Study guide
6.4 Not-for-Profit Reporting Basics
Uniform CPA Examination Exam
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1 Chapter 1: CPA Exam Structure and Licensure Rules
1.1 CPA Evolution Model 1.2 Eligibility, Credit Window, and Scheduling Rules 1.3 Scoring, Pass Rates, and Blueprints
2 Chapter 2: CPA Scoring, Interface, and Exam Strategy
Score Scale and Testlets MCQ/TBS Weighting by Section Sample Test Interface Tools Exam-Day Time Management
3 Chapter 3: AUD Ethics, Independence, and Engagement Acceptance
3.1 Professional Responsibilities and Independence 3.2 Engagement Acceptance and Continuance 3.3 Audit Documentation and Quality Management 3.4 Audit Risk Foundations
4 Chapter 4: AUD Risk Assessment, Controls, and Evidence
4.1 Assertions and Risk Assessment 4.2 Internal Control Design and Operating Effectiveness 4.3 Substantive Procedures and Audit Evidence 4.4 Sampling, Analytics, and Estimates
5 Chapter 21: AUD Sampling, Analytics, and Accounting Estimates
21.1 Audit Sampling Risk and Sample Design 21.2 Substantive Analytical Procedures 21.3 Estimates, Fair Value, and Specialists 21.4 Data Analytics, Exceptions, and Follow-Up
6 Chapter 22: AUD Integrated Audits, IT Controls, and SOC Reliance
22.1 ICFR Integrated Audit Framework 22.2 IT General Controls and Application Controls 22.3 Service Organizations, SOC Reports, and CUECs 22.4 Control Deficiencies and Material Weaknesses
7 Chapter 5: AUD Reporting, Attestation, and Review Engagements
5.1 Audit Opinions and Modifications 5.2 Emphasis, Other Matter, and Going Concern 5.3 Review, Compilation, and Preparation Engagements 5.4 Attestation and Government Auditing Signals
8 Chapter 36: AUD Workbook - From Risk to Report
36.1 Risk-Assertion-Procedure Drill 36.2 Evidence Reliability Drill 36.3 Control Deficiency Classification Drill 36.4 Report Modification Decision Drill
9 Chapter 6: FAR Financial Statements and Reporting Framework
6.1 Conceptual Framework and Standard Setting 6.2 Financial Statement Presentation 6.3 Cash Flow Statement and Disclosures 6.4 Not-for-Profit Reporting Basics
10 Chapter 7: FAR Balance Sheet Accounts and Rollforwards
7.1 Cash, Receivables, and Reconciliations 7.2 Inventory and Cost Flow Errors 7.3 Property, Equipment, and Intangibles 7.4 Debt, Equity, and Contingencies
11 Chapter 8: FAR Selected Transactions and Measurement Models
8.1 Revenue Recognition: Five-Step Model 8.2 Leases, Income Taxes, and Impairment 8.3 Business Combinations and Consolidations 8.4 Accounting Changes, Errors, and Subsequent Events
12 Chapter 32: FAR Revenue, Leases, and Income Taxes Deep Dive
32.1 Revenue Contract Modifications and Variable Consideration 32.2 Lease Classification and Lessee Accounting 32.3 Deferred Tax Assets, Liabilities, and Valuation Allowances 32.4 Simulation Workflows for Revenue, Lease, and Tax Exhibits
13 Chapter 31: FAR Financial Instruments, Fair Value, and Derivatives
31.1 Financial Asset Classification and Measurement 31.2 Fair Value Hierarchy and Disclosures 31.3 Derivatives, Hedge Accounting, and Embedded Features 31.4 Foreign Currency and Comprehensive Income Signals
14 Chapter 24: FAR Consolidations, Equity Method, and Intercompany Workpapers
24.1 Consolidation Decision and Noncontrolling Interest 24.2 Acquisition-Date Measurement and Goodwill 24.3 Equity Method Income, Dividends, and Impairment 24.4 Intercompany Inventory, Debt, and Fixed Asset Eliminations
15 Chapter 9: FAR Governmental Accounting and Fund Reporting
9.1 Governmental Fund Types and Basis 9.2 Government-Wide Statements and Reconciliations 9.3 Budgetary Accounting and Encumbrances 9.4 Governmental and NFP Comparison Traps
16 Chapter 23: FAR Not-for-Profit and Special Reporting Topics
23.1 Not-for-Profit Net Assets and Restrictions 23.2 Contributions, Conditional Gifts, and Agency Transactions 23.3 Functional Expenses and Statement Presentation 23.4 Interim, Segment, and EPS Reporting Traps
17 Chapter 37: FAR Workbook - Journal Entries, Rollforwards, and Reconciliations
Adjusting Entry Workflow Account Rollforward Workflow Reconciliation and Error Correction Drill Statement Presentation Workpaper Drill
18 Chapter 10: REG Tax Procedure, Ethics, and Business Law
10.1 Tax Practice Ethics and Preparer Responsibilities 10.2 IRS Procedure, Statutes, and Penalties 10.3 Contracts, Agency, and Business Entities 10.4 Secured Transactions, Bankruptcy, and Priority
19 Chapter 11: REG Individual Federal Tax Workflows
11.1 Gross Income, Exclusions, and Adjustments 11.2 Filing Status, Dependents, and Deductions 11.3 Credits, Payments, and AMT Concepts 11.4 Retirement, Passive Activity, and Loss Limitations
20 Chapter 12: REG Property Transactions and Entity Taxation
12.1 Basis, Realized Gain, Recognized Gain, and Character 12.2 C Corporations and Shareholder Transactions 12.3 S Corporations, Partnerships, and Basis 12.4 Entity Tax Simulations and K-1 Workflows
21 Chapter 25: REG Entity Choice, Basis, and Owner Tax Consequences
25.1 C Corporation, S Corporation, and Partnership Comparison 25.2 Formation Contributions and Built-In Gain 25.3 Distributions, Redemptions, and Liquidations 25.4 Loss Limits: Basis, At-Risk, and Passive Rules
22 Chapter 26: REG Property Tax, Character, and Deferral Transactions
26.1 Capital, Ordinary, and Section 1231 Character 26.2 Depreciation Recapture and Unrecaptured Gain 26.3 Like-Kind Exchanges, Involuntary Conversions, and Installment Sales 26.4 Related-Party, Wash-Sale, and Imputed-Interest Traps
23 Chapter 33: REG Trusts, Estates, Gifts, and Exempt Organizations
33.1 Trust and Estate Income Tax Basics 33.2 Gift, Estate, and Beneficiary Planning Concepts 33.3 Tax-Exempt Organizations and Unrelated Business Income 33.4 Fiduciary K-1 and Distribution Simulation Workflows
24 Chapter 38: REG Workbook - Tax Return Schedules and Basis Workpapers
38.1 Individual Return Classification Drill 38.2 Property Basis and Character Workpaper 38.3 Pass-through K-1 and Owner Basis Workpaper 38.4 Business Law Issue Spotting Drill
25 Chapter 13: BAR Business Analysis, Economics, and Forecasting
13.1 Financial Statement Analysis and Ratios 13.2 Variance, Forecasting, and Budgeting 13.3 Cost Accounting and Performance Management 13.4 Economics, Finance, and Decision Models
26 Chapter 14: BAR Technical Accounting and Advanced Reporting
14.1 Revenue, Leases, and Complex Arrangements 14.2 Derivatives, Hedges, and Fair Value 14.3 Business Combinations and Consolidations 14.4 SEC Reporting and Public Company Context
27 Chapter 15: BAR State and Local Government Analysis
15.1 Governmental Fund Analysis 15.2 Government-Wide Conversion Workflows 15.3 Budgetary Reconciliation and CAFR/ACFR Reading 15.4 Government Simulation Strategy
28 Chapter 16: ISC Information Systems and Data Management
16.1 Systems Architecture and Data Flow 16.2 ERP, Accounting Systems, and Change Management 16.3 Data Governance, SQL, and Analytics 16.4 Availability, Backup, and Recovery Controls
29 Chapter 17: ISC Security, Privacy, and SOC Engagements
17.1 Security Threats and Control Selection 17.2 Privacy, Confidentiality, and Compliance Frameworks 17.3 SOC 1, SOC 2, SOC 3, and Cybersecurity Reports 17.4 Service Organization Exceptions and User Controls
30 Chapter 18: TCP Individual Tax Planning and Personal Financial Issues
18.1 Nonroutine Individual Income and Estimated Tax 18.2 Passive, At-Risk, and Investment Planning 18.3 Retirement, Education, and Insurance Planning 18.4 Gift, Estate, and Beneficiary Concepts
31 Chapter 19: TCP Entity Compliance and Planning
19.1 C Corporation Tax Planning 19.2 S Corporation Basis and Distributions 19.3 Partnership Tax Planning and Allocations 19.4 Trusts, Tax-Exempt, and International Signals
32 Chapter 34: TCP International and Advanced Entity Tax Topics
34.1 International Tax Signals and Source of Income 34.2 CFC, Foreign Tax Credit, and Permanent Establishment Concepts 34.3 Consolidated Returns and Affiliated Corporations 34.4 Advanced Partnership and S Corp Planning Scenarios
33 Chapter 35: Choosing and Preparing for BAR, ISC, or TCP
35.1 Discipline Fit Matrix by Background 35.2 BAR, ISC, and TCP Blueprint and Skill Comparison 35.3 Discipline Study Plans and Practice Balance 35.4 Switching Disciplines, Retake, and Score Interpretation
34 Chapter 39: CPA TBS Research, Authoritative Literature, and Document Review
39.1 Document Review Simulation Method 39.2 Research and Authoritative Literature Workflow 39.3 Exhibit Overload and Relevant Data Selection 39.4 Written Explanation and Professional Judgment Drills
35 Chapter 20: CPA Simulations, Retakes, and Final Review
20.1 TBS Exhibit Triage and Workpaper Method 20.2 Section-Specific Final Review Plans 20.3 Score Release, Retake, and Credit Window Decisions 20.4 Four-Section Study Roadmaps
36 Chapter 40: Discipline Workbook Drills for BAR, ISC, and TCP
40.1 BAR Ratio, Variance, and Government Drill 40.2 ISC Control Evidence and SOC Drill 40.3 TCP Basis Planning and Entity Drill 40.4 Discipline Final Mock and Review Log
6.4 Not-for-Profit Reporting Basics
Key Takeaways Explain This Topic AI
The 2026 FAR blueprint includes general-purpose financial reporting for nongovernmental not-for-profit entities within Area I Financial Reporting.
Core not-for-profit statements include the statement of financial position, statement of activities, statement of cash flows, and notes.
Net assets are reported as with donor restrictions or without donor restrictions, and board designations do not create donor restrictions.
The statement of activities includes contributions classified with or without donor restrictions and releases from donor restrictions when restrictions are satisfied.
Not-for-profit expenses must be reported by both natural and functional classification in the statements, notes, or a statement of functional expenses.
Last updated: June 2026
Not-for-Profit Reporting Basics
FAR includes nongovernmental not-for-profit (NFP) financial reporting inside Area I, Financial Reporting. The 2026 blueprint lists tasks for the statement of financial position, statement of activities, statement of cash flows, and notes. It specifically names contributions classified as with or without donor restrictions, releases from donor restrictions, and expense reporting by nature and function.
The NFP Statement Set
NFP reporting under FASB ASC 958 uses familiar statement logic, but the labels and equity concepts differ from for-profit reporting. Instead of retained earnings and shareholders' equity, an NFP reports net assets . Since FASB Accounting Standards Update 2016-14, there are exactly two required net asset classes: without donor restrictions and with donor restrictions (the old three-class model with "temporarily" and "permanently restricted" was collapsed).
Statement What it shows FAR focus
Statement of financial position Assets, liabilities, and net assets at a point in time Prepare from a trial balance; correct classification errors
Statement of activities Revenues, gains, expenses, losses, and changes in net assets Classify contributions and releases correctly
- Statement of cash flows Cash inflows and outflows Prepare indirect method and required disclosures
- Notes Required detail and explanations Correct omissions and inconsistencies
Functional expense information Expenses by natural and functional categories Present in the statement, notes, or a statement of functional expenses
NFPs must also disclose liquidity and availability of resources within one year of the balance-sheet date — a disclosure a simulation may ask you to complete or correct.
Donor Restrictions Drive Classification
A donor restriction is an external limit imposed by the donor. It may restrict resources for a future period, a specific program, the acquisition of a long-lived asset, or an endowment held in perpetuity. Those resources sit in net assets with donor restrictions until the restriction is satisfied or expires.
A board designation is different. If the governing board sets aside funds for a future building, scholarship campaign, or operating reserve, the limit is internal . The amount stays in net assets without donor restrictions , though the designation may be disclosed.
When an NFP satisfies a donor restriction, it reports a release from restrictions , which decreases net assets with donor restrictions and increases net assets without donor restrictions. The release is not a new contribution; it is a reclassification between classes.
Contributions vs. Conditions vs. Exchanges
Do not confuse a restriction with a condition . A conditional promise depends on a measurable barrier and a right of return or release . The NFP does not recognize contribution revenue until the condition is substantially met. Separately, distinguish a contribution (nonreciprocal) from an exchange transaction (reciprocal, recognized under revenue-recognition rules). Once a contribution is unconditional, donor restrictions affect net-asset classification, not whether the contribution exists.
- Concept Effect FAR cue
- Unconditional, unrestricted gift Revenue now, without donor restrictions "No strings attached"
- Unconditional, restricted gift Revenue now, with donor restrictions Purpose, time, or perpetuity stated
- Conditional promise No revenue until condition met Measurable barrier + return right
- Board designation Stays without donor restrictions "The board voted to set aside"
Expenses by Nature and Function
The blueprint expects candidates to know that NFP expenses are reported by both nature and function . Natural classification describes what was purchased or incurred — salaries, rent, supplies, depreciation, professional fees. Functional classification describes why the cost was incurred — program services , management and general , or fundraising . NFPs must present this analysis in one location: on the face of the statement of activities, in the notes, or in a separate statement of functional expenses (a matrix of natural rows by functional columns).
A common FAR simulation gives payroll, rent, and depreciation schedules with allocation percentages and asks you to place each natural expense into functional columns and total them. Watch the allocation method disclosure — the notes must describe the basis used to allocate costs among functions (for example, square footage for rent, or time-and-effort for salaries).
A Worked Release Example
Facts: prior year an NFP received a $90,000 gift restricted to a literacy program. This year it spends $90,000 on that program. Effect: recognize a $90,000 release from restrictions (net assets with donor restrictions down $90,000; without donor restrictions up $90,000) and report the $90,000 expense in net assets without donor restrictions, by function (program services). No new contribution revenue is recorded — a frequent wrong answer.
Exam Traps
Board-designated assets remain without donor restrictions.
Donor-restricted gifts are released when the time or purpose restriction is satisfied.
Restrictions affect net-asset class, not cash-flow classification by themselves.
Expenses are generally reported in net assets without donor restrictions when incurred.
Investment return on a donor-restricted endowment follows the donor's stipulations (or, absent stipulation, applicable law).
NFP fact patterns are usually explicit. If the facts say "nongovernmental not-for-profit," switch frameworks immediately and read every donor sentence before classifying.
Endowments and Underwater Funds
Endowment accounting is a recurring FAR wrinkle. A donor-restricted endowment holds the original gift (and any amounts the donor or law requires be retained) in net assets with donor restrictions. Earnings and appreciation are also with donor restrictions unless the donor or applicable law (the Uniform Prudent Management of Institutional Funds Act, UPMIFA) frees them.
When the fair value of a donor-restricted endowment falls below the amount required to be retained, the fund is underwater , and the deficiency is reported within net assets with donor restrictions, with related disclosures of the fair value, the original gift amount, and the deficiency. A candidate who pushes an underwater deficiency into net assets without donor restrictions misstates both classes — a classic trap the blueprint's NFP analysis tasks like to set.