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GAAP For Non-Profits › Specific Financial Statement Items

Investment Income

Investment income would include interest, gains, losses, royalties and dividends. Interest is recognized with the passage of time, and accrued accordingly. Royalties are recognized as they accrue in accordance with the relevant agreement. Dividends are recognized when the shareholder’s right to receive payment has been established. (3400.09) Gains and losses are recognized in accordance with the underlying asset sale and are calculated using the average carrying value. (3050.27)

The treatment of investment income parallels the treatment of contributions. Where the investment income has been externally restricted, and no appropriate restricted fund has been set up for the revenue, the timing of the recognition of the investment income will match the timing of the expense for which the income is designated. Where a restricted fund has been set up for the purpose designated by the restriction, the investment income is recognized immediately as income of that fund . Revenue not externally restricted is simply current revenue of the general fund. (4410.49,.70)

Investment Income restricted by Endowments

Investment income from an endowment is recognized in the same way as any other contribution. As an example, let us imagine that an endowment generates interest of $90. The endowment restrictions are such that 1/3 is to be operating revenue for the period, 1/3 is to be added to the endowment, and 1/3 used for capital purchases. If the organization had an endowment fund and a capital fund, it would recognize $30 revenue in the operating, endowment and capital funds. If it had only an operating fund it would defer $30 as a deferred contribution (for capital), recognize a $30 direct increase in net assets (endowments) in the year, and recognize $30 as income of the operating fund in the year.

Disclosure Required for Investment Income from Endowments where there are no Restricted Funds

  • amounts recognized in the statement of operations
  • amounts deferred in the period
  • amounts recognized as direct increases or decreases in net assets
  • total earned in the period (4410.55)

Disclosure Required for Investment Income from Endowments with Restricted Funds

  • the above, and
  • amounts recognized in each fund (4410.76)