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© Pearson Education, Inc. publishing as Prentice 21-1

Chapter 21:Accounting for Not-

for-Profit Organizations

by Jeanne M. David, Ph.D., Univ. of Detroit Mercy

to accompany

Advanced Accounting , 10th edition

by !oyd A" #eams, $obin P" C!ement,%oseph &" Anthony, and 'uzanne (o)ensohn

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Not-for-Profits : Ob*ecti+es

1. Learn about the four main categories of not-for-

profit organizations

. Differentiate bet!een go+ernmenta! and

nongo+ernmenta! not-for-profit organizations.

". #ntroduce A'# not-for-profit accounting

princip$es.

%. &pp$y not-for-profit accounting princip$es to+o!untary hea!th and )e!fare organizations.

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Ob*ecti+es 'cont.(

). &pp$y not-for-profit accounting princip$es to

hospita!s and other hea$th care organizations.

*. &pp$y not-for-profit accounting princip$es to

private not-for-profit co!!eges and uni+ersities.

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1: Categories of NPs1: Categories of NPs

&ccounting for +ot-for-Profit rganizations

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Characteristics

Not-for-profit characteristics

– Contributions )ithout epected

commensurate returns

– Purpose is other than pro+iding goods or

ser+ices

– (acs o)nership interests

Accounting for not-for-profits

– .o+ernmenta!: fo!!o) .A'# – Nongo+ernmenta!: fo!!o) A'#

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Categories of NPs

1" /o!untary hea!th and )e!fare

2" &ospita!s and hea!th care

" Co!!eges and uni+ersities

" Other not-for-profits

• Churches, museums• Other NFPs are similar to voluntary

health and welfare, without requiring astatement of functional expenses

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2: .o+ernmenta! and2: .o+ernmenta! andNongo+ernmenta! NPsNongo+ernmenta! NPs


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.o+ernmenta! NPs

.o+ernmenta! not-for-profits are NPs )ith

– Officers e!ected or appointed by go+ernment – .o+ernment can uni!atera!!y disso!+e and

assets re+ert to go+ernment

– &as po)er to enactenforce taes

o!!o) .A'#

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Nongo+ernmenta! NPs

NPs that !ac the go+ernmenta! e!ement

o!!o) A'#

• FAS Statement No! ""# – Contri$utions

• FAS Statement No! ""% –

Financial statements• &''% A(CPA Audit and Accounting )uide* Not+for+

Profit Organiations

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: Accounting Princip!es: Accounting Princip!es


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inancia! 'tatements

'tatement of financia! position

'tatement of acti+ities

• -eplace with .Statement of operations. and

.Statement of changes in net assets. for

hospitals and health care

'tatement of cash f!o)s

'tatement of functiona! epenses• -equired only for voluntary health and

welfare organiations

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Net Assets

3hree categories

1" Permanent!y restricted net assets

• Asset use is limited

• /onor imposed stipulations that do notexpire0 cannot $e removed $y entity

2" 3emporari!y restricted net assets

• /onor imposed restrictions that expire

1time restrictions2• Can $e removed $y entity fulfilling

stipulations 1purpose restrictions2

" 4nrestricted net assets

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'tatement of Acti+ities

• Changes in net assets sho)n separate!y for – 4nrestricted net assets

– 3emporari!y restricted net assets

– Permanent!y restricted net assets• $e+enues and contributions in a!! three areas• 5penses on!y in unrestricted net assets• $ec!assifications

– 6o+e amounts from temporari!y restricted tounrestricted net assets

• 3xpiration of time restrictions

• Fulfillment of purpose restrictions

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5penses

5penses are c!assified into one of t)o ma*or

categories

Program ser+ices

hese are the activities the +P providesExamples: /esearch e0pense, ducationa$ e0pense,

ood ban2 e0pense, /ecreationa$ e0pense

'upporting ser+ices

6anagement and genera! epensesund-raising epenses

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Contributions

• Contributions of cash• Contri$ution revenue

• Conditiona! promise to gi+e• 4ill $e contri$ution revenue and receiva$le

when conditions are su$stantially met

• 4nconditiona! promise to gi+e

• Contri$ution revenue and receiva$le when pledged, $ut is temporarily restricted 1time2

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Contributions 'cont.(• Contributions 7cash, p!edge, other assets8 )ith

donor imposed restrictions• Contri$ution revenue as temporarily restricted

1time or purpose2 or permanently restricted

• 4hen temporary restriction is met, reclassifytemporarily restricted net assets as unrestrictednet assets

• Contributions of fied assets• 5emporarily restricted net assets if donor

imposed or $oard designated as such

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3ransfers 7Non-contribution8

• 5change transactions: $e+enues – 'a!es of products or ser+ices – 9onations9 )ith gift of same approimate +a!ue

• 3xchange is unrestricted

• Agency transactions – No re+enue or contribution

– ;ncrease 7decrease8 both assets and !iabi!ities

• .ifts in ind – Contribution re+enue 7restricted or unrestricted8

• Create or enhance nonfinancial assets• Specialied s6ills that would otherwise have $een

purchased

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© Pearson Education, Inc. publishing as Prentice 21-1!

Other Accounting ;ssues• 6easurement

– Contributions at fair +a!ue – air +a!ue at time of p!edge

• /on7t recognie increases

• /ecreases change net assets• Co!!ections 7art )or, historica! treasures8

– Capita!ization encouraged• Contri$utions are revenues

• und accounting – Not re

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© Pearson Education, Inc. publishing as Prentice 21-1"

: /o!untary &ea!th and =e!fare: /o!untary &ea!th and =e!fare


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© Pearson Education, Inc. publishing as Prentice 21-2#

und $aising

• Pay genera! fund raising epenses• 'pecia! e+ent fund raisers 7t)o entries8

– $ecei+e >1,?@0 in contributions: gains – Pay fund raising costs of specia! e+ent >2@0

• Special events are disclosed net of costs• 5herefore, the term .gain,. not revenue

Expenses - supporting services - fund raising 145

Cash 145

Cash 1,95

!nrestricted gains – special event 1,95

!nrestricted gains – special event "5

Cash "5

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Cash onations and P!edges

• $ecei+e cash and p!edge 'no purpose restrictions( – Cash is unrestricted – >1,00 of >B,000 p!edges are to be co!!ected net year: creates a time

restriction3upport 4 contributions 'restricted or not( is revenue – /evenue accounts are c$osed to net assets 'temporari$y, permanent$y or

unrestricted(

Cash 4,

Contri#utions receiva#le $,

%llo&ance for uncollecti#les $

!nrestricted support – contri#utions ',$

(emporaril) restricted support -contri#utions 1,*

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Co!!ect a 3ime-$estricted P!edge

• 3)o entries• Cash collection

• -eclassification for expiration of timerestriction

/ec$assification accounts are temporary accountsc$osed to their respective net asset accounts

Cash 1,*

Contri#utions receiva#le 1,*

(emporaril) restricted net asset - reclassification

out 1,*

!nrestricted net assets - reclassification in 1,*

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$ecei+e 5

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$ecei+e Cash )ith Purpose

$estriction

• $ecei+e cash for research• Pay research costs fu!fi!!s purpose restriction

– (&o entries: record expenses, reclassif) netassets

#f cash !as for buying e5uipment, rec$assify as it is

depreciated

Cash 1,

(emporaril) restricted support –contri#utions 1,

Expenses - program services – research 9Cash 9

(emporaril) restricted net asset -reclassification out 9

!nrestricted net assets - reclassification in 9

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• Accounting, specia!ized ser+ices that )ou!d ha+e tobe purchased: record as both epense and re+enue

•'er+ices of genera! !abor 7non-specia!ized8 that resu!tin nonfinancia! assets: record asset and re+enue

3ervices of other genera$ $abor 'door-to-door co$$ections(6not recorded

Expenses - support services - managementand general 5

!nrestricted support - donated services 5

Construction in process 1,"!nrestricted support - donated services 1,"

$ecei+e onated 'er+ices

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'tatement of inancia! Position

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'tatement of Acti+ities

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'tatement of Acti+ities 'cont.(

• Changes in unrestricted net assets: re+enues, increasesfrom rec!assifications, and a!! epenses

• Changes in temporari!y restricted net assets: re+enuesand resources re!eased and rec!assified to unrestricted

• Changes in permanent!y restricted net assets: re+enues

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'tatement of Cash !o)s

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'tatement of unctiona! 5penses

5penses as

reported on

the

'tatement

of Acti+ities

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@: &ospita!s and Other &ea!th Care@: &ospita!s and Other &ea!th Care


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&ospita!s and &ea!th Care

• App!ies to nongo+ernmenta!, not-for-profit

hospita!s and hea!th care agencies

• )overnmental* )AS

• Private, for+profit* FAS as for $usinesses

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$e+enues and Other $eceipts4nrestricted:

• Patient re+enues is net of

– Courtesy discounts

– Contractua! ad*ustments

• Premium 7subscriber or capitation8 fees• Other operating re+enue, tuition, cafeteria, gift shops, in-room

78phone

• Non-operating gains, gifts and be5uests

3emporari!y or Permanent!y restricted:

• 939 or 9P9 restricted support, donated assets, investments, gifts, be5uests

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&ospita! 5penses

C!assify by function

– Nursing ser+ices epense – Other professiona! epense

– .enera! ser+ices – isca! ser+ices – Administrati+e ser+ices – 6edica! ma!practice costs – Pro+ision for bad debts

– epreciation epense

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Patient $e+enue

• 3he fu!! amount is charged to the patient bi!!

• Upon approva$, the bi$$ is reduced for courtesydiscounts and contractua$ ad9ustments• :ontra-revenue accounts

• 4nco!!ectib!es are estimated and )ritten off as needed,$i2e businesses

atient accounts receiva#le 1,.

atient service revenues – unrestricted 1,.

Courtes) discounts 9

Contractual ad/ustments .

atient accounts receiva#le .9

rovision for #ad de#ts "$

%llo&ance for uncollecti#les "$

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Cash Contributions

• Cash contributions can be unrestricted, temporari!y orpermanent!y restricted

• ;3upport; accounts are revenues8gains• =hen cash restricted for nursing ser+ices is spent in

that manner• /ec$assify net assets as unrestricted

Cash "'5

!nrestricted support - nonoperating gains "5

(emporaril) restricted support "5

0ursing services expense "5

Cash "5

(emporaril) restricted net asset -reclassification out "5

!nrestricted net assets - reclassification in "5

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• onated supp!ies are unrestricted support• -ecord as inventory and expense as used

• onated specia!ized ser+ices that )ou!d other)ise be

purchased• -ecord as $oth expense and revenue

+ursing services e0pense !i$$ be the fu$$ cost of running thehospita$ !hether services are donated or purchased. he

donated services are c$ear$y definab$e.

nventor) of materials and supplies 1.

!nrestricted support - donated supplies 1.

0ursing services expenses '

!nrestricted support - donated services '

$ecei+e onated Assets'er+ices

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&ospita! 'tatements

• 'tatement of net assets• Statement of operations

• Statement of changes in net assets

• 'tatement of cash f!o)s

3he NP 9'tatement of acti+ities9 inc!udes

changes to unrestricted, temporari!y and

permanent!y restricted net assets3he &ospita!Ds 9'tatement of Operations9 and

9'tatement of changes in net assets9 together,

pro+ide that information

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'tatement of Operations: &ospita!

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'tatement of Changes in Net

Assets: &ospita!

• 'ho)s the net changes in unrestricted net assetsfrom the 'tatement of operations

• 'ho)s the detai!s on temporari!y andpermanent!y restricted net assets

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B: Co!!eges and 4ni+ersitiesB: Co!!eges and 4ni+ersities


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Co!!eges and 4ni+ersities

• App!ies to nongo+ernmenta!, not-for-profit

co!!eges and uni+ersities

• )overnmental* )AS

• Private, for+profit* FAS as for $usinesses

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3uition and 'cho!arships

3uition and fees: re+enue at gross amount• 3uition )ai+ers: contra re+enue

/eported tuition revenue is reduced by emp$oyee discountsand non-emp$oyment fe$$o!ships

'cho!arships• From outside sources* collect the account

receiva$le from the donor • Awarded $y the college itself* reduce accounts

receiva$le and record .3xpenses 8 3ducationaland general 8 student aid.

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Co!!ege 5penses

5penses are on!y in the unrestricted net assets

C!assify by function:

– ;nstruction epense

– $esearch epense – Pub!ic ser+ice epense

– Academic support

– 'tudent ser+ices

– ;nstitutiona! support

– Operation and maintenance of p!ant

– 'tudent aid

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3uition $e+enues

• 3uition is recorded at gross amount

• 5uition waivers are contra+revenues• #ad debts are recorded as for businesses

• )rouped with institutional support expenses

%ccounts receiva#le 1,

!nrestricted revenues - tuition and fees 1,

(uition reduction: unrestricted - student aid 5

%ccounts receiva#le 5

Expenses - educational and general -institutional support .

%llo&ance for uncollecti#les .

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$ecei+e Appropriations

•Appropriations recei+ed from go+ernments andother sources are support re+enue – 4nrestricted

• For general operations• College $oard has a$ility to designate as

unrestricted – $estricted

• 5emporary or permanently restricted

Cash '

!nrestricted support - state appropriation '

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unds &e!d for 'tudents

• $ecei+e cash that is to be distributed to students – .rant funds he!d for students is a !iabi!ity

• istribute cash to appropriate students

#f some of those funds are app$ied to studentaccounts, the second entry !ou$d credit accountsreceivab$e rather than cash.

Cash 15

2rant funds held for students 15

2rant funds held for students 15

Cash 15

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5ndo)ments

• $ecei+e cash for permanent endo)ment, !ith

income restricted to student aid • $ecei+e income on endo)ment

• Classify as temporarily restricted • 'pend cash on student aid

• -eclassify net assets

Cash 5

ermanentl) restricted support - endo&mentcontri#ution 5

Cash 4

(emporaril) restricted support - endo&ment income 4

Expenses - unrestricted - student aid .

Cash .

(emporaril) restricted net assets - reclassifications out .

!nrestricted net assets - reclassifications in .

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Aui!iary 'er+ices

• Aui!iary ser+ices: residence ha!!s, foodser+ices, interco!!egiate ath!etics

• 9nrestricted revenues and expenses• 'tatement of acti+ities: tota! re+enues and tota!

epenses for aui!iary ser+ices• 'ubsidiary records are maintained

Cash $1

3evenues - auxiliar) enterprises $1

Expenses - auxiliar) enterprises "*

Cash "*

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'tatement

of

Acti+ities:Co!!ege

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'tate" of Acti+ities: Co!!ege 'cont.(

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Beams10e_Ch21

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