USA Unrealized Gain/Loss & Financial Stmt Presentation


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Hello all,
I'm new here, hopefully I'm doing this right :confused:

Basically, I inherited the sole accounting role of a very small not-for-profit org. I'm trying to understand and familiarize myself with the books left behind by the previous accountant.

Since year 2016 an investment management company has been handling this org's securities. Recently, it converted this org's stocks to a money market fund. The previous accountant always booked all/any Unrealized Gain/Loss to the P&L. However, I'm confused about where the previous accountant has been booking (which of the financial stmts) Unrealized Gain/Loss because to my understanding:
  • Trading Securities = short-term (where unrealized gain/loss goes to the P&L). Trading secs are expected to be liquidated in a year/less.
  • Available-for-Sale Secs = short/long term (where unrealized gain/loss goes to the BS --> SHE --> Other Comprehensive Income until it is liquidated at which point goes to the P&L.
If this org still has securities/money market funds from year 2016, it seems to me the org's intent is not short-term because it is still holding on to these securities from year 2016. Therefore, any unrealized gain/loss should have been booked to the Balance Sheet --> Stockholders' Equity --> Other Comprehensive Income.

I hope my question makes sense... Can someone pretty please shed some light on this?

Thank you in advance :)
 
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kirby

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I am impressed by your thought process. Rather than accept the status quo you actually think about what's going on. Pretty rare these days. Bravo!

So let's take a similar case - that of cash, which is always considered a current asset. Even if you had opened a checking account 50 years ago, deposited cash in it and never touched it and never intend to. Sounds like a long term asset but, no. By definition, cash is a current asset.
Same here with the money market fund. It is immediately available for use. So it is always treated as such no matter how long you have had the brokerage account and the acctg treatment follows that.
You can see why back when the distinctions for classification as trading, investment and held to maturity were developed, some critics said "Oh great, classification depends on how you think about the security. So we now have "psychological accounting methods."

What do you think? Is accounting an art or a science?
 
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I am impressed by your thought process. Rather than accept the status quo you actually think about what's going on. Pretty rare these days. Bravo!

So let's take a similar case - that of cash, which is always considered a current asset. Even if you had opened a checking account 50 years ago, deposited cash in it and never touched it and never intend to. Sounds like a long term asset but, no. By definition, cash is a current asset.
Same here with the money market fund. It is immediately available for use. So it is always treated as such no matter how long you have had the brokerage account and the acctg treatment follows that.
You can see why back when the distinctions for classification as trading, investment and held to maturity were developed, some critics said "Oh great, classification depends on how you think about the security. So we now have "psychological accounting methods."

What do you think? Is accounting an art or a science?
Thank you so much for your response and for the kind words!

I like how you explain things. You have a gift for explaining things so that others understand the underlying reasons - kinda like metaphor i guess.

I think accounting is both art and science. Art because it's not always black and white, Science because logic goes hand-in-hand with science and accounting encompasses logical thinking for sure. So, both...

Again, thank you so much!!! I appreciate it.
 
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I am impressed by your thought process. Rather than accept the status quo you actually think about what's going on. Pretty rare these days. Bravo!

So let's take a similar case - that of cash, which is always considered a current asset. Even if you had opened a checking account 50 years ago, deposited cash in it and never touched it and never intend to. Sounds like a long term asset but, no. By definition, cash is a current asset.
Same here with the money market fund. It is immediately available for use. So it is always treated as such no matter how long you have had the brokerage account and the acctg treatment follows that.
You can see why back when the distinctions for classification as trading, investment and held to maturity were developed, some critics said "Oh great, classification depends on how you think about the security. So we now have "psychological accounting methods."

What do you think? Is accounting an art or a science?
Hello again,
I forgot to ask if the mere fact that we are talking about a "not-for-profit" org means none of my queries apply (?)
Not-for-profit does not have SHE; instead, has Net Assets. Thus, everything about my query is irrelevant, i think...

What is your thoughts?

Thanks a million! :)
 

kirby

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Really good point.

You need to read FASB 124. It specifies a not for profit must use mark to market acctg with an exception that allows HELD TO MATURITY and not “available for sale” acctg for some not for profits.
 
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Really good point.

You need to read FASB 124. It specifies a not for profit must use mark to market acctg with an exception that allows HELD TO MATURITY and not “available for sale” acctg for some not for profits.
Awesome! Will read FASB 124. Thanks!!!
 
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I am impressed by your thought process. Rather than accept the status quo you actually think about what's going on. Pretty rare these days. Bravo!

So let's take a similar case - that of cash, which is always considered a current asset. Even if you had opened a checking account 50 years ago, deposited cash in it and never touched it and never intend to. Sounds like a long term asset but, no. By definition, cash is a current asset.
Same here with the money market fund. It is immediately available for use. So it is always treated as such no matter how long you have had the brokerage account and the acctg treatment follows that.
You can see why back when the distinctions for classification as trading, investment and held to maturity were developed, some critics said "Oh great, classification depends on how you think about the security. So we now have "psychological accounting methods."

What do you think? Is accounting an art or a science?
I read part of the FASB 124 & it has soooooo much info that it confused me more than it helped me... :eek: (info overload)

Since Money Market Funds are considered debt securities does this mean the following classifications still apply (even for not-for-profit)?
  • Trading Securities
  • Available-for-Sale Securities
  • Held to Maturity --> isn't this only for Bonds?
If all of the above still applies, which one should an org choose as classification? I'm guessing it depends on the org's intent; nonetheless, any of the classifications above qualify (??)

If an org so chooses to classify it's debt security/money market fund as long-term (i.e. available-for-sale), what is an appropriate account name to create in the Net Assets section of the Balance Sheet? Will an account name simply as "Available-for-Sale Securities" suffice?

Sorry for asking, FASB124 confused me... You don't have to answer if you don't want to... Regardless, thank you very much!!!
 

kirby

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Hi
I looked further and saw that 124 was partially superseded. So I will get back to you
 
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Hi
I looked further and saw that 124 was partially superseded. So I will get back to you
Thank you Kirby!!! You're like the Accounting Guru and we're blessed to have you... Thank you for you willingness to share your genius mind. I'm sure I speak for many people when I say that Accounting can definitely mess with one's psyche because there's sooooooo many rules and overlapping rules one can easily get the "run-around" where you'd think you've got the answer, but only to be taken back to square one. I sometimes find myself going in circles... Anyway, thank you again!
 

kirby

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See the above summary which states that for a nonprofit all investments are reported at fair value and it all goes to the statement of activities (income stmt). You should look online for financial statements for organizations similar to your own to compare their presentation to yours. If you are a hospital, look at City of Hope's website for their financials.
 
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See the above summary which states that for a nonprofit all investments are reported at fair value and it all goes to the statement of activities (income stmt). You should look online for financial statements for organizations similar to your own to compare their presentation to yours. If you are a hospital, look at City of Hope's website for their financials.
This is great! Thank you!!! :)
 
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