Actually, parent groups should be checking the box saying that they are following SFAS 117; I believe it was mandated for virtually all nonprofits something like 10 years ago. There are a couple of types of nonprofits (like credit unions) that are not subject to it, and the IRS doesn’t require it, but if you had a CPA come and perform an audit for you, or prepare your financial statements, they would insist on using SFAS 117. SFAS 117 has more to do with external presentation of financial statements, or how you present them to the public, than how you do day to day accounting.
The most important thing about SFAS 117 for most parent groups is how you classify your net assets (the difference between your assets and liabilities—called net worth in the for profit world)—they are either unrestricted, temporarily restricted, or permanently restricted. I would guess that for most, you are only going to have unrestricted.
Think about it this way…if someone gives you money for a specific purpose during the year, and you don’t spend it all during the year, SFAS 117 provides a way for this section of the balance sheet to show them that you have the money set aside somehow to use it the way it was intended. That’s the important part of this.
Here’s the difference between the three types of net assets. It mostly has to do with restrictions DONORS make when they give you money. It has nothing to do with any board proclamations of how they will use the money—that’s pretty much irrelevant for this.
Unrestricted assets are what you end up with when people give you money without any restrictions as to how you might use it. When you have your big catalog fundraiser, or your bingo night, or collect membership dues—those are typically things that raise money for the general operations of the parent group, and they are therefore unrestricted donations. It doesn’t matter if you say it’s to cover field trips or assemblies or whatever else you have like that—that’s just stuff you do as a parent organization.
A permanently restricted net asset arises when the donor specifies that the funds need to be used for something in particular, and basically you have to use the funds for only that purpose. It’s usually things like endowments that end up classified as permanently restricted. But for a parent group, let’s say that you applied for a grant to build a butterfly garden at your school, and you received the grant, and the grantor said that if you never built the garden, you had to give the money back. You also probably have to give them a report showing how you spent that money. That’s a permanently restricted donation. You can’t use that money for anything else. If that grant was for $3,000, and during the school year you only spent $2,000, and you have $1,000 left to finish it next year, that $1,000 would show up as a permanently restricted net asset on your balance sheet. (If you use the whole $3,000 in that school year, you don’t need to worry about it—your net asset is zero.)
Temporarily restricted net assets are in between those two. That’s where you get money that is restricted until some event occurs or a period of time passes. I can’t even really think of a realistic example of this—a playground fund might qualify, depending on the circumstances.
Playground funds are kind of common. What if you’re raising money for a playground? How do donations for that get classified? It depends. Let’s say you have an auction, and you were so successful that the board decided to announce, after the fact, that they would use the money to start a playground fund. That’s unrestricted—the donor didn’t put that restriction on, the board did, and they don’t count for this. Let’s say you have an auction and you specifically advertise it as raising money for your playground to be built in 3 years…that’s a little more questionable. Those would probably be temporarily restricted donations. It’s always better, from an accounting/legal standpoint, to leave yourself some options for these types of situations. When you advertise, say the fundraiser is for the playground and other parent group needs. You never know if you will raise more than you need, or if the need will go away.
Anyway—it’s pretty unusual for a parent group to have money left over at the end of the year that’s to be used for anything more significant than that next year’s general operations. So, most people can be safe by checking off “unrestricted†and calling it a day.
