Financial and accounting guide for not for profit organizations

Financial and accounting guide for not for profit organizations

Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Malvern J. Gross, Jr., CPA Retired Partner, PricewaterhouseCoopers LLP John H. McCarthy, CPA Partner, PricewaterhouseCoopers LLP Nancy E. Shelmon, CPA Partner, PricewaterhouseCoopers LLP John Wiley & Sons, Inc. Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Malvern J. Gross, Jr., CPA Retired Partner, PricewaterhouseCoopers LLP John H. McCarthy, CPA Partner, PricewaterhouseCoopers LLP Nancy E. Shelmon, CPA Partner, PricewaterhouseCoopers LLP John Wiley & Sons, Inc. This book is printed on acid-free paper. Copyright © 2005 by PricewaterhouseCoopers. All rights reserved. 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For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data: Financial and accounting guide for not-for-profit organizations / Malvern J. Gross, Jr., [et al.].— 7th ed. p. cm. Malvern J. Gross’s name appears as main author entry in earlier ed. Includes index. ISBN-13 978-0-471-72445-2 (cloth) ISBN-10 0-471-72445-9 (cloth) 1. Nonprofit organizations—Accounting. I. Gross, Malvern J. HF5686.N56G76 2005 657'.98 dc22 2005000045 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 To the millions of volunteers who make the not-for-profit sector and all of its achievements possible. BECOME A SUBSCRIBER! 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Gross, Jr. was the author of the first edition of this text and a signifi- cant contributor to many of the subsequent editions. He is a retired partner of Price Waterhouse (a predecessor to PricewaterhouseCoopers LLP) and a nation- ally recognized authority on accounting and financial reporting for not-for-profit organizations. He was chairman of the AICPA Subcommittee on Nonprofit Organizations that wrote the 1978 landmark Statement of Position for Certain Nonprofit Organizations, and of the Accounting Advisory Committee to the Commission on Private Philanthropy and Public Needs. He was a member of the committee that wrote the second edition of Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, and a coauthor of the Museum Accounting Handbook. He served as an advisor to the Financial Account- ing Standards Board in the early phases of its work on setting accounting stan- dards for not-for-profit organizations, and to the New York State Charities Registration Office, as well as an adjunct professor of accounting at Lehigh Uni- versity, his alma mater. After retirement from Price Waterhouse he was president of a not-for-profit organization, the National Aeronautics Association. He now lives in the San Juan Islands off of the state of Washington. John H. McCarthy served as the National Leader of PricewaterhouseCoopers’ Education & Nonprofit Practice before his retirement in 2005. He was a coauthor of the sixth edition of this text. He also is the coauthor of Understanding Financial Statements: A Strategic Guide for Independent College and University Boards, pub- lished by the Association of Governing Boards of Universities and Colleges (1998), as well as several publications by PricewaterhouseCoopers including: The Changing Role of the Audit Committee (2004); Leading Practices for Colleges, Uni- versities and Other Not-for-Profit Educational Institutions (2004); A Foundation for Integrity (a 2004 guide for codes of conduct, conflicts of interest, and executive compensation); Meeting the Challenges of Alternative Investments (2004); Under- standing Underwater Endowment Funds (2003); and Financial Reporting and Contri- butions: A Decision Making Guide to FASB Nos. 116-117 (1996) among others. He is a CPA who, for more than 36 years, served PricewaterhouseCoopers’ education and not-for-profit clients, including many of the most prestigious institutions in the United States. He currently serves on several not-for-profit boards. He is a past president of the Massachusetts Society of CPAs, Inc. (MSCPA) and a two- term member of the Governing Council of the AICPA. He has received numer- ous honors for his involvement in the community. He graduated from Boston College and has an MBA from the University of Michigan Business School. ABOUT THE AUTHORS Ⅲ viii Ⅲ Nancy E. Shelmon is a senior partner of PricewaterhouseCoopers LLP and is the firm’s West Region Leader for the Education and Not-for-Profit Industry within the United States. Nancy is a frequent speaker at AICPA and state CPA confer- ences on financial reporting and accounting issues affecting not-for-profit orga- nizations and is currently a member of the AICPA Not-for-Profit Expert Panel. She is currently Chair of the Planning Committee for the AICPA’s annual Not- for-Profit Conference. She has been serving education and not-for-profit clients for over thirty years and has been involved with some of the most widely respected organizations in North America. Nancy serves on the Board of Direc- tors of the Los Angeles Urban League, the California Journal and Executive Ser- vice Corps of Southern California. In addition to being a CPA, she is also a Certified Fraud Examiner. She holds her accounting degree from the University of Minnesota. [...]... CONSIDER IN NOT -FOR- PROFIT FISCAL MANAGEMENT (a) Accounting Principles (i) Not -for- Profit Accounting Is Not Very Different from For- Profit Accounting Most of not -for- profit accounting is no different from for- profit accounting The primary area which is different for not -for- profit organizations is accounting for contributions For- profit corporations make gifts, but they do not receive them Accounting for. .. not -for- profit organizations under the guidance of the Financial Accounting Standards Board (FASB) and its Statement of Financial Accounting Standard (SFAS) No 117, Financial Statements of Not -for- Profit Organizations. 1 Reports as required under specific accounting and reporting guidance are not the only way to present financial information and may not be the best format to convey financial information... in not -for- profit accounting, financial reporting, and the systems that support it The sixth edition was published when Financial Accounting Standards No 116 (accounting for contributions) and 117 (financial statements of not -for- profit organizations) were still relatively new and as a result it was written from the perspective of organizations that were making the transition from “fund accounting and. .. successful not -for- profit organizations will understand and embrace The seventh edition incorporates the current version of the new chapters introduced in the cumulative supplements to the sixth edition: • “The External Financial Statement Reporting Model for Public Colleges and Universities and Other Not -for- Profit Organizations Reporting under GASB” (now Chapter 15), and • “E-Business for Not -for- Profit Organizations: ... to help not -for- profit organizations better manage their financial resources This starts with understanding—it’s easier to manage what you understand Financial and accounting principles are often intimidating, but this Guide covers the basics and shows that the principles make sense The second objective is to help not -for- profit organizations better communicate their financial activities and financial. .. Appendix 12–A Financial Statements of Not -for- Profit Organizations Review Points 181 12.1 PART THREE ACCOUNTING AND REPORTING GUIDELINES Chapter 13 Voluntary Health and Welfare Organizations 13.1 Accounting Principles 13.2 Accounting for Contributions 13.3 Accounting for Other Income 13.4 Accounting for Expenses 13.5 Accounting for Assets 13.6 Net Assets 13.7 Financial Statements Appendix 13–A Checklist:... coauthor of the fourth, fifth, and sixth editions of Financial and Accounting Guide for Not -for- Profit Organizations Prior to his retirement from PricewaterhouseCoopers, he served as a technical director for the Education & Nonprofit practice We are very grateful to Dick for his efforts on prior editions of this Guide The seventh edition of this Guide represents the collaborative efforts of many PricewaterhouseCoopers... accordance with the applicable, generally accepted accounting standards in all material respects 7 8 For additional information on accounting for pledges and gifts, see Chapter 8 For additional information on fundraising expense, see Chapter 9 Ⅲ 8 Ⅲ 1.7 TEN KEY POINTS TO CONSIDER IN NOT -FOR- PROFIT FISCAL MANAGEMENT While not as important to a not -for- profit as for a business, the “excess of revenues over... Board Trends in Not -for- Profit Accounting New FASB Statements of Financial Accounting Standards that Affect Not -for- Profit Organizations Ⅲ xvii Ⅲ 373 374 380 385 CONTENTS 19.4 19.5 Other FASB Pronouncements and Projects Conclusion PART FOUR CONTROLLING THE NOT -FOR- PROFIT ORGANIZATION Chapter 20 The Importance of Budgeting 20.1 20.2 20.3 20.4 20.5 The Budget: A Plan of Action Monthly and Quarterly Budgets... Performing Arts Organizations Private Foundations Religious Organizations Other Than Churches Research and Scientific Organizations Private Elementary and Secondary Schools Public Broadcasting Stations 344 349 349 351 355 356 359 360 362 362 364 365 368 369 371 371 Chapter 19 The Financial Accounting Standards Board and Future Trends in Not -for- Profit Accounting 19.1 19.2 19.3 Financial Accounting Standards . Sons, Inc. Financial and Accounting Guide for Not -for- Profit Organizations Seventh Edition Financial and Accounting Guide for Not -for- Profit Organizations Seventh. who was a coauthor of the fourth, fifth, and sixth editions of Financial and Accounting Guide for Not -for- Profit Organizations. Prior to his retirement from