NOTE A--Nature of business and significant accounting polices
Nature of business
Music Library Association (the Association) was formed in 1945 as a non-stock, non-profit corporation. The primary purposes of the Association are to promote the establishment, growth, and use of music libraries; to encourage the collection of music and musical literature in libraries; to further studies in musical bibliography; to increase efficiency in music library service and administration; and to promote the profession of music librarianship.
A summary of significant accounting policies follows:
Basis of accounting
The financial statements of the Association have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities.
Basis of presentation
Under accounting principles generally accepted in the United States of America (U.S. GAAP), the organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Temporarily restricted net assets are those whose use has been restricted or that have been limited by donors to a specific time period or purpose. The organization has no permanently restricted net assets.
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Association is exempt from income taxes under Internal Revenue Code Section 501 (c)(3) as a public charity and not a private foundation. The Association is also exempt from Wisconsin income tax.
Cash and cash equivalents
For purposes of reporting cash flows, the Association considers all investments purchased with a maturity of three months or less to be cash equivalents.
The Association utilizes the direct write-off method of accounting for bad debts. The use of this method has no material effect on the financial statements. Accounts receivable are written off when management determines an account is uncollectible. A receivable is considered past due if payments have not been received by the Association after 90 days. Accounts receivable are non-interest bearing.
Donated marketable securities and other noncash assets are recorded as contributions at their estimated fair values at the date of donation. Such donations are reported as unrestricted contributions unless the donor has restricted the donated asset to a specific purpose.
Inventory consists of music publications produced for the Association and is valued at the lower of cost or market with cost being determined by the first-in, first-out method.
Purchased investments are recorded at fair value, and donated investments are recorded as contributions at fair value on the date of receipt. Realized gains and losses on sales of investments are determined on the basis of the specific identification of the cost of the security sold.
Equipment is stated at cost. Depreciation of equipment is computed by the straight-line method based on an estimated useful life of 5 years.
Maintenance and repairs of equipment are charged to operations, and major improvements are capitalized. Upon retirement, sale or other disposition of equipment, the cost and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations. …