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Beams10e ch21
 

Beams10e ch21

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    Beams10e ch21 Beams10e ch21 Presentation Transcript

    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-1
    • Not-for-Profits : Objectives 1. Learn about the four main categories of not-for- profit organizations 2. Differentiate between governmental and nongovernmental not-for-profit organizations. 3. Introduce FASB not-for-profit accounting principles. 4. Apply not-for-profit accounting principles to voluntary health and welfare organizations.© Pearson Education, Inc. publishing as Prentice Hall 21-2
    • Objectives (cont.) 5. Apply not-for-profit accounting principles to hospitals and other health care organizations. 6. Apply not-for-profit accounting principles to private not-for-profit colleges and universities.© Pearson Education, Inc. publishing as Prentice Hall 21-3
    • Accounting for Not-for-Profit Organizations1: Categories of NFPs © Pearson Education, Inc. publishing as Prentice Hall 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 Hall 21-5
    • Categories of NFPs 1. Voluntary health and welfare 2. Hospitals and health care 3. Colleges and universities 4. 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 Hall 21-6
    • Accounting for Not-for-Profit Organizations2: Governmental andNongovernmental NFPs © Pearson Education, Inc. publishing as Prentice Hall 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 Hall 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- for-Profit Organizations© Pearson Education, Inc. publishing as Prentice Hall 21-9
    • Accounting for Not-for-Profit Organizations3: Accounting Principles © Pearson Education, Inc. publishing as Prentice Hall 21-10
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-11
    • Net Assets Three categories 1. Permanently restricted net assets • Asset use is limited • Donor imposed stipulations that do not expire/ cannot be removed by entity 2. Temporarily restricted net assets • Donor imposed restrictions that expire (time restrictions) • Can be removed by entity fulfilling stipulations (purpose restrictions) 3. Unrestricted net assets© Pearson Education, Inc. publishing as Prentice Hall 21-12
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-13
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-14
    • 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)© Pearson Education, Inc. publishing as Prentice Hall 21-15
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-16
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-17
    • Other Accounting Issues • Measurement – Contributions at fair value – Fair value at time of pledge • Dont 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© Pearson Education, Inc. publishing as Prentice Hall 21-18
    • Accounting for Not-for-Profit Organizations4: Voluntary Health and Welfare © Pearson Education, Inc. publishing as Prentice Hall 21-19
    • Fund Raising Expenses - supporting services - fund raising 145 Cash 145 Cash 1,950 Unrestricted gains – special event 1,950 Unrestricted gains – special event 250 Cash 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© Pearson Education, Inc. publishing as Prentice Hall 21-20
    • Cash Donations and Pledges Cash 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)© Pearson Education, Inc. publishing as Prentice Hall 21-21
    • Collect a Time-Restricted Pledge Cash 1,800 Contributions receivable 1,800 Temporarily restricted net asset - reclassification out 1,800 Unrestricted net assets - reclassification in 1,800 • Two entries • Cash collection • Reclassification for expiration of time restriction Reclassification accounts are temporary accounts closed to their respective net asset accounts© Pearson Education, Inc. publishing as Prentice Hall 21-22
    • Receive Equipment and Use It Equipment 1,500 Temporarily restricted net assets – contributions 1,500 Depreciation expense - program services - community service 500 Accumulated depreciation – equipment 500 Temporarily restricted net asset - reclassification out 500 Unrestricted net assets - reclassification in 500 • 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© Pearson Education, Inc. publishing as Prentice Hall 21-23
    • Receive Cash with Purpose Restriction Cash 1,000 Temporarily restricted support – contributions 1,000 Expenses - program services – research 900 Cash 900 Temporarily restricted net asset - reclassification out 900 Unrestricted net assets - reclassification in 900 • 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© Pearson Education, Inc. publishing as Prentice Hall 21-24
    • Receive Donated Services Expenses - support services - management and general 500 Unrestricted support - donated services 500 Construction in process 1,200 Unrestricted support - donated services 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© Pearson Education, Inc. publishing as Prentice Hall 21-25
    • Statement of Financial Position© Pearson Education, Inc. publishing as Prentice Hall 21-26
    • Statement of Activities© Pearson Education, Inc. publishing as Prentice Hall 21-27
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-28
    • Statement of Cash Flows© Pearson Education, Inc. publishing as Prentice Hall 21-29
    • Statement of Functional ExpensesExpenses asreported on the Statementof Activities © Pearson Education, Inc. publishing as Prentice Hall 21-30
    • Accounting for Not-for-Profit Organizations5: Hospitals and Other Health Care © Pearson Education, Inc. publishing as Prentice Hall 21-31
    • Hospitals and Health Care • Applies to nongovernmental, not-for-profit hospitals and health care agencies • Governmental: GASB • Private, for-profit: FASB as for businesses© Pearson Education, Inc. publishing as Prentice Hall 21-32
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-33
    • 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© Pearson Education, Inc. publishing as Prentice Hall 21-34
    • Patient Revenue Patient accounts receivable 1,300 Patient service revenues – unrestricted 1,300 Courtesy discounts 9 Contractual adjustments 300 Patient accounts receivable 309 Provision for bad debts 26 Allowance for uncollectibles 26 • 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© Pearson Education, Inc. publishing as Prentice Hall 21-35
    • Cash Contributions Cash 275 Unrestricted support - nonoperating gains 25 Temporarily restricted support 250 Nursing services expense 250 Cash 250 Temporarily restricted net asset - reclassification out 250 Unrestricted net assets - reclassification in 250 • 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© Pearson Education, Inc. publishing as Prentice Hall 21-36
    • Receive Donated Assets/Services Inventory of materials and supplies 130 Unrestricted support - donated supplies 130 Nursing services expenses 70 Unrestricted support - donated services 70 • 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.© Pearson Education, Inc. publishing as Prentice Hall 21-37
    • 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 Hospitals "Statement of Operations" and "Statement of changes in net assets" together, provide that information© Pearson Education, Inc. publishing as Prentice Hall 21-38
    • Statement of Operations: Hospital© Pearson Education, Inc. publishing as Prentice Hall 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 Hall 21-40
    • Accounting for Not-for-Profit Organizations6: Colleges and Universities © Pearson Education, Inc. publishing as Prentice Hall 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 Hall 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 Hall 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 Hall 21-44
    • Tuition Revenues Accounts receivable 1,000 Unrestricted revenues - tuition and fees 1,000 Tuition reduction: unrestricted - student aid 50 Accounts receivable 50 Expenses - educational and general - institutional support 30 Allowance for uncollectibles 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 Hall 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 Hall 21-46
    • Funds Held for Students Cash 150 Grant funds held for students 150 Grant funds held for students 150 Cash 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 Hall 21-47
    • Endowments Cash 50 Permanently restricted support - endowment contribution 50 Cash 4 Temporarily restricted support - endowment income 4 Expenses - unrestricted - student aid 3 Cash 3 Temporarily restricted net assets - reclassifications out 3 Unrestricted net assets - reclassifications in 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 Hall 21-48
    • Auxiliary Services Cash 61 Revenues - auxiliary enterprises 61 Expenses - auxiliary enterprises 28 Cash 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 Hall 21-49
    • StatementofActivities:College © Pearson Education, Inc. publishing as Prentice Hall 21-50
    • State. of Activities: College (cont.)© Pearson Education, Inc. publishing as Prentice Hall 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 Hall 21-52