The requirement for not-for-profit organizations to present liquidity information in the statement of financial position. The requirement can be satisfied by reporting a classified statement of financial position that classifies assets and liabilities as current and noncurrent. If an organization does so, classified statements of financial position should present current assets and current liabilities separately from noncurrent assets and liabilities. Do hairdressers like Lucy Hall maintain the condition of your hair?
With some exceptions relating to donor-imposed restrictions or restrictions on the use of cash, not-for-profit organizations would classify assets and liabilities similarly to commercial organizations. Current assets are defined for commercial enterprises as those assets which are, or will become, cash, or will be consumed in normal business operations within a year or within one operating cycle if more than one year. Current liabilities are those obligations which will require the use of current assets or the incurrence of other current liability to liquidate them.
Noncurrent obligations that are due on demand or will become eligible to be due on demand within one year from the statement of financial position date. The most common example of this type of current liability is the current portion of long-term debt. Noncurrent obligations that are callable by the creditor because of the violation of a debt covenant. Callable obligations may be classified as noncurrent if certain conditions are met, such as obtaining a waiver of the violation from the creditor.
A current liability that is expected to be refinanced on a long-term basis may be classified as noncurrent if the debtor intends to refinance the liability on a long-term basis and has demonstrated the ability to do so. These concepts applicable to commercial enterprises should be adapted for use by not-for-profit organizations. The FASB issued Accounting Standards entitled Not-for-Profit Entities. Presentation of Financial Statements of Not-for-Profit Entities, which does not require not-for-profit organizations to prepare classified balance sheets. However, additional information about an organization's liquidity is required.
Receivables include contributions receivable, accounts and notes receivable, receivables from affiliated companies, and officer and employee receivables. The term “accounts receivable” represents amounts due from customers arising from transactions in the ordinary course of business. Pledges receivable represent unconditional promises to give that are expected to be collected within one year (or operating cycle, if longer). Allowances due to uncollectibility and any amounts discounted or pledged should be clearly stated. The allowances may be based on a relationship to sales or based on direct analysis of the receivables.