When can we recognise the revenues?

[NPH]

We are a nonprofit housing organization. We have a loan servicing agreement with State of California in the amount of $3,000,000 in 2005, but we received this funds in 2006. We use this to loan to the low income homebuyers in the amount of $2,500,000 in 2007. The agreement indicates this is a grant, not a loan.

When can we recognise the revenues? How much can we recognize as revenues now?

[BOB W]

Exempt Organization, from an accounting view, is a "Source and Application" of funds. So it is just shown as " Grants" on the appropiate income line when received. So I don't understand your question.

Let me end by saying I'm not an expert on exempt organization.

[NPH]

State government gave us the grant, then we use the grant as a loan to loan to low income homebuyers.

We will loan the rest of the money to the low income homebuyers by the end of the November.

Each year, our revenues are about $2,000,000 and expenses are also about $2,000,000 from 1998 to 2007. With all kind of "fake" grants, our revenues are 18,000,000 this year.
Our Net Profit is about $15,500,000 this year, but our cash balance (operating) is about 3,000 by the end of November.

Should we file the chapter 13 (bankcrupcy) when we have $15.5 millon profit this year?

[Golden Rocket]

Fake Grants?

NPH, you have obscured any hope of getting an answer (at least from me) with mention of these "fake" grants of $18MM. Did you get the money or not? If you received the money and it is now gone (such as a pass-through), then you could not possibly have $15MM profit.

Not-for-profit accounting does recognize prepayments and deferrals. If the money came from CA with no strings attached (a "grant" in the purest sense of the word), this would be revenue. If the terms indicate a special use, then the $3MM becomes subsidiary fund until it is gone. The "subsidiary" fund is similar to appropriated retained earnings in conventional accounting. This would also be true if the charter of the organization places an obligation to "fence" the money.

The "strings attached" can come from either the donor or the operating intent of the organization. If there are no strings attached at all, it would be pure revenue, unrestricted.

[BOB W]

Loan to low income buyers??? If you are loaning the grant money, you will eventually get it back?????

[NPH]

Thank you so much, Golden Rocket and Bob W.

Subsidiary fund is a balance sheet account? Is it in the liability section or retained earnings section? How to name it in the balance sheet?

Do we have to record the $3,000,000 in the income statement?

[joanmcq]

Restricted funds are part of equity. the $3,000,000 is income in the form of grants.

Nonprofit accounting is quite specialized. If you don't have any experience with it, you may want to engage someone who does to teach you the fundementals of fund accounting, as well as how it relates to the 990.

[JohnH]

This looks odd to me

The construction of the questions and the hints about "fake" grants cause me to ask a lot of questions about the intentions underlying these posts. I'd be very cautious about providing any answers of any kind to these questions, other than they need to consult a local tax pro.

[NPH]

Don't worry. You don't need to take any responsibilities.

reason:
I understand some accounting. I always doubt the financials from auditor and accountant. I want to make sure our financials are correct.

[NPH]

to golden rocket

we have received the funds in 2006.

as per my understanding: Not-for-profit accounting does recognize prepayments and deferrals.

It means we can recognize the prepayments as revenues?

[Golden Rocket]

Microcosm

A subsidiary fund is a microcosm of the entire fund. The total fund balance for the entity is the sum total of these subsidiary funds, plus the "general" fund represented by the entity itself.

Your government agency entity uses fund accounting, which is a highly specialized form of accounting quite divergent from conventional accounting. You do not use conventional terminology such as "profit" or "loss" but more cash-sensitive terms such as "excess" or "deficit." There are other broad differences as well, such as recording an expense when an expenditure is legally committed, rather than when it is actually spent.

Your entity, for example, may consist of a half-dozen functions/purposes. Each of these can have its own revenue, expenses, and fund balances. This is ideal for what we call "fenced" money, where receipts must be dedicated to a particular function or purpose, and the related expenses are spent from those receipts. This "subsidiary" concept also blends in quite nicely for non-profit entities when filing the 990.

This is about all I can provide, unfortunately, without having more hands-on knowledge of what you are dealing with. I'm not worried about being sued, but John H is correct that you need to consult help in your area.

[NPH]

I'd say I completely understand now. Thanks to golden rocket and all of you.

This board is so great !!