1. Chapter 21:Accounting for Not-for-Profit Organizations
Beams, Advanced Accounting 10e, Ch. 21
3/31/2017
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 Floyd A. Beams, Robin P. Clement,
Joseph H. Anthony, and Suzanne Lowensohn
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2. Not-for-Profits : Objectives
Learn about the four main categories of not-for-profit organizations
Differentiate 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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3. 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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4. 1: Categories of NFPs Accounting for Not-for-Profit Organizations
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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
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6. Categories of NFPs Voluntary health and welfare
Hospitals and health care
Colleges and universities
Other not-for-profits
Churches, museums
Other NFPs are similar to voluntary health and welfare, without requiring a statement of functional expenses
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7. 2: Governmental and Nongovernmental NFPs
Accounting for Not-for-Profit Organizations
2: Governmental and Nongovernmental NFPs
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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
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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
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10. 3: Accounting Principles
Accounting for Not-for-Profit Organizations
3: Accounting Principles
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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
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12. Net Assets Three categories Permanently restricted net assets
Asset use is limited
Donor imposed stipulations that do not expire/ cannot be removed by entity
Temporarily restricted net assets
Donor imposed restrictions that expire (time restrictions)
Can be removed by entity fulfilling stipulations (purpose restrictions)
Unrestricted net assets
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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
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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
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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)
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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
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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
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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
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19. 4: Voluntary Health and Welfare
Accounting for Not-for-Profit Organizations
4: Voluntary Health and Welfare
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20. Fund Raising Pay general fund raising expenses
Expenses - supporting services - fund raising
145
Cash
1,950
Unrestricted gains – special event
250
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
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21. Cash Donations and Pledges
4,000
Contributions receivable
6,000
Allowance for uncollectibles
600
Unrestricted support – contributions
7,600
Temporarily restricted support - contributions
1,800
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)
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22. Collect a Time-Restricted Pledge
Cash
1,800
Contributions receivable
Temporarily restricted net asset - reclassification out
Unrestricted net assets - reclassification in
Two entries
Cash collection
Reclassification for expiration of time restriction
Reclassification accounts are temporary accounts closed to their respective net asset accounts
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23. Receive Equipment and Use It
1,500
Temporarily restricted net assets – contributions
Depreciation expense - program services - community service
500
Accumulated depreciation – equipment
Temporarily restricted net asset - reclassification out
Unrestricted net assets - reclassification in
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
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24. Receive Cash with Purpose Restriction
1,000
Temporarily restricted support – contributions
Expenses - program services – research
900
Temporarily restricted net asset - reclassification out
Unrestricted net assets - reclassification in
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
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25. Receive Donated Services
Expenses - support services - management and general
500
Unrestricted support - donated services
Construction in process
1,200
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
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26. Statement of Financial Position
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27. Statement of Activities
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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
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29. Statement of Cash Flows
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30. Statement of Functional Expenses
Expenses as reported on the Statement of Activities
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31. 5: Hospitals and Other Health Care
Accounting for Not-for-Profit Organizations
5: Hospitals and Other Health Care
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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
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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
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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
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35. Patient Revenue Patient accounts receivable 1,300
Patient service revenues – unrestricted
Courtesy discounts 9
Contractual adjustments
300
309
Provision for bad debts 26
Allowance for uncollectibles
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
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36. Cash Contributions Cash 275 Unrestricted support - nonoperating gains
Unrestricted support - nonoperating gains 25
Temporarily restricted support
250
Nursing services expense
Temporarily restricted net asset - reclassification out
Unrestricted net assets - reclassification in
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
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37. Receive Donated Assets/Services
Inventory of materials and supplies
130
Unrestricted support - donated supplies
Nursing services expenses 70
Unrestricted support - donated services
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.
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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
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39. Statement of Operations: Hospital
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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
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41. 6: Colleges and Universities
Accounting for Not-for-Profit Organizations
6: Colleges and Universities
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42. Colleges and Universities
Applies to nongovernmental, not-for-profit colleges and universities
Governmental: GASB
Private, for-profit: FASB as for businesses
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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"
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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
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45. Tuition Revenues Tuition is recorded at gross amount
Accounts receivable
1,000
Unrestricted revenues - tuition and fees
Tuition reduction: unrestricted - student aid 50
Expenses - educational and general - institutional support 30
Allowance for uncollectibles
Tuition is recorded at gross amount
Tuition waivers are contra-revenues
Bad debts are recorded as for businesses
Grouped with institutional support expenses
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46. Receive Appropriations
Cash
700
Unrestricted support - state appropriation
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
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47. Funds Held for Students
Cash
150
Grant 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.
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48. Endowments
Cash 50
Permanently restricted support - endowment contribution 4
Temporarily restricted support - endowment income
Expenses - unrestricted - student aid 3
Temporarily restricted net assets - reclassifications out
Unrestricted net assets - reclassifications in
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
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49. Auxiliary Services
Cash 61
Revenues - auxiliary enterprises
Expenses - auxiliary enterprises 28
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
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50. Statement of Activities: College
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51. State. of Activities: College (cont.)
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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.
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