Ch. 22 - Accounting for Not for Profit Organization

Pearson Education, Inc. publishing as Prentice Hall21-*Chapter 21:Accounting for Not-for-Profit Organizationsby Jeanne M. David, Ph.D., Univ. of Detroit Mercy

to accompanyAdvanced Accounting, 10th editionby Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn

21-*Beams, Advanced Accounting 10e, Ch. 21* Pearson Education, Inc. publishing as Prentice Hall*

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Pearson Education, Inc. publishing as Prentice Hall21-*Not-for-Profits : ObjectivesLearn about the four main categories of not-for-profit organizationsDifferentiate between governmental and nongovernmental not-for-profit organizations.Introduce FASB not-for-profit accounting principles.Apply not-for-profit accounting principles to voluntary health and welfare organizations.

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Pearson Education, Inc. publishing as Prentice Hall21-*Objectives (cont.)Apply not-for-profit accounting principles to hospitals and other health care organizations.Apply not-for-profit accounting principles to private not-for-profit colleges and universities.

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Pearson Education, Inc. publishing as Prentice Hall21-*1: Categories of NFPsAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*CharacteristicsNot-for-profit characteristicsContributions without expected commensurate returnsPurpose is other than providing goods or servicesLacks ownership interests

Accounting for not-for-profitsGovernmental: follow GASBNongovernmental: follow FASB

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Pearson Education, Inc. publishing as Prentice Hall21-*Categories of NFPsVoluntary health and welfareHospitals and health care Colleges and universitiesOther not-for-profitsChurches, museumsOther NFPs are similar to voluntary health and welfare, without requiring a statement of functional expenses

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Pearson Education, Inc. publishing as Prentice Hall21-*2: Governmental and Nongovernmental NFPsAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Governmental NFPsGovernmental not-for-profits are NFPs withOfficers elected or appointed by governmentGovernment can unilaterally dissolve and assets revert to governmentHas power to enact/enforce taxes

Follow GASB

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Pearson Education, Inc. publishing as Prentice Hall21-*Nongovernmental NFPsNFPs that lack the governmental element

Follow FASB

FASB Statement No. 116ContributionsFASB Statement No. 117Financial statements2007 AICPA Audit and Accounting Guide: Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*3: Accounting PrinciplesAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Financial StatementsStatement of financial positionStatement of activitiesReplace with "Statement of operations" and "Statement of changes in net assets" for hospitals and health care

Statement of cash flowsStatement of functional expensesRequired only for voluntary health and welfare organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Net AssetsThree categoriesPermanently restricted net assetsAsset use is limitedDonor imposed stipulations that do not expire/ cannot be removed by entity

Temporarily restricted net assetsDonor imposed restrictions that expire (time restrictions)Can be removed by entity fulfilling stipulations (purpose restrictions)

Unrestricted net assets

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of ActivitiesChanges in net assets shown separately forUnrestricted net assets Temporarily restricted net assetsPermanently restricted net assetsRevenues and contributions in all three areasExpenses only in unrestricted net assetsReclassificationsMove amounts from temporarily restricted to unrestricted net assetsExpiration of time restrictionsFulfillment of purpose restrictions

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Pearson Education, Inc. publishing as Prentice Hall21-*ExpensesExpenses are classified into one of two major categoriesProgram servicesThese are the activities the NFP providesExamples: Research expense, Educational expense, Food bank expense, Recreational expenseSupporting servicesManagement and general expensesFund-raising expenses

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Pearson Education, Inc. publishing as Prentice Hall21-*ContributionsContributions of cash Contribution revenueConditional promise to give Will be contribution revenue and receivable when conditions are substantially metUnconditional promise to give Contribution revenue and receivable when pledged, but is temporarily restricted (time)

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Pearson Education, Inc. publishing as Prentice Hall21-*Contributions (cont.)Contributions (cash, pledge, other assets) with donor imposed restrictionsContribution revenue as temporarily restricted (time or purpose) or permanently restrictedWhen temporary restriction is met, reclassify temporarily restricted net assets as unrestricted net assetsContributions of fixed assetsTemporarily restricted net assets if donor imposed or board designated as such

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Pearson Education, Inc. publishing as Prentice Hall21-*Transfers (Non-contribution)Exchange transactions: RevenuesSales of products or services"Donations" with gift of same approximate valueExchange is unrestrictedAgency transactionsNo revenue or contributionIncrease (decrease) both assets and liabilitiesGifts in kindContribution revenue (restricted or unrestricted)Create or enhance nonfinancial assetsSpecialized skills that would otherwise have been purchased

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Pearson Education, Inc. publishing as Prentice Hall21-*Other Accounting IssuesMeasurementContributions at fair value Fair value at time of pledgeDon't recognize increasesDecreases change net assets Collections (art work, historical treasures)Capitalization encouragedContributions are revenuesFund accountingNot requiredFund financial statements may be presented as supplemental information

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Pearson Education, Inc. publishing as Prentice Hall21-*4: Voluntary Health and WelfareAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Fund RaisingPay general fund raising expensesSpecial event fund raisers (two entries)Receive $1,950 in contributions: gainsPay fund raising costs of special event $250Special events are disclosed net of costsTherefore, the term "gain," not revenue

Expenses - supporting services - fund raising145 Cash145 Cash1,950Unrestricted gains special event1,950Unrestricted gains special event250Cash250

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Pearson Education, Inc. publishing as Prentice Hall21-*Cash Donations and PledgesReceive cash and pledge (no purpose restrictions)Cash is unrestricted$1,800 of $6,000 pledges are to be collected next year: creates a time restriction

Support contributions (restricted or not) is revenueRevenue accounts are closed to net assets (temporarily, permanently or unrestricted)

Cash4,000 Contributions receivable6,000 Allowance for uncollectibles600 Unrestricted support contributions7,600 Temporarily restricted support - contributions1,800

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Pearson Education, Inc. publishing as Prentice Hall21-*Collect a Time-Restricted PledgeTwo entriesCash collectionReclassification for expiration of time restriction

Reclassification accounts are temporary accounts closed to their respective net asset accounts

Cash1,800 Contributions receivable1,800 Temporarily restricted net asset - reclassification out1,800 Unrestricted net assets - reclassification in1,800

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Pearson Education, Inc. publishing as Prentice Hall21-*Receive Equipment and Use ItContribution of equipment is temporarily restricted (in the sense that it gets used up)As depreciation is recorded, net assets are reclassified from temporarily restricted to unrestricted

Equipment1,500 Temporarily restricted net assets contributions1,500 Depreciation expense - program services - community service500 Accumulated depreciation equipment500 Temporarily restricted net asset - reclassification out500 Unrestricted net assets - reclassification in500

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Pearson Education, Inc. publishing as Prentice Hall21-*Receive Cash with Purpose RestrictionReceive cash for researchPay research costs fulfills purpose restrictionTwo entries: record expenses, reclassify net assets

If cash was for buying equipment, reclassify as it is depreciated

Cash1,000 Temporarily restricted support contributions1,000 Expenses - program services research900 Cash900 Temporarily restricted net asset - reclassification out900 Unrestricted net assets - reclassification in900

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Pearson Education, Inc. publishing as Prentice Hall21-*Accounting, specialized services that would have to be purchased: record as both expense and revenueServices of general labor (non-specialized) that result in nonfinancial assets: record asset and revenue

Services of other general labor (door-to-door collections): not recordedReceive Donated Services

Expenses - support services - management and general500 Unrestricted support - donated services500 Construction in process1,200 Unrestricted support - donated services1,200

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Pearson Education, Inc. publishing as Prentice Hall21-*

Statement of Financial Position

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Activities

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Activities (cont.)Changes in unrestricted net assets: revenues, increases from reclassifications, and all expensesChanges in temporarily restricted net assets: revenues and resources released and reclassified to unrestrictedChanges in permanently restricted net assets: revenues

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Cash Flows

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Functional Expenses

Expenses as reported on the Statement of Activities

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Pearson Education, Inc. publishing as Prentice Hall21-*5: Hospitals and Other Health CareAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Hospitals and Health CareApplies to nongovernmental, not-for-profit hospitals and health care agenciesGovernmental: GASBPrivate, for-profit: FASB as for businesses

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Pearson Education, Inc. publishing as Prentice Hall21-*Revenues and Other ReceiptsUnrestricted:Patient revenues is net ofCourtesy discountsContractual adjustmentsPremium (subscriber or capitation) feesOther operating revenue, tuition, cafeteria, gift shops, in-room TV/phoneNon-operating gains, gifts and bequests

Temporarily or Permanently restricted:"T" or "P" restricted support, donated assets, investments, gifts, bequests

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Pearson Education, Inc. publishing as Prentice Hall21-*Hospital ExpensesClassify by functionNursing services expenseOther professional expenseGeneral servicesFiscal servicesAdministrative servicesMedical malpractice costsProvision for bad debtsDepreciation expense

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Pearson Education, Inc. publishing as Prentice Hall21-*Patient RevenueThe full amount is charged to the patient billUpon approval, the bill is reduced for courtesy discounts and contractual adjustmentsContra-revenue accountsUncollectibles are estimated and written off as needed, like businesses

Patient accounts receivable1,300 Patient service revenues unrestricted1,300 Courtesy discounts9 Contractual adjustments300 Patient accounts receivable309 Provision for bad debts26 Allowance for uncollectibles26

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Pearson Education, Inc. publishing as Prentice Hall21-*Cash ContributionsCash contributions can be unrestricted, temporarily or permanently restricted"Support" accounts are revenues/gainsWhen cash restricted for nursing services is spent in that mannerReclassify net assets as unrestricted

Cash275 Unrestricted support - nonoperating gains25 Temporarily restricted support250 Nursing services expense 250 Cash250 Temporarily restricted net asset - reclassification out250 Unrestricted net assets - reclassification in250

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Pearson Education, Inc. publishing as Prentice Hall21-*Donated supplies are unrestricted supportRecord as inventory and expense as usedDonated specialized services that would otherwise be purchasedRecord as both expense and revenue

Nursing services expense will be the full cost of running the hospital whether services are donated or purchased. The donated services are clearly definable.Receive Donated Assets/Services

Inventory of materials and supplies130 Unrestricted support - donated supplies130 Nursing services expenses 70 Unrestricted support - donated services70

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Pearson Education, Inc. publishing as Prentice Hall21-*Hospital StatementsStatement of net assetsStatement of operationsStatement of changes in net assetsStatement of cash flows

The NPF "Statement of activities" includes changes to unrestricted, temporarily and permanently restricted net assetsThe Hospital's "Statement of Operations" and "Statement of changes in net assets" together, provide that information

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Operations: Hospital

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Changes in Net Assets: HospitalShows the net changes in unrestricted net assets from the Statement of operationsShows the details on temporarily and permanently restricted net assets

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Pearson Education, Inc. publishing as Prentice Hall21-*6: Colleges and UniversitiesAccounting for Not-for-Profit Organizations

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Pearson Education, Inc. publishing as Prentice Hall21-*Colleges and UniversitiesApplies to nongovernmental, not-for-profit colleges and universitiesGovernmental: GASBPrivate, for-profit: FASB as for businesses

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Pearson Education, Inc. publishing as Prentice Hall21-*Tuition and ScholarshipsTuition and fees: revenue at gross amountTuition waivers: contra revenue

Reported tuition revenue is reduced by employee discounts and non-employment fellowships

ScholarshipsFrom outside sources: collect the account receivable from the donorAwarded by the college itself: reduce accounts receivable and record "Expenses Educational and general student aid"

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Pearson Education, Inc. publishing as Prentice Hall21-*College ExpensesExpenses are only in the unrestricted net assetsClassify by function:Instruction expenseResearch expensePublic service expenseAcademic supportStudent servicesInstitutional supportOperation and maintenance of plantStudent aid

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Pearson Education, Inc. publishing as Prentice Hall21-*Tuition RevenuesTuition is recorded at gross amountTuition waivers are contra-revenuesBad debts are recorded as for businessesGrouped with institutional support expenses

Accounts receivable1,000 Unrestricted revenues - tuition and fees1,000 Tuition reduction: unrestricted - student aid50 Accounts receivable50 Expenses - educational and general - institutional support30 Allowance for uncollectibles30

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Pearson Education, Inc. publishing as Prentice Hall21-*Receive AppropriationsAppropriations received from governments and other sources are support revenueUnrestrictedFor general operationsCollege board has ability to designate as unrestrictedRestrictedTemporary or permanently restricted

Cash700 Unrestricted support - state appropriation700

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Pearson Education, Inc. publishing as Prentice Hall21-*Funds Held for StudentsReceive cash that is to be distributed to studentsGrant funds held for students is a liabilityDistribute cash to appropriate students

If some of those funds are applied to student accounts, the second entry would credit accounts receivable rather than cash.

Cash150 Grant funds held for students150 Grant funds held for students150 Cash150

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Pearson Education, Inc. publishing as Prentice Hall21-*EndowmentsReceive cash for permanent endowment, with income restricted to student aidReceive income on endowmentClassify as temporarily restrictedSpend cash on student aidReclassify net assets

Cash50 Permanently restricted support - endowment contribution50 Cash4 Temporarily restricted support - endowment income4 Expenses - unrestricted - student aid3 Cash3 Temporarily restricted net assets - reclassifications out3 Unrestricted net assets - reclassifications in3

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Pearson Education, Inc. publishing as Prentice Hall21-*Auxiliary ServicesAuxiliary services: residence halls, food services, intercollegiate athleticsUnrestricted revenues and expensesStatement of activities: total revenues and total expenses for auxiliary servicesSubsidiary records are maintained

Cash61 Revenues - auxiliary enterprises61 Expenses - auxiliary enterprises28 Cash28

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Pearson Education, Inc. publishing as Prentice Hall21-*Statement of Activities: College

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Pearson Education, Inc. publishing as Prentice Hall21-*State. of Activities: College (cont.)

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Pearson Education, Inc. publishing as Prentice Hall21-*Copyright 2009 Pearson Education, Inc. Publishing as Prentice HallAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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Beams, Advanced Accounting 10e, Ch. 21Beams, Advanced Accounting 10e, Ch. 21* Pearson Education, Inc. publishing as Prentice Hall*

* Pearson Education, Inc. publishing as Prentice Hall