Cash received by a nongovernmental not-for-profit in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an "increase in temporarily restricted net assets" in year 1 and as "net assets released from restrictions" in year 2.

Question

Quizplus · Accepted Answer

When cash is received with donor-imposed restrictions, it is usually recognized as an increase in temporarily restricted net assets in the year of receipt. When the related expenses are recognized in the following year, the restrictions are released, and the net assets are reclassified out of the temporarily restricted category into unrestricted net assets. Therefore, the cash received in year 1 should be recognized as an increase in temporarily restricted net assets, and the net assets are released from restrictions in year 2.

Cash Received by a Nongovernmental Not-For-Profit in Year 1 That