Video: Introduction to the Statement of Financial Position

In this lesson, explore the Statement of Financial Position—a keystone financial statement with particular nuances in the not-for-profit sector. Nick Palazzolo, CPA, demystifies the elements that make this statement akin to a traditional balance sheet but with distinct differences, focusing on net assets as a core concept. He delves into the critical importance of classification, elucidating how contributions can be with or without donor restrictions and what that means for a not-for-profit's financial reporting. Nick also clarifies the misunderstanding around board-imposed restrictions versus donor-imposed ones and navigates through the dynamics of operating revenues, gains, and expenses. Furthermore, he breaks down the process of how net assets are released from restrictions, drawing parallels to the principles of revenue recognition in a vivid and approachable manner.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now we see the statement of financial position. And based on the name, this is going to allude itself, most similarly to our balance sheet, although you will see plenty of differences. Statement of financial position, what is your financial position? In a point in time, we can always say it's 12/31 because we have revenues, we have expenses. That's why it's a little bit different here.

But the financial position is net assets, right? Like we're talking about net assets. That's the whole point is what are our net assets? What is essentially our equity? And I'll go through this in a second.

But the main point you see here and the main thing we'll see throughout not-for-profit is classification. Classification all the way, all day, every day is the donation or the contribution without donor restrictions or with donor restrictions. Now simply put, we've got some wealthy individual gives a million dollars to a hospital and says do with it what you will. That would be classified without donor restrictions. If the wealthy individual donates a million dollars to the hospital and says build a new, buy a new machine, build a new ward, hire new people, those are with donor restrictions.

Okay, great. Now what about if the board of directors of the not-for-profit says we are going to take this money and build a new building in the hospital? Well, those would still be without donor restrictions. And that's a super common trick they will try to throw on you is they'll say, oh, the board restricted it to use for this and they made sure to say it should only be used for that. Who cares about the board of directors? It's all about the donor. We don't care about what the board of directors says. All right,

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Financial Statements: Nongovernmental, Not-for-profit Entities

Module: 2 Concepts, 27 Videos

Non-For-Profit: Statement of Financial Position Overview and Objectives

1:47

Review of Non-For-Profit Entities

2:35

Introduction to the Statement of Financial Position

2:32

Examples of Non-For-Profit Organizations