The 501 S(c)ene

The latest view on not-for-profit accounting issues

Liquidity and availability

As you are probably aware by now, Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities – Presentation of Financial Statements of Not-for-Profit Entities is in full effect as it was effective for fiscal years beginning after December 15, 2017. Many of you should have implemented this new accounting standard by now and should have already seen the changes that it brought about to your financial statements. This ASU affects the presentation of the financial statements only, it does not have an effect on how transactions are recorded or recognized.

Background

One of the more significant changes brought about to Not-for-Profit financial statements is a completely new footnote for liquidity and availability. The purpose of this new footnote is to provide more transparency to the financial statement users. The liquidity and availability footnote has two parts; a qualitative information disclosure and a quantitative calculation disclosure.

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Qualitative Disclosure

The qualitative disclosure part of the footnote provides information to the financial statements on how the entity manages its liquid resources available to meet cash needs for general expenditures within the next year. What do we mean by liquid assets? Liquid assets refer to cash or any other asset that can easily be converted to cash at or near its market value such as accounts receivable expected to be collected within one year or level 1 investments.

Quantitative Disclosure

The quantitative disclosure part of the footnote includes shows a calculation of the total financial assets held by the entity at year-end and the amounts of those financial assets that could readily be made available within one year of the balance sheet date to meet general expenditures obligations. The following is an example:

  Cash and cash equivalents $1,000,000
  Accounts receivable, net      500,000
  Investments   1,500,000
Total financial assets   3,000,000
Less amounts not available to use within one year
  Investments in non-liquid securities   (250,000)
Financial assets available for general expenditures $2,500,000

You must include the qualitative and quantitative disclosures in the liquidity and availability footnote, but you may present this in a number of different ways, so please consult your accountant if you have any questions.

 

Steven Taylor