Which of the following is an example of an imposed Nonexchange transaction?

Another major issue in revenue accounting is when to recognize or record the revenue. A common practice is to record the revenue when we receive payment (cash) from the customer. This is referred to as the cash basis of accounting. However, the university uses the accrual basis of accounting and that means we record the revenue at the point of sale, which may be separate from when we receive payment from the customer.

Exchange Transactions

Revenue from exchange transactions occurs when each party receives and gives up essentially equal values (GASB 33, ¶1). These revenues should be recorded when the goods and/or services have been provided per the agreement with the customer. Under an accrual accounting system, the recognition of revenue is independent from when the cash is received.

If cash or check is received at the time of providing the goods/services, then the revenue is recorded via the cash receipt form or through the activity’s point-of-sale system.

If payment is to be received at a later date, a journal entry should be used to record accounts receivable and revenue in the month in which the goods/services were provided. Follow the guidelines in chapter 12, Accounts Receivable and Allowances, of the Guide.

If payment is received in advance of providing the goods/services, then the payment has been received before it has been earned, and it is unearned revenue. The cash receipt form should be used to deposit the funds into unearned revenue, liability accounts 150200–150299. Upon providing the goods/services, a journal entry should be completed to reduce unearned revenue and record revenue.

The above pertains only to exchange transactions with customers external to the university. All internal transactions (ISC sales, miscellaneous sales between departments) should not be accrued as receivables and payables between departments, but should be recorded as revenue/expense upon providing the goods/services.

Nonexchange Transactions

Sometimes the receipt of money is the result of a nonexchange transaction. GASB 33 ¶1 defines a nonexchange transaction as one in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange. Nonexchange transactions are further classified as “imposed nonexchange transactions” and “voluntary nonexchange transactions.”

Imposed Nonexchange Transactions

GASB 33 ¶7.b. describes imposed nonexchange revenues as those resulting from assessments other than those on exchange transactions. Examples include fines and penalties such as late payment fees, parking tickets, bad check fees, etc. and escheats.The principal characteristic of these transactions is that the required transmittal of resources to the assessing government (CU) is imposed by that government on an act committed or omitted by the provider that is not an exchange transaction. Revenue and accounts receivable from these imposed nonexchange transactions should be recorded in the month in which an enforceable legal claim to the assets arises (GASB 33 ¶17).

Voluntary Nonexchange Transactions

GASB 33 ¶7.d. describes voluntary nonexchange transactions as those resulting from legislative or contractual agreements (other than exchanges) entered into willingly by two or more parties. This includes oral as well as written contracts, provided they are verifiable.

Examples of voluntary nonexchange transactions include certain grants, certain entitlements, and donations by nongovernmental entities, including individuals (private donations). Frequently, the provider establishes purpose restrictions and eligibility requirements. In many cases, the provider may require the return of the resources if the purpose restrictions or eligibility requirements are contravened after recognition of the transaction. (Refer to GASB 33 for a complete discussion on purpose restrictions and eligibility requirements.) The principal characteristics of voluntary nonexchange transactions are (1) they are not imposed on the provider or the recipient and (2) fulfillment of eligibility requirements is essential for a transaction (other than the provision of cash or other assets in advance) to occur. The primary sources of voluntary nonexchange transactions for CU are gifts and sponsored grants. All gifts are recorded as revenue when transmitted from the Foundation to CU or when deposited directly to a gift FOPPS from the donor. Grants revenue is generally recorded on a cost reimbursable basis.

Both parties to a voluntary non-exchange transaction may be governments (provider), including the federal government, or one party may be a nongovernmental entity, including an individual. Frequently, the provider establishes purpose restrictions and eligibility requirements. The provider may require the return of the resources if the purpose restrictions or eligibility requirements are not fulfilled after recognition of the transaction.

The principal characteristics of voluntary non-exchange transactions are:

• They are not imposed on the provider or recipient.
  –AND–
• Fulfillment of eligibility requirements is essential for a transaction to occur (other than the provision of cash or other assets in advance).

Example: Private Donation with Eligibility Requirements

An individual (provider) promises in writing to give $1 million to the town library (recipient) for the construction of a new wing, provided the library raises an equal amount of donations from others.

This example illustrates the characteristics of voluntary non-exchange transactions. But, fulfillment of an eligibility requirement is necessary for a transaction to occur: the library is to raise $1 million from other parties for a construction of the new wing. The library recognizes a receivable and a revenue for the individual’s $1 million when the other $1 million is raised. Resulting net position (or fund balance) is restricted until used because there is a purpose restriction (construction of a new wing).

Example: Private Donation with Purpose Restriction

An individual (provider) makes a large cash donation to a university (recipient). The donation is to be used in the business school at any time for operations, scholarships or any other purposes deemed appropriate by the university.

This example also illustrates the characteristics of voluntary non-exchange transactions. There is no eligibility requirement. Assuming the donation was not announced in advance, the university recognizes cash and revenue when the money is received. If, on the other hand, the donor announces the donation a year before paying it and the university believes the collection is probable, the university recognizes a receivable and revenue when the donation is announced. The university reports resulting net position (or fund balance) as restricted until it is used because of the purpose restriction.

Example: Term Endowment

An alumnus promises to donate $500,000 to his alma mater with the stipulation that the university invest the principal and use the income to provide summer research grants for accounting faculty members. The terms of the agreement specify that, after the donor’s death, the university must withdraw the principal of the gift and use it (expend it) for summer research grants for accounting faculty members.

This example is also a voluntary non-exchange transaction. The gift is a term endowment. The requirements to invest the principal until the donor’s death and then to expend it for summer grants are purpose restrictions. The requirement to maintain the principal intact until after the donor’s death is a time requirement.

The university recognizes assets and revenues when the gift is received. The university does not recognize a receivable when the promise is made because the university cannot begin to comply with the time requirement until the gift is received. When the gift is recognized, the university reports resulting net position as restricted because of the purpose restrictions and the time requirement. The initial purpose restriction (invest the principal) and the time requirement (maintain principal intact) expire at the donor’s death. However, the university continues to report net position as restricted after the donor’s death until the principal is expended in accordance with the donor’s stipulations.

Transactions with time requirements as shown above are distinguished from those in which a government receives cash or other assets (for administrative or practical reasons) in the fiscal year immediately before the fiscal year that the provider specifies as the time when sale, disbursement or consumption is required or may begin. Although the recipient may benefit from the short-term investment of these resources, the benefit is incidental and not a primary purpose of the provider. The recipient recognizes receivables (or a decrease in liabilities) and revenue (net of estimated uncollectible amounts) when all eligibility requirements (including time stipulations) are met.

When there are no time requirements, the entire award is recognized by the provider as a liability and an expense while the recipient recognizes a receivable and revenue (net of estimated uncollectible amounts). These transactions are recognized in the fiscal year when all applicable eligibility requirements are met.

When the provider is a government (including the federal government), the applicable period for both the provider and recipient is the provider’s fiscal year and begins on the first day of that year.6 The entire award is recognized at that time. If a provider government has a biennial budgetary process, each year of the biennium is considered as a separate applicable period. In such circumstances, the provider and recipient allocates one-half of the resources appropriated for the biennium to each applicable period, unless the provider specifies a different allocation.

Example: Awards from Biennial Appropriation

A state (provider) gives money to counties (recipients) for road maintenance. The state has a biennial budget and appropriates the amounts for the two-year period beginning July 1, 20CY. Approximately one-half of the total is provided in the first fiscal year of the biennium and the remainder in the second fiscal year. The state and the counties have concurrent fiscal years.

This example illustrates the characteristics of voluntary non-exchange transactions (the program is not a mandate on the state or counties). However, fulfillment of an eligibility requirement (in addition to the requirement that the recipients be counties) is necessary for the transaction to occur: the applicable period for use of the resources has begun. In this case there are two applicable periods because the appropriation occurs in the year beginning July 1, 20CY, but applies to the next fiscal year as well.

The counties (recipients) recognize receivables and revenues for approximately one-half of the resources on July 1, 20CY. The remainder is recognized in the following fiscal year. Because there is a purpose restriction, the counties report resulting net position (or fund balance) as restricted until used.

The state (provider) recognizes liabilities and expenses for approximately one-half of the resources on July 1, 20CY. The remainder is recognized in the following year.

Voluntary promises of cash or other assets made by nongovernmental entities (including individuals) may be referred to as “pledges,” “promises to give” or “promised donations,” etc. Such “promised” or “pledged” assets may include permanently nonexpendable additions (with or without purpose restrictions or time requirements) to:

• Endowments and other trusts
• Term endowments
• Contributions of works of art and similar assets to capitalized collections or other types of assets

If the promise is verifiable, resources are measurable and probable of collection and all eligibility requirements are met, the recipient recognizes receivables and revenues (net of estimated uncollectible amounts).

Example: Multiyear Promise with Eligibility Requirement

An individual (provider) pledges $500,000 to a hospital (recipient) to further its mission of serving the indigent. The donor’s letter specifies he will pay $100,000 per year over the next five years and each installment is to be used in the year it is paid.

This example illustrates the characteristics of voluntary non-exchange transactions. But, fulfillment of an eligibility requirement is necessary for a transaction to occur — the period to which each installment applies must have begun. Assuming the hospital believes the installments are probable of collection, the hospital recognizes a receivable and revenue of $100,000 in each of the five years. The requirement to use the resources to further the hospital’s mission is not a purpose restriction as serving the indigent is part of the hospital’s general operations.

Example: Multiyear Promise without Eligibility Requirement

The facts of the previous example are the same for this example, except the donor does not specify that each installment be used in the year it is paid. Thus, there is no eligibility requirement. Assuming the hospital believes that the installments are probable of collection, it recognizes a receivable and revenue for the discounted present value of the five installments in the period when the donor’s pledge is received. Subsequent accruals of the interest element are reported as revenues.

Example: Status as Potential Beneficiary

A 25-year-old recent graduate (provider) of a state university names the university (recipient) as the primary beneficiary in her will. The graduate is single and has an estate currently valued at $50,000.

This example illustrates the characteristics of voluntary non-exchange transactions. However, the university does not recognize any asset or revenue. It is not probable the university will remain the primary beneficiary and potential future distributions from the estate are not measurable (reasonably estimable) at this time.

When there is a time requirement that prohibits the sale, disbursement or consumption of government-mandated or voluntary non-exchange transactions until a specified time period begins or passes, the time requirement is met as soon as the recipient begins and continues to honor the provider’s stipulations. For these kinds of transactions, the recipient recognizes revenues when the assets are received if all eligibility requirements are met. The recipient does not begin to meet time requirements until the cash or other assets are received.

What is an example of a non

What are imposed Nonexchange transactions?

What are the examples of exchange transactions?

What is a Nonexchange transaction What are the main types of the government's Nonexchange revenues?