Advanced accounting 10th by a beams athony ch21

Chapter 21:Accounting for Notfor-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 © Pearson Education, Inc publishing as Prentice 21-1 Not-for-Profits : Objectives Learn about the four main categories of not-forprofit 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 © Pearson Education, Inc publishing as Prentice 21-2 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 © Pearson Education, Inc publishing as Prentice 21-3 Accounting for Not-for-Profit Organizations 1: Categories of NFPs © Pearson Education, Inc publishing as Prentice 21-4 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 © Pearson Education, Inc publishing as Prentice 21-5 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 © Pearson Education, Inc publishing as Prentice 21-6 Accounting for Not-for-Profit Organizations 2: Governmental and Nongovernmental NFPs © Pearson Education, Inc publishing as Prentice 21-7 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 © Pearson Education, Inc publishing as Prentice 21-8 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-forProfit Organizations © Pearson Education, Inc publishing as Prentice 21-9 Accounting for Not-for-Profit Organizations 3: Accounting Principles © Pearson Education, Inc publishing as Prentice 21-10 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 © Pearson Education, Inc publishing as Prentice 21-38 Statement of Operations: Hospital © Pearson Education, Inc publishing as Prentice 21-39 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 © Pearson Education, Inc publishing as Prentice 21-40 Accounting for Not-for-Profit Organizations 6: Colleges and Universities © Pearson Education, Inc publishing as Prentice 21-41 Colleges and Universities • Applies to nongovernmental, not-for-profit colleges and universities • Governmental: GASB • Private, for-profit: FASB as for businesses © Pearson Education, Inc publishing as Prentice 21-42 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" © Pearson Education, Inc publishing as Prentice 21-43 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 © Pearson Education, Inc publishing as Prentice 21-44 Tuition Revenues Accounts receivable Unrestricted revenues - tuition and fees Tuition reduction: unrestricted - student aid Accounts receivable Expenses - educational and general institutional support Allowance for uncollectibles 1,000     1,000 50     50 30     30 • Tuition is recorded at gross amount • Tuition waivers are contra-revenues • Bad debts are recorded as for businesses • Grouped with institutional support expenses © Pearson Education, Inc publishing as Prentice 21-45 Receive Appropriations Cash 700   Unrestricted support - state appropriation   700 • 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 © Pearson Education, Inc publishing as Prentice 21-46 Funds Held for Students Cash Grant funds held for students 150     Grant funds held for students Cash 150 150     150 • 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 © Pearson Education, Inc publishing as Prentice 21-47 Endowments Cash Permanently restricted support - endowment contribution Cash Temporarily restricted support - endowment income Expenses - unrestricted - student aid Cash Temporarily restricted net assets - reclassifications out Unrestricted net assets - reclassifications in 50             3     • 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 © Pearson Education, Inc publishing as Prentice 50 21-48 Auxiliary Services Cash 61   Revenues - auxiliary enterprises   Expenses - auxiliary enterprises Cash 61 28     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 © Pearson Education, Inc publishing as Prentice 21-49 Statement of Activities: College © Pearson Education, Inc publishing as Prentice 21-50 State of Activities: College (cont.) © Pearson Education, Inc publishing as Prentice 21-51 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 Copyright © 2009 Pearson Education, Inc   Publishing as Prentice Hall © Pearson Education, Inc publishing as Prentice 21-52 ... Follow FASB • FASB Statement No 116 – Contributions • FASB Statement No 117 – Financial statements • 2007 AICPA Audit and Accounting Guide: Not-forProfit Organizations © Pearson Education, Inc... 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... 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