Question: You have been hired to prepare a report for the

You have been hired to prepare a report for the board of directors of a large art gallery. The board has just reviewed the annual financial statements of the art gallery, and is dissatisfied with the financial information provided in the statements. You have been provided with the following information.
The principal activity of the art gallery is the acquisition and exhibition of modern and contemporary pieces of art. The gallery is open to the general public on a daily basis, and has special exhibits for specific interest groups. Each year the gallery has a number of fundraising activities to help defray operating costs and make the acquisition of art possible. These activities are organized by the support staff, but rely on volunteers to staff the various functions. The major fundraising activity is an Annual Rennaise Telethon (ART), which solicits pledges from corporations and individuals and has been very successful.
Capital assets, in addition to the pieces of artwork, include a building, maintenance equipment, office furniture, and fixtures. The building that houses the art gallery is a large Victorian mansion that was donated by a prominent local family several years ago. Because the building has been designated a heritage property, utilities are provided by the local utility companies for a nominal fee of one dollar a year. As well, the municipal government has exempted the gallery from paying property taxes. Funding for capital asset acquisitions comes from various granting agencies and from fundraising activities of the gallery.
The gallery also operates a gift shop on a break- even basis, with the objective of attracting visitors to the gallery. The gift shop has a small staff of salaried employees, but also operates with the assistance of a number of volunteers. The gift shop has an annual inventory of $ 175,000, and annual sales of approximately $ 1 million.
The gallery has a support staff of 17 employees, a curator, and a director who is respon-sible for the overall operation of the gallery. The total operating budget for the gallery is $ 4.2 million.

Prepare a report addressing the concerns of the board of directors of the art gallery. Your report should include a brief description of the purpose and objective of a fund accounting system. As well, you have been asked to recommend the different types of funds that would be most appropriate for the gallery. A discussion of relevant accounting policies is also required.

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