FAR, Financial Accounting and Reporting

Sources for Not-for-Profit Financial Statements

Last reviewed 2026-09-14

The standards and authorities behind PocketCPA's FAR lessons on Not-for-Profit Financial Statements. The topic rests on ASC 958.

About this topic

A not-for-profit entity exists to carry out a mission rather than to earn a profit for owners. Its financial statements are built around that difference.

Not-for-profit entities (NFPs) such as charities, foundations, universities, hospitals, and religious organizations follow the same underlying GAAP as businesses. ASC 958 layers on a specialized model, built around stewardship of resources entrusted by donors rather than profit for owners.

Key points

• Not-for-profit entities report net assets in two classes: without donor restrictions and with donor restrictions.
• A contribution is conditional when it includes both a barrier and a right of return; revenue is not recognized until the condition is met.
• Donor restrictions are released when the purpose or time restriction is satisfied, reclassifying the amount from with to without restrictions.
• Contributed services are recognized only when they create or enhance a nonfinancial asset, or require specialized skills and would otherwise be purchased.

What the lessons cover

1. The financial statements an NFP presents (ASC 958-205-45-4)
2. The two net asset classes (ASC 958-210-45-1)
3. Contributions: the engine of NFP revenue (ASC 958-605-15-5A)
4. Conditional versus unconditional (ASC 958-605-25-5A)
5. Restricted contributions and the release of restrictions (ASC 958-605-45)
6. Contributed services and nonfinancial assets (ASC 958-605-25-16)
7. Required disclosures, related entities, and split-interest agreements (ASC 958-210-50-1A)

Authoritative references

Where these requirements sit in the literature.

• ASC 958-210-45-1 requires the statement of financial position to report total assets, total liabilities, total net assets, total net assets with donor restrictions, and total net assets without donor restrictions.
• ASC 958-205-45-4 defines the complete set: a statement of financial position at period end, a statement of activities and a statement of cash flows for the period, and the accompanying notes.
• ASC 958-205-45-12 provides that, unless donor stipulations limit use for a period of time or a particular purpose, restrictions on long-lived assets and on cash to acquire or construct them are considered to have expired when the assets are placed in service. ASC 958-360-45-1A names the two populations reclassified at that moment and requires the entire amount to be reclassified then.
• ASC 958-205-45-13H requires that where a donor-restricted endowment fund is underwater, the accumulated losses be included together with that fund in net assets with donor restrictions. ASC 958-205-50-2 requires the aggregate fair value, the original gift level required to be maintained, and the deficiency.
• ASC 958-605-15-5A governs whether a transfer is an exchange or a contribution, and it forecloses two arguments about that determination.
  • The identity of the provider is not evidence. The type of resource provider does not factor into the determination.
  • Public benefit is not commensurate value. A benefit to the general public is not commensurate value to the provider.
• ASC 958-605-25-5A requires a donor-imposed condition to have both a barrier and a right of return or release. Four paragraphs work out what that means in practice.
  • What counts as a barrier. ASC 958-605-25-5D supplies the table of barrier indicators.
  • Probability is not part of the test. ASC 958-605-25-5C states that probability is not a factor.
  • Ambiguity is resolved against recognition. ASC 958-605-25-5E presumes ambiguous stipulations conditional.
  • Where the cash sits meanwhile. ASC 958-605-25-5F requires a refundable advance until the condition is substantially met or explicitly waived.
• ASC 958-605-25-11 recognizes a conditional promise to give when the conditions are substantially met, and uses a matching requirement as its illustration of a barrier.
• ASC 958-605-25-16 limits recognition of contributed services to those that create or enhance a nonfinancial asset or that require specialized skills possessed by the donor and would otherwise be purchased. ASC 958-605-50-1B requires disclosure of contributed services whether or not they were recognized.
• ASC 958-605-45-7A and ASC 958-205-45-36 require contributed nonfinancial assets to be presented as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. ASC 958-605-50-1A carries the by-category disclosures, with the principal-market disclosure required only where a donor restriction prohibits selling or using the assets in that market.
• ASC 958-605-25-24 makes a recipient that must transfer assets to a specified beneficiary not a donee, requiring it to recognize a liability rather than revenue. There are two exceptions, and each has its own paragraph.
  • Variance power. ASC 958-605-25-25 excepts a recipient that holds the power to redirect the assets.
  • Financially interrelated entities. ASC 958-605-25-27 excepts a recipient and beneficiary that are financially interrelated.
• ASC 958-20-45-1 requires a recipient entity to report an equity transaction as a separate line item in its statement of activities. Two neighboring paragraphs extend that treatment.
  • The provider side. ASC 958-20-45-2 imposes the same on a resource provider that specifies an affiliate as beneficiary.
  • The beneficiary side. ASC 958-20-25-2 requires a beneficiary to recognize its interest in a financially interrelated recipient's net assets.
• ASC 958-30-25-2 requires revocable split-interest agreements to be accounted for as intentions to give, with assets received offset by a liability and no contribution revenue.
• ASC 958-30-45-2 classifies the contribution portion of a charitable gift annuity as support without donor restrictions where the assets are held among the NFP's general assets and available for its general use. Two later paragraphs carry the movement after that first classification.
  • Changes during the term. ASC 958-30-45-3 classifies changes in value during the term in the same class as the original contribution.
  • Distributions as they arrive. ASC 958-30-45-4 reclassifies amounts to net assets without donor restrictions as distributions are received.
• ASC 958-30-45-6 requires assets and liabilities recognized under split-interest agreements to be reported separately from other assets and liabilities in the statement of financial position, unless they are disclosed in the related notes. A charitable gift annuity is a split-interest agreement, so it cannot be both buried in a total and left out of the notes.
  • What the notes must say. ASC 958-30-50-1 lists the note disclosures.
  • What the assets are carried at. ASC 958-30-35-4 measures the invested assets at fair value.
• ASC 958-210-50-1A requires the qualitative liquidity disclosure and the quantitative availability disclosure, and names donor, legal, contractual, and governing board limits as things that can make a financial asset unavailable.
• ASC 958-720-45-15 requires all NFPs to report information about all expenses in one location, disaggregating functional classifications by natural classification. Two further paragraphs govern how the numbers get there.
  • What leaves management and general. ASC 958-720-45-2A requires allocation out of management and general for direct conduct or direct supervision of other activities.
  • What the notes must describe. ASC 958-720-50-1(d) requires the notes to describe the methods used to allocate costs among program and support functions.
• ASC 958-10-65-3 defines a collection by three criteria, all of which must hold.
  • Purpose. The items are held for a public-service rather than financial-gain purpose.
  • Care. The items are subject to protection and preservation.
  • Proceeds. A policy governs the use of proceeds from items sold.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.

See also

• Sources for every FAR topic
• Free FAR sample questions
• The CPA exam glossary