2. 21 - 1 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Not-for-Profit Organizations Chapter 21

3. 21 - 2 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 1 Learn about the four main categories of not-for-profit organizations.

4. 21 - 3 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Categories of Not-For-Profit Organizations Voluntary health and welfare organizations Other not-for-profit entities Health care entities Colleges and universities

5. 21 - 4 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn The Nature of Not-For-Profit Organizations A not-for-profit entity… (1) receives contributions of resources from providers who do not expect pecuniary returns, (2) operates for purposes other than profits, and (3) does not possess ownership interests like those of business enterprises.

6. 21 - 5 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 2 Differentiate between governmental and nongovernmental not-for-profit organizations.

7. 21 - 6 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Classification of Organizations Governmental not-for-profit organizations Nongovernmental not-for-profit organizations

8. 21 - 7 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Governmental Not-For-Profit Organizations Officers are elected by popular vote or appointment by a state or local government. Governments can unilaterally dissolve the entity. The entity has the power to enact and enforce a tax levy. They are special-purpose governments.

9. 21 - 8 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Governmental Not-For-Profit Organizations GASB Statements No. 34 and No. 35 require special purpose governments with more than one governmental program or both governmental and business-type activities to present both government-wide and fund financial statements.

10. 21 - 9 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Nongovernmental Not-For-Profit Organizations These are NFP organizations that lack the governmental element: Voluntary health and welfare organizations Colleges and universities Other Health care organizations

11. 21 - 10 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 3 Identify the accounting principles applicable to governmental and nongovernmental not-for-profit organizations.

12. 21 - 11 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Not-For-Profit Accounting Principles FASB Statements No. 116 and 117 are applicable to all nongovernmental not-for-profit entities. FASB Statements No. 124 and 135 are specifically related to not-for-profit organizations.

13. 21 - 12 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Financial Statements FASB Statement No. 117 requires that all NFP entities provide: Statement of Financial Position Statement of Activities Statement of Cash Flows

14. 21 - 13 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Classification of Net Assets Three Classes of Net Assets Unrestricted Temporarily Restricted Permanently Restricted

15. 21 - 14 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Financial Position The statement reports assets, liabilities, and net assets. Comparative statements from the prior period are not required.

16. 21 - 15 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Activities This provides information about the change in amount and nature of net assets. The focus of accounting is the organization as a whole.

17. 21 - 16 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Activities It reports increases in unrestricted net assets as revenues and... reports decreases in unrestricted net assets as expenses. Temporarily restricted or permanently restricted net assets consist of donor- restricted contributions.

18. 21 - 17 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Activities Generally, an organization reports revenues and expenses at gross amounts. Peripheral gains and losses are reported at net amounts. Optional classifications Operating or nonoperating Recurring or nonrecurring

19. 21 - 18 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Functional Expenses Voluntary health and welfare organizations must report expenses classified by function and by natural classification. This statement is not required for ONPOs.

20. 21 - 19 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Cash Flows Statement No. 117 extends the provisions of FASB Statement No. 95 to not-for-profit organizations. Statement No. 117 encourages NFP organizations to use the direct method.

21. 21 - 20 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Contributions Statement No. 116 defines a contribution as “an unconditional transfer of cash or other assets...in a voluntary, nonreciprocal transfer...” A promise to give is a written or oral agreement to contribute cash or other assets to another entity.

22. 21 - 21 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Donor-Imposed Restrictions It provides that the donor’s money be returned or the donor is released from the promise to give if the condition is not met.

23. 21 - 22 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Gifts of Long-Lived Assets Unrestricted Restricted

24. 21 - 23 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Investments and Investment Income Investments are initially recorded at cost. Contributed securities are recorded at their fair market value. Investment income is recognized as earned.

25. 21 - 24 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Transactions Exchange Transactions Agency Transactions Gifts in Kind

26. 21 - 25 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 4 Introduce FASB not-for-profit accounting principles.

27. 21 - 26 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Measurement Principles NFP organizations measure contributions at fair value. If the fair value of the contributed asset decreases significantly between the pledge date and the date the asset is received, the difference is recognized in the period the decrease occurred.

28. 21 - 27 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Collections Statement No. 116 encourages retroactive capitalization of collections of works of art. If collections are capitalized, they are recognized as revenues or gains.

29. 21 - 28 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Fund Accounting Many not-for-profit organizations continue to use fund accounting for internal accounting.

30. 21 - 29 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 5 Apply not-for-profit accounting principles to voluntary health and welfare organizations.

31. 21 - 30 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Voluntary Health and Welfare Organizations VHWOs are supported by and provide voluntary services to the public. March of Dimes Girl Scouts American Cancer Society Meals on WheelsBoy Scouts

32. 21 - 31 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations In 2005, Neighbors Helping Neighbors (NHN) distributed decals to all residents in the community. The decals cost NHN $145. The organization received unrestricted cash contributions of $4,000 and unconditional pledges of $6,000 ($2,000 collectible in 2006).

33. 21 - 32 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations Cash4,000 Unrestricted Support – Contributions4,000 To record cash contributions Expenses – Supporting Services 145 Cash 145 To record payment of decals

34. 21 - 33 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations Contributions Receivable6,000 Allowance for Uncollectible Contributions 600 Unrestricted Support – Contributions3,600 Temporarily Restricted Support – Contributions1,800 To record unrestricted promises to give, promises restricted for use in 2006, and estimated uncollectibles

35. 21 - 34 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations On January 1, 2005, Martin Construction donated a used van to the organization. The FMV of the van is $1,500. The van has a three-year remaining useful life.

36. 21 - 35 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations Equipment1,500 Temporarily Restricted Support – Contributions1,500 To record receipt of donated van Depreciation Expense – Program Services – Community Service 500 Accumulated Depreciation 500 To record depreciation

37. 21 - 36 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations Temporarily Restricted Net Assets – Reclassification Out500 Unrestricted Net Assets – Reclassification In500 To record reclassification of net assets for which the temporary restriction is satisfied

38. 21 - 37 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations A fund-raising banquet was held. Sales were $950 and related expenses amounted to $650. What are the journal entries?

39. 21 - 38 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for Voluntary Health and Welfare Organizations Cash950 Unrestricted Gains– Special Event950 To record proceeds from a fund-raising event Unrestricted Gains – Special Event 650 Cash650 To charge costs of fund-raising event against support from the event

40. 21 - 39 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Other Issues Gifts in kind Membership fees Donated securities and investment income

41. 21 - 40 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Other Issues Donated services and payment of salaries Depreciation Fixed assets purchased with restricted resources

42. 21 - 41 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Other Not-For-Profit Organizations Cemetery associations Social organizations Civic organizations LibrariesMuseums Political organizations Religious organizations

43. 21 - 42 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 6 Apply not-for-profit accounting principles to hospitals and other health care organizations.

44. 21 - 43 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for a Nongovernmental Not-For-Profit Hospital Patient service revenue Premium fees Other operating revenues

45. 21 - 44 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Patient Service Revenues Daily patient service (room, board, general nursing) Nursing services (O/R, recovery room) Other professional services

46. 21 - 45 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Patient Service Revenues Courtesy allowances Contractual adjustments

47. 21 - 46 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Statement of Operations and Other Hospital Financial Statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

48. 21 - 47 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Learning Objective 7 Apply not-for-profit accounting principles to private not-for-profit colleges and universities.

49. 21 - 48 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Private Not-for-Profit Colleges and Universities Nongovernment not-for-profit colleges and universities apply the requirements of SFASs 116 and 117.

50. 21 - 49 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for a Private Not-For-Profit College or University Tuition and fees Appropriations from federal, state, and local governments Contributions Student financial aid Endowments Sales and services

51. 21 - 50 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Expenses Instruction Research Academic support Public service

52. 21 - 51 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Expenses Student services Institutional support Operation and maintenance of plant Student aid

53. 21 - 52 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Financial Statements Statement of Financial Position Statement of Activities Statement of Cash Flows

54. 21 - 53 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn End of Chapter 21