Statement of Financial Position (2)

The statement of financial position should reflect assets and liabilities in reasonably homogeneous groups. However, if cash or other assets have donor-imposed restrictions limiting their use to long-term purposes, they should not be grouped with similar assets available for current use.

Information about liquidity may be presented by one of the following methods:

1. Sequencing assets according to their nearness of conversion to cash, and liabilities according to the nearness of their maturity and resulting use of cash on the statement of financial position

2. Classifying assets and liabilities on the statement of financial position as current and noncurrent

The concept of classifying assets and liabilities as current or noncurrent is slightly different for not-for-profit organizations than for commercial organizations. SFAS 117 instructs the financial statement preparer to look to the guidance of Chapter 3A of Accounting Research Bulletin 43, Restatement and Revision of Accounting Research Bulletins, (ARB 43) which covers the classification of current assets and liabilities. Commercial organizations are used to applying the criteria of ARB 43 in evaluating current assets as those that will be turned into cash to satisfy liabilities within one year, or the organization’s operating cycle, whichever is longer. Current liabilities are those liabilities that are expected to be satisfied with current assets.

While some not-for-profit organizations have an operating cycle (a college or university with a finite academic calendar is a good example), others (such as a homeless shelter) really do not.

Classification of current assets and liabilities for not-for-profit organizations should focus on liquidity. For the vast majority of not-for-profit organizations, even ones with clearly defined operating cycles, the one-year time period seems reasonable.

Taken From : Wiley Not-for-Profit Accounting Field Guide 2003

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