Presentation is loading. Please wait.

Presentation is loading. Please wait.

© Pearson Education, Inc. publishing as Prentice Hall21-1 Chapter 21:Accounting for Not- for-Profit Organizations by Jeanne M. David, Ph.D., Univ. of Detroit.

Similar presentations


Presentation on theme: "© Pearson Education, Inc. publishing as Prentice Hall21-1 Chapter 21:Accounting for Not- for-Profit Organizations by Jeanne M. David, Ph.D., Univ. of Detroit."— Presentation transcript:

1 © Pearson Education, Inc. publishing as Prentice Hall21-1 Chapter 21:Accounting for Not- for-Profit Organizations by Jeanne M. David, Ph.D., Univ. of Detroit Mercy to accompany Advanced Accounting, 10 th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn

2 © Pearson Education, Inc. publishing as Prentice Hall21-2 Not-for-Profits : Objectives 1.Learn about the four main categories of not-for- profit organizations 2.Differentiate between governmental and nongovernmental not-for-profit organizations. 3.Introduce FASB not-for-profit accounting principles. 4.Apply not-for-profit accounting principles to voluntary health and welfare organizations.

3 © Pearson Education, Inc. publishing as Prentice Hall21-3 Objectives (cont.) 5.Apply not-for-profit accounting principles to hospitals and other health care organizations. 6.Apply not-for-profit accounting principles to private not-for-profit colleges and universities.

4 © Pearson Education, Inc. publishing as Prentice Hall21-4 1: Categories of NFPs Accounting for Not-for-Profit Organizations

5 © Pearson Education, Inc. publishing as Prentice Hall21-5 Characteristics Not-for-profit characteristics –Contributions without expected commensurate returns –Purpose is other than providing goods or services –Lacks ownership interests Accounting for not-for-profits –Governmental: follow GASB –Nongovernmental: follow FASB

6 © Pearson Education, Inc. publishing as Prentice Hall21-6 Categories of NFPs 1.Voluntary health and welfare 2.Hospitals and health care 3.Colleges and universities 4.Other not-for-profits Churches, museums Other NFPs are similar to voluntary health and welfare, without requiring a statement of functional expenses

7 © Pearson Education, Inc. publishing as Prentice Hall21-7 2: Governmental and Nongovernmental NFPs Accounting for Not-for-Profit Organizations

8 © Pearson Education, Inc. publishing as Prentice Hall21-8 Governmental NFPs Governmental not-for-profits are NFPs with –Officers elected or appointed by government –Government can unilaterally dissolve and assets revert to government –Has power to enact/enforce taxes Follow GASB

9 © Pearson Education, Inc. publishing as Prentice Hall21-9 Nongovernmental NFPs NFPs that lack the governmental element Follow FASB FASB Statement No. 116 –Contributions FASB Statement No. 117 –Financial statements 2007 AICPA Audit and Accounting Guide: Not- for-Profit Organizations

10 © Pearson Education, Inc. publishing as Prentice Hall : Accounting Principles Accounting for Not-for-Profit Organizations

11 © Pearson Education, Inc. publishing as Prentice Hall21-11 Financial Statements Statement of financial position Statement of activities Replace with "Statement of operations" and "Statement of changes in net assets" for hospitals and health care Statement of cash flows Statement of functional expenses Required only for voluntary health and welfare organizations

12 © Pearson Education, Inc. publishing as Prentice Hall21-12 Net Assets Three categories 1.Permanently restricted net assets Asset use is limited Donor imposed stipulations that do not expire/ cannot be removed by entity 2.Temporarily restricted net assets Donor imposed restrictions that expire (time restrictions) Can be removed by entity fulfilling stipulations (purpose restrictions) 3.Unrestricted net assets

13 © Pearson Education, Inc. publishing as Prentice Hall21-13 Statement of Activities Changes in net assets shown separately for –Unrestricted net assets –Temporarily restricted net assets –Permanently restricted net assets Revenues and contributions in all three areas Expenses only in unrestricted net assets Reclassifications –Move amounts from temporarily restricted to unrestricted net assets Expiration of time restrictions Fulfillment of purpose restrictions

14 © Pearson Education, Inc. publishing as Prentice Hall21-14 Expenses Expenses are classified into one of two major categories Program services These are the activities the NFP provides Examples: Research expense, Educational expense, Food bank expense, Recreational expense Supporting services Management and general expenses Fund-raising expenses

15 © Pearson Education, Inc. publishing as Prentice Hall21-15 Contributions Contributions of cash Contribution revenue Conditional promise to give Will be contribution revenue and receivable when conditions are substantially met Unconditional promise to give Contribution revenue and receivable when pledged, but is temporarily restricted (time)

16 © Pearson Education, Inc. publishing as Prentice Hall21-16 Contributions (cont.) Contributions (cash, pledge, other assets) with donor imposed restrictions Contribution revenue as temporarily restricted (time or purpose) or permanently restricted When temporary restriction is met, reclassify temporarily restricted net assets as unrestricted net assets Contributions of fixed assets Temporarily restricted net assets if donor imposed or board designated as such

17 © Pearson Education, Inc. publishing as Prentice Hall21-17 Transfers (Non-contribution) Exchange transactions: Revenues –Sales of products or services –"Donations" with gift of same approximate value Exchange is unrestricted Agency transactions –No revenue or contribution –Increase (decrease) both assets and liabilities Gifts in kind –Contribution revenue (restricted or unrestricted) Create or enhance nonfinancial assets Specialized skills that would otherwise have been purchased

18 © Pearson Education, Inc. publishing as Prentice Hall21-18 Other Accounting Issues Measurement –Contributions at fair value –Fair value at time of pledge Don't recognize increases Decreases change net assets Collections (art work, historical treasures) –Capitalization encouraged Contributions are revenues Fund accounting –Not required –Fund financial statements may be presented as supplemental information

19 © Pearson Education, Inc. publishing as Prentice Hall : Voluntary Health and Welfare Accounting for Not-for-Profit Organizations

20 © Pearson Education, Inc. publishing as Prentice Hall21-20 Fund Raising Pay general fund raising expenses Special event fund raisers (two entries) –Receive $1,950 in contributions: gains –Pay fund raising costs of special event $250 Special events are disclosed net of costs Therefore, the term "gain," not revenue Expenses - supporting services - fund raising145 Cash 145 Cash1,950 Unrestricted gains – special event1,950 Unrestricted gains – special event250 Cash250

21 © Pearson Education, Inc. publishing as Prentice Hall21-21 Cash Donations and Pledges Receive 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 revenue –Revenue accounts are closed to net assets (temporarily, permanently or unrestricted) Cash4,000 Contributions receivable6,000 Allowance for uncollectibles 600 Unrestricted support – contributions 7,600 Temporarily restricted support - contributions 1,800

22 © Pearson Education, Inc. publishing as Prentice Hall21-22 Collect a Time-Restricted Pledge Two entries Cash collection Reclassification for expiration of time restriction Reclassification accounts are temporary accounts closed to their respective net asset accounts Cash1,800 Contributions receivable 1,800 Temporarily restricted net asset - reclassification out1,800 Unrestricted net assets - reclassification in 1,800

23 © Pearson Education, Inc. publishing as Prentice Hall21-23 Receive Equipment and Use It Contribution 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 – contributions 1,500 Depreciation expense - program services - community service500 Accumulated depreciation – equipment 500 Temporarily restricted net asset - reclassification out500 Unrestricted net assets - reclassification in 500

24 © Pearson Education, Inc. publishing as Prentice Hall21-24 Receive Cash with Purpose Restriction Receive cash for research Pay research costs – fulfills purpose restriction –Two entries: record expenses, reclassify net assets If cash was for buying equipment, reclassify as it is depreciated Cash1,000 Temporarily restricted support – contributions 1,000 Expenses - program services – research900 Cash 900 Temporarily restricted net asset - reclassification out900 Unrestricted net assets - reclassification in 900

25 © Pearson Education, Inc. publishing as Prentice Hall21-25 Accounting, specialized services that would have to be purchased: record as both expense and revenue Services of general labor (non-specialized) that result in nonfinancial assets: record asset and revenue Services of other general labor (door-to-door collections): not recorded Expenses - support services - management and general500 Unrestricted support - donated services 500 Construction in process1,200 Unrestricted support - donated services 1,200 Receive Donated Services

26 © Pearson Education, Inc. publishing as Prentice Hall21-26 Statement of Financial Position

27 © Pearson Education, Inc. publishing as Prentice Hall21-27 Statement of Activities

28 © Pearson Education, Inc. publishing as Prentice Hall21-28 Statement of Activities (cont.) Changes in unrestricted net assets: revenues, increases from reclassifications, and all expenses Changes in temporarily restricted net assets: revenues and resources released and reclassified to unrestricted Changes in permanently restricted net assets: revenues

29 © Pearson Education, Inc. publishing as Prentice Hall21-29 Statement of Cash Flows

30 © Pearson Education, Inc. publishing as Prentice Hall21-30 Statement of Functional Expenses Expenses as reported on the Statement of Activities

31 © Pearson Education, Inc. publishing as Prentice Hall : Hospitals and Other Health Care Accounting for Not-for-Profit Organizations

32 © Pearson Education, Inc. publishing as Prentice Hall21-32 Hospitals and Health Care Applies to nongovernmental, not-for-profit hospitals and health care agencies Governmental: GASB Private, for-profit: FASB as for businesses

33 © Pearson Education, Inc. publishing as Prentice Hall21-33 Revenues and Other Receipts Unrestricted: Patient revenues is net of –Courtesy discounts –Contractual adjustments Premium (subscriber or capitation) fees Other operating revenue, tuition, cafeteria, gift shops, in-room TV/phone Non-operating gains, gifts and bequests Temporarily or Permanently restricted: "T" or "P" restricted support, donated assets, investments, gifts, bequests

34 © Pearson Education, Inc. publishing as Prentice Hall21-34 Hospital Expenses Classify by function –Nursing services expense –Other professional expense –General services –Fiscal services –Administrative services –Medical malpractice costs –Provision for bad debts –Depreciation expense

35 © Pearson Education, Inc. publishing as Prentice Hall21-35 Patient Revenue The full amount is charged to the patient bill Upon approval, the bill is reduced for courtesy discounts and contractual adjustments Contra-revenue accounts Uncollectibles are estimated and written off as needed, like businesses Patient accounts receivable1,300 Patient service revenues – unrestricted 1,300 Courtesy discounts9 Contractual adjustments300 Patient accounts receivable 309 Provision for bad debts26 Allowance for uncollectibles 26

36 © Pearson Education, Inc. publishing as Prentice Hall21-36 Cash Contributions Cash contributions can be unrestricted, temporarily or permanently restricted "Support" accounts are revenues/gains When cash restricted for nursing services is spent in that manner Reclassify net assets as unrestricted Cash275 Unrestricted support - nonoperating gains 25 Temporarily restricted support 250 Nursing services expense250 Cash 250 Temporarily restricted net asset - reclassification out250 Unrestricted net assets - reclassification in 250

37 © Pearson Education, Inc. publishing as Prentice Hall21-37 Donated supplies are unrestricted support Record as inventory and expense as used Donated specialized services that would otherwise be purchased Record 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. Inventory of materials and supplies130 Unrestricted support - donated supplies 130 Nursing services expenses70 Unrestricted support - donated services 70 Receive Donated Assets/Services

38 © Pearson Education, Inc. publishing as Prentice Hall21-38 Hospital Statements Statement of net assets Statement of operations Statement of changes in net assets Statement of cash flows The NPF "Statement of activities" includes changes to unrestricted, temporarily and permanently restricted net assets The Hospital's "Statement of Operations" and "Statement of changes in net assets" together, provide that information

39 © Pearson Education, Inc. publishing as Prentice Hall21-39 Statement of Operations: Hospital

40 © Pearson Education, Inc. publishing as Prentice Hall21-40 Statement of Changes in Net Assets: Hospital Shows the net changes in unrestricted net assets from the Statement of operations Shows the details on temporarily and permanently restricted net assets

41 © Pearson Education, Inc. publishing as Prentice Hall : Colleges and Universities Accounting for Not-for-Profit Organizations

42 © Pearson Education, Inc. publishing as Prentice Hall21-42 Colleges and Universities Applies to nongovernmental, not-for-profit colleges and universities Governmental: GASB Private, for-profit: FASB as for businesses

43 © Pearson Education, Inc. publishing as Prentice Hall21-43 Tuition and Scholarships Tuition and fees: revenue at gross amount Tuition waivers: contra revenue Reported tuition revenue is reduced by employee discounts and non-employment fellowships Scholarships From outside sources: collect the account receivable from the donor Awarded by the college itself: reduce accounts receivable and record "Expenses – Educational and general – student aid"

44 © Pearson Education, Inc. publishing as Prentice Hall21-44 College Expenses Expenses are only in the unrestricted net assets Classify by function: –Instruction expense –Research expense –Public service expense –Academic support –Student services –Institutional support –Operation and maintenance of plant –Student aid

45 © Pearson Education, Inc. publishing as Prentice Hall21-45 Tuition Revenues Tuition is recorded at gross amount Tuition waivers are contra-revenues Bad debts are recorded as for businesses Grouped with institutional support expenses Accounts receivable1,000 Unrestricted revenues - tuition and fees 1,000 Tuition reduction: unrestricted - student aid50 Accounts receivable 50 Expenses - educational and general - institutional support30 Allowance for uncollectibles 30

46 © Pearson Education, Inc. publishing as Prentice Hall21-46 Receive Appropriations Appropriations received from governments and other sources are support revenue –Unrestricted For general operations College board has ability to designate as unrestricted –Restricted Temporary or permanently restricted Cash700 Unrestricted support - state appropriation 700

47 © Pearson Education, Inc. publishing as Prentice Hall21-47 Funds Held for Students Receive cash that is to be distributed to students –Grant funds held for students is a liability Distribute 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 students 150 Grant funds held for students150 Cash 150

48 © Pearson Education, Inc. publishing as Prentice Hall21-48 Endowments Receive cash for permanent endowment, with income restricted to student aid Receive income on endowment Classify as temporarily restricted Spend cash on student aid Reclassify net assets Cash50 Permanently restricted support - endowment contribution 50 Cash4 Temporarily restricted support - endowment income 4 Expenses - unrestricted - student aid3 Cash 3 Temporarily restricted net assets - reclassifications out3 Unrestricted net assets - reclassifications in 3

49 © Pearson Education, Inc. publishing as Prentice Hall21-49 Auxiliary Services Auxiliary services: residence halls, food services, intercollegiate athletics Unrestricted revenues and expenses Statement of activities: total revenues and total expenses for auxiliary services Subsidiary records are maintained Cash61 Revenues - auxiliary enterprises 61 Expenses - auxiliary enterprises28 Cash 28

50 © Pearson Education, Inc. publishing as Prentice Hall21-50 Statement of Activities: College

51 © Pearson Education, Inc. publishing as Prentice Hall21-51 State. of Activities: College (cont.)

52 © Pearson Education, Inc. publishing as Prentice Hall21-52 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All 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.


Download ppt "© Pearson Education, Inc. publishing as Prentice Hall21-1 Chapter 21:Accounting for Not- for-Profit Organizations by Jeanne M. David, Ph.D., Univ. of Detroit."

Similar presentations


Ads by Google