Advanced Accounting by Debra Jeter and Paul Chaney Chapter 20: Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, Hospitals, and Other Health Care Organizations Slides Authored by Hannah Wong, Ph.D. Rutgers University

Sources of Accounting Standard lFirst level of priority n FASB Statement and Interpretations n APB Opinions n AICPA Accounting Research Bulletins lSecond level of priority n FASB Technical Bulletins n AICPA Industry Audit and Accounting Guides

Sources of Accounting Standard lThird level of priority n Consensus positions of the FASB emerging issues task force n AICPA AcSec Practice Bulletins lFourth level of priority n AICPA Accounting Interpretations n Implementation guides n Industry practices

Basic Financial Statements lStatement of financial position n Asset categories:  Unrestricted net assets  Temporarily restricted net assets (donor imposed restriction)  Permanently restricted net assets (endowments) lStatement of activities lStatement of cash flows

Basic Funds lCurrent fund n unrestricted fund (general fund - hospitals) n restricted fund (special purpose fund - hospitals) lPlant fund lEndowment fund lLoan fund lAgency or custodial fund lAnnuity and life income fund

Restricted VS Unrestricted Funds lCurrent unrestricted funds n financial resources that may be expended at the discretion of the governing board lCurrent restricted funds n resources restricted because of legal, contractual, or external restrictions on their use

Board Designated Funds lPart of current unrestricted fund lresources designated by governing board for specific purposes, projects, or investment lto limit discretion of management lgoverning board can modify designations at will l= assets whose use is limited in hospitals

Mandatory VS Nonmandatory Transfers lUnique to colleges and universities lMandatory transfers n transfers from the current funds group to other fund groups arising from  binding legal agreements  grant agreements lNonmandatory transfers n transfers from the current funds group to other fund groups at the discretion of the governing board

Contributions Pledges receivable300,000 Revenue - contributions300,000 Pledges To record gross amount of campaign pledges Expenses - Provision for uncollectible pledges 45,000 Allowance for uncollectible pledges45,000 Estimated Uncollectible Pledges To record provision for estimated uncollectible pledges

Contributions Management and general expense21,000 Donated services revenue21,000 Donated Services Donated services are recognized only if the services received: (1) require specialized skills (2) are provided by individuals possessing those skills and (3) would need to be purchased if not provided by donation

Plant Funds - Colleges l4 Self-balancing subgroups: lunexpended plant fund n resources used to purchase property, plant and equipment n similar to capital project fund in governmental accounting lfunds for renewals and replacements n similar to capital project fund in governmental accounting

Plant Funds - Colleges lfunds for retirement of indebtedness n resources to be used to retire or pay interest on debt incurred in acquisition of property n similar to debt service fund in governmental accounting lInvestment in plants n property, plant and equipment, related debt, and net investment in plan n similar to a combination of the account groups in governmental accounting

Plant Funds - Colleges Nonmandatory Transfer to plant fund50,000 Cash50,000 Current Unrestricted Fund Cash750,000 Notes payable500,000 Revenue - contributions - restricted200,000 Fund balance - unrestricted 50,000 Unexpended Plant Fund To record receipt of resources To record transfer to plant fund

Plant Funds - Colleges Land 750,000 Cash750,000 Unexpended Plant Fund To record acquisition of land Fund balance - restricted200,000 Fund balance - unrestricted 50,000 Notes payable500,000 Land750,000 To transfer assets and liabilities to investment in plant fund

Plant Funds - Colleges Land 750,000 Notes payable500,000 Net investment in plant250,000 Investment in Plant Fund To record acquisition of land and related indebtedness from the unexpended plant fund Fund balance - restricted200,000 Cash200,000 Interest expense 20,000 Cash 20,000 Funds for Retirement of Indebtedness To record payment of principal and interest on indebtedness

Plant Funds - Colleges Notes payable200,000 Net investment in plant200,000 Investment in Plant Fund To record reduction in indebtedness Depreciation expense235,000 Accumulated depreciation235,000 To record depreciation on property, plant and equipment included in the assets of the investment in plant fund

Plant Funds - Hospitals lPPE transactions of hospitals are recorded in the general fund lcontributed resources restricted for acquisition of PPE are recorded in a plant replacement and expansion (restricted) fund lupon expenditure, the assets acquired and the plant fund balance are transferred to the general fund

Endowment Funds Cash400,000 Due to unrestricted fund250,000 Due to restricted fund150,000 Endowment Fund To record receipt of dividend and interest Due from endowment fund250,000 Unrestricted income250,000 Current Unrestricted Fund To record unrestricted endowment fund income

Endowment Funds Due from endowment fund150,000 Restricted income150,000 Current Restricted Fund To record restricted endowment fund income Research expense100,000 Cash100,000 To record payment of research grant

Accounting for Investments Cash800,000 Revenue - contributions - unrestricted800,000 To record unrestricted contribution Equity investments800,000 Cash800,000 To record purchase of marketable securities

Accounting for Investments Cash30,000 Investment income - unrestricted 30,000 To record receipt of dividend Equity investments20,000 Unrealized gain on investment - unrestricted20,000 (1) investment in equity securities with readily determinable fair values and all debt securities should be recorded at market value (2) unrealized gains and losses are recognized

Loan Funds lTo account for n loans to students and staff of colleges, n loans to employees of hospitals n loans to beneficiaries of the interests of certain ONNOs lrevenues and expenses must be recognized on an accrual basis lgenerally revolving

Annuity and Life Income Funds lAnnuity funds n the organization receives contribution of assets and makes periodic payments of a stated amount to a beneficiary lLife income funds n the amount of payment varies depending on the earnings of the fund

Annuity Funds Investments325,000 Annuity payable268,400 Revenue - contributions- permanent restriction 56,600 To record establishment of fund Cash26,000 Annuity payable26,000 To record investment income Annuity payable26,000 Cash26,000 To record annual annuity payment

Issues Relating to Hospitals lCharity care lContractual allowances lCapitation revenues lmalpractice

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