ACCOUNTING PROCESS AT THE AMERICAN RED CROSS 1

Accounting Processes at the American Red Cross

Shaniece Jefferson

HMSV8480

Roger Mortan

Capella Unversity

Feburary 13,2022
ACCOUNTING PROCESS AT THE AMERICAN RED CROSS 2

Accounting Processes at the American Red Cross

Part One

Analysis of Accounting Processes Used By American Red Cross

The accounting processes used by the American Red Cross include measurement of its

operations which includes a close examination of consolidated statements of activities that entail

operating revenue from contracts, products and services, contributions, investment returns, and

restricted and non-restricted sources. The American Red Cross's main non-operating activities

include changes in investments' fair value and pension-related gains (American Red Cross,

2021). Further, the organization relies on derivative financial instruments to mitigate or take

exposure to certain risks. It offsets them against each other in the liability and asset position and

is reported in the organization's statement of financial position. They enable the organization to

estimate the size of its assets, liabilities, and available funds for financing its large swath of

activities across the United States.

Analysis of Types of Funds and Financial Reports Used by American Red Cross

The type of funds used by the American Red Cross includes endowment funds, including

gifts from well-wishers from a trust or will. The funds are then recorded and reported as net

assets with donor restrictions. Accordingly, the endowment funds are usually set aside to

accumulate revenue that can be used to fund the American Red Cross's charitable activities

(American Red Cross, 2021). Additionally, the organizations have investment funds that are

usually reported at a fair value using NAVs (Net Asset Values). The investment income for the

American Red Cross is usually classified as dividend income on all the investments and
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operating revenue accruing from interests, in addition to total expenditures that the organization

approves.

Analysis of Financial Statements Used by American Red Cross

The financial statements used by the nonprofit organization include the statement of

financial position, which includes current and noncurrent assets current and noncurrent liabilities

that accrue from its operations. It is a useful statement that shows the organization's financial

position for a given financial year. Specifically, the American Red Cross's current assets include

cash and cash equivalents, inventories, contributions receivables, and trade receivables. In 2020,

is total assets amounted to $1,002,677 while noncurrent assets totaled $3,266,899 (American Red

Cross, 2021). From these statistics, it is clear that the American Red Cross is doing well in terms

of current and noncurrent assets, which have been key to its operations. Additionally, the

American Red Cross organization maintains a statement of activities that provides a list of all the

undertakings related to helping society. It provides an avenue for understanding the flow of cash

in and out of the nonprofit by seeking to quantify them, which is a crucial strategy for accounting

and transparency.

Fiscal Health of the Organization

Based on the 2019 and 2020 financial statements of the American Red Cross, including

its assets and liabilities, debt trends, and revenue and expenditure trends, it can be easier to

examine its financial health. Notably, the organization reported a total of +$3,266,899 in

liabilities and net assets, $390,796 net assets without donor restrictions, and $1,421,419 net

assets with donor restriction for the year ended June 2020 (American Red Cross, 2020). The net

assets were arrived at after subtracting the total operating expenses and supporting services from
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the total revenues and gains for the period. The positive gains mean that the organization had

some assets that would carry it to the early months of the 2021 period. However, given that the

total operating expenses and supporting services were $262,225 and total operating expenses

were $2,489,360, it means that the American Red Cross organization must raise additional

finances to finance the following years.

How to Communicate these Findings

As an accountant for the Red Cross organization, I would communicate these findings to

all the stakeholders to support its financial position by including the balance sheet, income

statement, statement of functional expenses, and activities. For taxing purposes, one should

ensure that the relevant body has access to all the documents and statements crucial for

determining the taxes for the organization (Goodell et al., 2020). However, since the US tax code

is voluminous, I would have to collaborate with legal and professional tax consultants who will

assist me in understanding the revenue rulings, regulations, and annotated case laws that can

affect our organization. The professionals will provide the needed guidance to help the American

Red Cross organization pay the required tax that ensures that it meets its obligations as stipulated

under the law (Pinkerton, 2021). Similarly, collaborating with this qualified personnel will add

value to the existing relationships between the organization and other stakeholders, which can

help it to understand its financial picture.

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References

American Red Cross. (2021). American Red Cross: Consolidated Financial Statements.

Retrieved 8 February 2022, from

https://www.redcross.org/content/dam/redcross/about-us/publications/2020-publications/

FY20_ARC_audited_financial_statement-FINAL.pdf.

Goodell, J., Goyal, A., & Hasan, I. (2020). Comparing financial transparency between for-profit

and nonprofit suppliers of public goods: Evidence from microfinance. Journal Of

International Financial Markets, Institutions And Money, 64.

https://doi.org/10.1016/j.intfin.2019.101146

Hung, C., & Hager, M. (2018). The Impact of Revenue Diversification on Nonprofit Financial

Health: A Meta-analysis. Nonprofit and Voluntary Sector Quarterly, 48(1), 5-27.

https://doi.org/10.1177/0899764018807080

Pinkerton, J. (2021). How Advisors Can Collaborate With CPAs. Retrieved 8 February 2022,

from https://money.usnews.com/financial-advisors/articles/how-advisors-can-collaborate-

with-cpas.