Analyze The Following Scenario: The Unified Path Is An Umbre

Analyze The Following Scenario The Unified Path Is An Umbrella Organi

Analyze the following scenario: The Unified Path is an umbrella organization that solicits donations to support its many charitable suborganizations. One of these is the Millbridge Family Service (MFS). All transactions for MFS are handled through the MFS special purpose fund. For both the United Path general operating fund and MFS special purpose fund, show the impact of the fundamental equation of accounting of each of the following events. Unified Path transfers cash to the MFS bank account for $50,000 for the MFS family counseling program. This is a direct subsidy to MFS. No repayment is required. Unified Path has a bookkeeping department which assists the suborganizations with their purchase of insurance, supplies, payroll, and other items. This centralized approach is less expensive than if each part of the larger organization had its own bookkeeping staff. Unified Path charges MFS $400 for bookkeeping services for the month. No payment is made at this time. MFS borrows $20,000 from Unified Path’s general fund to meet a current operating shortfall. MFS will repay this loan from money received from charges to its clients within six months. Respond to at least two of your classmates’ postings to receive full credit.

Paper For Above instruction

The scenario presented involves the accounting transactions of a parent charitable organization, Unified Path, and its subordinate organization, Millbridge Family Service (MFS). The analysis focuses on how each event impacts the fundamental accounting equation: Assets = Liabilities + Net Assets, for both the general operating fund of Unified Path and the special purpose fund of MFS. Understanding the effect of these transactions is essential for accurate financial reporting, transparency, and accountability within nonprofit organizations.

1. Transfer of Cash for the MFS Family Counseling Program ($50,000)

When Unified Path transfers cash to MFS for the family counseling program, there is a movement of assets from the parent organization to the suborganization. For Unified Path, this transaction decreases assets (cash) by $50,000, with no impact on liabilities or net assets, assuming it’s a direct transfer. This can be represented as:

• Unified Path’s General Operating Fund: Decrease Assets (Cash) by $50,000; No change in Liabilities or Net Assets.

For MFS, the receipt of cash increases its assets (cash) by $50,000. Since this transfer is a subsidy and no repayment is expected, it is recorded as an increase in net assets rather than a liability or revenue, unless specifically designated as revenue. The effect on MFS’s fund balances is:

• MFS Special Purpose Fund: Increase Assets (Cash) by $50,000 and increase Net Assets (Unrestricted or designated fund balance) by $50,000.

This ensures that the accounting equation remains balanced for both entities: assets increase in MFS while decreasing in Unified Path, maintaining overall equilibrium.

2. Bookkeeping Service Charge ($400)

The centralized bookkeeping service provided is billed at $400, but no payment is made at this time. For Unified Path, this represents accrued income, as the organization expects to receive payment later, and an expense for administrative costs.

• Unified Path’s General Operating Fund: Increase Assets (Accounts receivable) by $400; Increase Expenses (Bookkeeping expense) by $400, which reduces net assets.

For MFS, the cost of bookkeeping services is an expense incurred, which reduces net assets. Since payment is not yet made, accounts payable or accrued expenses are recorded:

• MFS Special Purpose Fund: Increase Expenses (Bookkeeping expense) by $400; Increase Liabilities (Accounts payable) by $400, thus balancing the equation.

3. Borrowing Funds ($20,000)

MFS borrows $20,000 from Unified Path’s general fund to cover short-term operational needs. This transaction affects both entities differently.

• Unified Path’s General Operating Fund: Decrease Assets (Cash) by $20,000; Increase Liabilities (Loan payable to MFS) by $20,000.

This creates an obligation for Unified Path, reflected as a liability, and a reduction in cash assets.

• MFS Special Purpose Fund: Increase Assets (Cash) by $20,000; Increase Liabilities (Loan from Unified Path) by $20,000.

From MFS’s perspective, the loan increases its assets (cash) and liabilities (loan payable), which net to a balanced increase in the same amount, keeping the accounting equation in equilibrium.

Conclusion

The analysis of these transactions demonstrates the dynamic nature of nonprofit accounting, where cash and liabilities fluctuate based on organizational activities. These transactions also highlight the importance of accurate fund accounting to ensure accountability and transparency. Proper recording of transfers, expenses, and borrowings aligns with Generally Accepted Accounting Principles (GAAP) for nonprofit entities and ensures the integrity of financial statements. Furthermore, understanding how each event impacts the fundamental equation helps maintain proper financial control and aids stakeholders in assessing the organization’s financial health.

References

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