1. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-1 Not-For-Profit Entities 19 Electronic Presentation by Douglas Cloud Pepperdine University Baker / Lembke / King

2. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-2 Special-Purpose Government Entities GASB 33 established specific reporting requirements for each of the following types of special-purpose governments: a.Engaged in more than one governmental program or that have both governmental and business-type activities. b.Engaged in a single government program (such as a cemetery district). c.Engaged in only business-type activities (such as a public university). d.Engaged in only fiduciary-type activities.

3. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-3 Financial Reporting: Private NFP Entities C. Alt donated $40,000 to a not-for-profit organization to be used specifically for a research program. Cash40,000 Contributions40,000 When the research expenditures were made in the unrestricted net asset class, a reclassification entry would be made in the temporarily restricted net asset class to record the completion of the specific use. Reclassification--Satisfaction of Program Restriction40,000 Cash40,000

4. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-4 Entries are required in the unrestricted net asset class. Cash40,000 Reclassification--Satisfaction of Programs Restriction40,000 Financial Reporting: Private NFP Entities Expense--Research Program40,000 Cash40,000

5. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-5 Colleges and Universities--Special Conventions In cases of university- sponsored scholarships, revenue is credited at the full standard rate for tuition. The scholarship is then recorded as an expenditure. Revenue and Expenditure Recognition Tuition and fees are primary revenue sources for the unrestricted current fund.

6. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-6 Revenue and Expenditure Recognition If a student withdraws and receives a partial reimbursement of tuition and fees, debit revenues from tuition and fees, and credit cash or accounts payable. Colleges and Universities--Special Conventions

7. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-7 When an academic term begins in one academic term and ends in another, revenue is recognized in the fiscal year in which the term is predominantly conducted. Colleges and Universities--Special Conventions Revenue and Expenditure Recognition

8. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-8 Transfers and Board-Designated Funds Mandatory transfers are transfers out of the current funds group to other funds resulting from binding legal agreements on financing or renewals and replacements of education plants, and from grant agreements with agencies of the federal government, donors, and others. Nonmandatory transfers are discretionary transfers specified by the governing board for a variety of purposes. Nonmandatory transfers may also be made from the loan, endowment, or annuity funds to the current funds.

9. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-9 Public Colleges and Universities The GASB has specified that public colleges and universities must follow the accounting and financial reporting standards as used for other governmental entities.

10. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-10 The three financial statements required by the FASB for private, not-for-profit colleges and universities are: (1)Statement of financial position (2) Statement of activities (3) Statement of cash flows Private Colleges and Universities

11. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-11 General Specific purpose Time Restricted Plant replacement and expansion Endowment Hospital Accounting Fund Groups Restricted Uses accrual accounting

12. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-12 Overview of Hospital Accounting/Reporting Specific Purpose Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Resources restricted for specific operating purposes. Accounting basis Distinguishing features Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

13. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-13 Time Restricted Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Resources not available until date specified by donor. Distinguishing features Accounting basis Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows Overview of Hospital Accounting/Reporting

14. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-14 Plant Replacement and Expansion Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Resources restricted for addition to plant assets. Overview of Hospital Accounting/Reporting Distinguishing features Accounting basis Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

15. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-15 Endowment Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Principal must be preserved. Overview of Hospital Accounting/Reporting Distinguishing features Accounting basis Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

16. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-16 amounts due from patients third-party payors other insurers of health care pledges or grants interfund transactions amounts due from patients third-party payors other insurers of health care pledges or grants interfund transactions Balance Sheet Receivables may include-- Receivables should be reported at the anticipated realizable amount.

17. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-17 Balance Sheet Investments are initially recorded at cost if purchased, or at fair value at the date of receipt if received as a gift.

18. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-18 Balance Sheet Property, plant, and equipment is reported, together with any accumulated depreciation. Depreciation is recorded in the general fund. Separate disclosure should be made for assets that have restrictions placed on their use by the donor or have been designated by the board of directors for special use.

19. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-19 Balance Sheet Long-term debt is shown in the balance sheet. This differs from most governmental entities in which a separate debt service fund is established to service debt. The net asset are segregated between those which are unrestricted, temporarily restricted, and permanently restricted.

20. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-20 Net patient service revenue –Revenue from inpatient and outpatient care. Contractual adjustments –A deduction from revenue based on contracts with third- party payors in the medical reimbursement process. Income from ancillary programs –Income from television rentals, cafeteria sales, sales in the gift shop, parking fees, and educational programs tuition. Interfund transfers –Release of restricted funds to unrestricted status when the stipulations set by the donor have been met. General fund expenses –Expenditures for nursing and other professional services, depreciation, bad debts, and administrative costs. Statement of Operations

21. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-21 create or enhance nonfinancial assets, or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.Donations FASB 116 requires donated services to be recognized if the services received --

22. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-22 Donated assets are reported as contributions in the statement of operations, if unrestricted. Restricted donated assets are reported as contributions to the temporarily restricted funds in the period received. Donated assets are reported at fair market value at the date of contribution: When the restriction no longer applies, the net assets released are reported in the unrestricted fund. Donations

23. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-23 General Fund The hospital provides patient services of $2,600,000 measured at standard rates. Accounts Receivable2,600,000 Patient Services Revenue2,600,000 Gross charges at standard rate. From this amount, $240,000 is deducted for contractual adjustments with third-party payors. Contractual Adjustments240,000 Accounts Receivable240,000 Deductions from gross revenue for contractual adjustments.

24. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-24 General Fund The hospital receives income in 20X2 from providing nonpatient services that include operating a cafeteria and gift shop and from vending machine commissions. Cash30,000 Revenue from Cafeteria Sales20,000 Revenue from Gift Shop Sales4,000 Revenue from Vending Machine Commissions6,000 Income from ancillary services.

25. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-25 The hospital incurs $2,600,000 in operating expenses. Cash payments are made of $2,125,000. Nursing Services Expense800,000 Other Professional Services Expense620,000 General Services Expense700,000 Fiscal Services Expense100,000 Administrative Service Expense80,000 Medical Malpractice Costs30,000 Bad Debts Expense60,000 Depreciation Expense200,000 Cash2,125,000 Allowance for Uncollectibles60,000 Inventories90,000 Prepaid Expenses5,000 Accumulated Depreciation200,000 Accounts Payable50,000 Accrued Expenses30,000 Estimated Medical Malpractice Costs Payable30,000 General Fund

26. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-26 General Fund The hospital receives donated services valued at $10,000. Other Professional Services Expense10,000 Donated Services Revenue10,000 Receive donated services. During 20X2, the hospital received unrestricted cash gifts in the amount of $63,000 and donated medicines and medical supplies with a market value of $30,000. Cash63,000 Contributions--Unrestricted63,000 Unrestricted contributions received. Inventory30,000 Contributions--Unrestricted30,000 Donated supplies received.

27. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-27 General Fund During 20X2, income of $10,000 was earned in the unrestricted fund on resources designated by the governing board for purposes of future plant expansion. Board Designated Funds for Expansion of Facilities--Cash10,000 Investment Income--Board Designated Funds10,000 Earnings resources reserved by hospitals governing board for purchase of fixed assets.

28. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-28 Equipment costing $100,000, with a book value $50,000, was sold for $55,000. Cash55,000 Accumulated Depreciation50,000 Property, Plant, and Equipment100,000 Gain on Disposal of Equipment5,000 Sale of hospital equipment. The cash will be used in the operations of the hospital. General Fund

29. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-29 General Fund Funds are received from a specific- purpose fund totaling $120,000, for education and research. Cash120,000 Net Assets Released from Program Use Restrictions120,000 Record payment for reimbursement of operating expenditures made in accordance with restricted gift.

30. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-30 The remaining transactions during the 20X2 fiscal year affect only balance sheet accounts. Typical of these transactions are collections of receivables and acquiring inventory. Cash2,250,000 Allowance for Uncollectibles50,000 Accounts Receivable2,300,000 Collect some receivables and write-off $50,000 as uncollectible. General Fund Collected $2,250,000 on receivables and wrote off $50,000 in accounts as uncollectible. Also, acquired inventory that cost $50,000. Inventories50,000 Cash50,000 Acquire inventories.

31. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-31 Plant and Expansion Fund During the year, equipment with a fair value of $25,000 was donated to the hospital. Property, Plant, and Equipment25,000 Contributions--Plant25,000 Received donated equipment with a fair value of $25,000. A $60,000 cash donation was received for the purpose of acquiring additional equipment. Cash60,000 Contributions--Plant60,000 Received restricted gifts for use to acquire equipment.

32. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-32 Endowment Fund A total of $415,000 in new permanent endowments is received and $400,000 is used to acquire additional investments. Cash415,000 Contributions--Permanent Endowment415,000 Receive additional endowments. Investments400,000 Cash400,000 Acquire additional investments.

33. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-33 Statement of financial position Statement of activities Statement of cash flows Statement of functional expenses Statement of financial position Statement of activities Statement of cash flows Statement of functional expenses Voluntary Health and Welfare Organizations Financial statements for a VHWO:

34. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-34 Cemeteries Civic organizations Fraternal organizations Labor unions Libraries Museums Other cultural institutions Performing arts organizations Political parties Cemeteries Civic organizations Fraternal organizations Labor unions Libraries Museums Other cultural institutions Performing arts organizations Political parties Other Not-for-Profit Entities

35. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-35 Cemeteries Civic organizations Fraternal organizations Labor unions Libraries Museums Other cultural institutions Performing arts organizations Political parties Cemeteries Civic organizations Fraternal organizations Labor unions Libraries Museums Other cultural institutions Performing arts organizations Political parties Other Not-for-Profit Entities Private and community foundations Private elementary and secondary schools Professional associations Public broadcasting stations Religious organizations Social and country clubs Trade associations Private and community foundations Private elementary and secondary schools Professional associations Public broadcasting stations Religious organizations Social and country clubs Trade associations

36. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 19-36 Chapter Nineteen The End