ACC 5070 Module 6 Final Project Part 1: A Nonprofit Museum's Statements Example

Raritan River Maritime Museum: A Transaction Worksheet and Four Statements Under the Net Asset Model

Student Name

Master of Science in Accounting, Thomas Edison State University

ACC-5070: Government and Not-for-Profit Organization Accounting

Mentor Name

Month Day, Year

Raritan River Maritime Museum: A Transaction Worksheet and Four Statements Under the Net Asset Model

Introduction

Private not-for-profit organizations report under FASB standards that classify net assets by donor restrictions: net assets without donor restrictions and net assets with donor restrictions (Financial Accounting Standards Board [FASB], 2016). Contributions are recognized when an unconditional promise is made, conditional promises when their conditions are met, and expenses are reported by function. Reck et al. (2020) emphasize that the statement of activities must show the release of restrictions as resources are used for their intended purposes. This project applies those rules to one museum's fiscal year ended June 30, 2026.

Beginning Balances, July 1, 2025

The museum began the year with cash of $180,000, prepaid expenses of $10,000, investments of $600,000, including a $400,000 donor endowment that must be held permanently and $200,000 the board set aside, property and equipment of $1,200,000 net and accounts payable of $40,000. Net assets were $1,550,000 without donor restrictions, including the board-designated $200,000, and $400,000 with donor restrictions.

Transactions for the Year

1. Admissions, memberships and gift shop margin produced $600,000 of cash.

2. A family foundation made an unconditional written pledge of $300,000 for a new steamboat exhibit, payable within the year; $120,000 was collected.

3. Exhibit construction costs of $210,000 were paid.

4. The state arts council paid $150,000 in advance, conditional on presenting twelve school programs; eight were held by June 30.

5. Salaries of $520,000 were paid: $360,000 program, $100,000 management and general and $60,000 fundraising.

6. Other operating costs of $140,000 were incurred and $150,000 paid, reducing accounts payable by $10,000: $80,000 program, $40,000 management and general and $20,000 fundraising.

7. Depreciation was $60,000: $48,000 program and $12,000 management and general.

8. The endowment earned $20,000 of dividends, received in cash, and $12,000 of unrealized gains; the donor restricted the income to education programs, and $25,000 was spent on education programs within program salaries. Board-designated investments gained $10,000 in value.

9. A volunteer naval architect donated exhibit design services worth $15,000, which require specialized skills the museum would otherwise purchase.

10. Display cases costing $45,000 were bought for cash.

Transaction Worksheet

The conditional grant is recognized only to the extent the barrier, presenting the programs, has been overcome: eight of twelve, or $100,000. The remaining $50,000 is a refundable advance, a liability, until the last four programs are held (FASB, 2018). Because the condition and the purpose were met in the same period, the recognized portion is reported without donor restrictions.

Statement of Activities

Program expenses of $713,000 combine program salaries, program operating costs, program depreciation, the exhibit costs and the donated design services. Program services take 75 percent of total expenses.

Statement of Financial Position, June 30, 2026

Net assets with donor restrictions consist of the $400,000 permanent endowment, $90,000 of the exhibit pledge not yet spent and $7,000 of endowment income not yet used for education.

Statement of Cash Flows

Reconciliation: the $112,000 change in net assets, plus $60,000 of depreciation, less $22,000 of unrealized gains, less the $180,000 increase in pledges receivable, plus the $50,000 refundable advance, less the $10,000 decrease in accounts payable, equals $10,000 of operating cash flow. The exhibit pledge is purpose-restricted for an operating activity, so its collection is operating; a gift restricted to buying a long-lived asset or to the permanent endowment would be a financing inflow.

Why the Presentation Matters to Donors

Donors and evaluators look closely at how a nonprofit divides its spending. Tinkelman and Mankaney (2007) found that donations responded to administrative efficiency mainly for organizations where the reported ratios were reliable, and Krishnan et al. (2006) found that some nonprofits misreported fundraising and administrative costs to look more efficient. Accurate functional allocation, such as splitting the museum's salaries and depreciation among program, management and fundraising, is therefore an accounting judgment with consequences for future gifts.

References

Financial Accounting Standards Board. (2016). Not-for-profit entities (Topic 958): Presentation of financial statements of not-for-profit entities (Accounting Standards Update No. 2016-14).

Financial Accounting Standards Board. (2018). Not-for-profit entities (Topic 958): Clarifying the scope and the accounting guidance for contributions received and contributions made (Accounting Standards Update No. 2018-08).

Krishnan, R., Yetman, M. H., & Yetman, R. J. (2006). Expense misreporting in nonprofit organizations. The Accounting Review, 81(2), 399-420. https://doi.org/10.2308/accr.2006.81.2.399

Reck, J. L., Lowensohn, S. L., & Wilson, E. R. (2020). Accounting for governmental and nonprofit entities (19th ed.). McGraw-Hill Education.

Tinkelman, D., & Mankaney, K. (2007). When is administrative efficiency associated with charitable donations? Nonprofit and Voluntary Sector Quarterly, 36(1), 41-64. https://doi.org/10.1177/0899764006293176