condition is met!! Recorded as revenue upon receipt of gift/unconditional pledge… Record unconditional pledge as an asset (pledges receivable) at the time pledge is received/when condition is met (if collectible and material) 25. Recording Quasi-endowments – restricted by Board (not donor), so record in unrestricted net asset class. 26. Required substantiation rules for a donor’s tax deduction for noncash gifts

Gifts (other than cash or marketable securities) are generally recorded at their FMV. Use an appraisal or resale price if FMV is difficult to assess.  Exception - museum collection objects  Nonprofit organization should NOT assume the role of appraiser or assign a value for the donor to use to support a tax deduction. That is the donor’s responsibility – between the donor and the IRS. Noncash gifts > $500 : donor must complete & attach IRS Form 8283 & attach to his or her tax return. • Noncash gifts > $5,000 : donee (nonprofit org.) must sign the form, acknowledging receipt of item but not value. • If donee sells item within 2 years, donor must notify IRS on Form 8282. (Make sure your donor knows these rules.) 

27. Donor’s tax deduction for special events “Special events” - events have direct donor benefits but are fundraisers for the organization. Ex. gala dinner

If the attendee could have purchased a comparable dinner for $100, then the attendee is allowed to deduct $400 as a charitable contribution – “fair value received.” The company would report $400 per person as a charitable contribution and $100 per person as proceeds from special fundraising events to the IRS on its Form 990. **Only the portion of their payment in excess of benefits received is tax deductible for the donor.

28. Recording fundraising expenses Report when incurred. record all fundraising expenses when incurred.

Fundraising Expenses – expenses incurred to induce donors to contribute to an organization. Must be reported separately in the financial statements of organizations that solicit gifts from the general public. (Nonprofits) 29. Recording joint costs

“Joint costs” are costs that benefit more than one function. Example: A 10-page brochure, describing the company’s season and encouraging subscription purchases, includes one page at the back which encourages contributions and details benefits given at various giving levels and specific instructions for donating. Requires “call to action” other than soliciting contributions (relates to mission), and the reasonable be that the target audience has a legitimate interest in the non-fundraising component. If these are met, a reasonable allocation would be 90% program/marketing and 10% fundraising. (Avoid “hiding” fundraising costs.) Apply to printing, envelopes, postage costs, etc.

30. 501(c)(3) Public Charities vs. Private Foundations

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Public Charity status is much more favorable for both the public charity and its donors. *more tax advantages Private Foundation status places onerous constraints on the charity and limits amount of donor deductions allowed in some cases. All money from investment income Know what your org is. Be sure your donors know too. Seek professional tax help to ensure you don't jeopardize your organization’s Public charity status...