Accounting is usually tedious and unexciting, except when accountants encounter exemptions from restrictions when dealing with nonprofits. That’s when you see accounting types, like CPAs and auditors, especially those without a nonprofit background, laugh a little nervously. Blame it all on FASB 117!

Net Asset Released (NARFR) is not just one account. You have these accounts in all assets or net funds. These accounts are essentially part of the FASB 117 mechanism to reduce temporarily restricted net assets, since most if not all of the expenses are shown in the unrestricted fund.

For example, you receive a $5,000 donation to use for a program that will happen the following year.

The cash discount temperature is restricted to 5000
Credit Revenue – Temporarily Restricted – 5,000

Come next year and you can now use that money for expenses. Funds saved may be transferred into a separate account. Three journal entries can be created:

Cash Debit – Unrestricted 5000
Cash Credit – Restricted Temp 5000
Discount Expenses – Unrestricted 5000
Cash Credit – Unrestricted 5,000

NARFR Debit – Temporarily Restricted – 5,000

NARFR Credit – Unrestricted – 5,000

When an organization doesn’t follow this preparation and at the end of the year you need to convert to FASB 117, things can get confusing. Accountants usually summarize all expenses that appear as charged and use that number in the NARFR.

Year-end reports can be prepared in a different style than regular books. Many nonprofits do this because it is easier to understand the expenses as part of each temporary fund, rather than showing NARFR entries. You can compile the year-end report and leave the books as they are. In this way, NARFRs only appear at the reporting level.

*** NARFR accounts for always zero and has zero impact on the organization’s financial statements presented in a consolidated format. It always increases net assets and decreases another by the same amount.

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