© the mcgraw-hill companies, inc., 2004 slide 18-1 mcgraw-hill/irwin chapter eighteen accounting...
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© The McGraw-Hill Companies, Inc., 2004
Slide 18-1
McGraw-Hill/Irwin
Chapter Eighteen
Accounting and Accounting and Reporting for Reporting for
Private Not-For-Private Not-For-Profit Profit
OrganizationsOrganizations
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Authoritative Jurisdiction
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Two basic ideas form the FASB’s framework for not-for-profit standards:
Two basic ideas form the FASB’s framework for not-for-profit standards:
Financial Reporting
The financial The financial statements should statements should focus on the entity focus on the entity
as a whole.as a whole.
The financial The financial statements should statements should focus on the entity focus on the entity
as a whole.as a whole.
Reporting Reporting requirements for not-requirements for not-for-profits should be for-profits should be similar to business similar to business
entities, unless there entities, unless there are critical are critical
differences in the differences in the needs of users.needs of users.
Reporting Reporting requirements for not-requirements for not-for-profits should be for-profits should be similar to business similar to business
entities, unless there entities, unless there are critical are critical
differences in the differences in the needs of users.needs of users.
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FASB No. 117 requires three
financial statements.
FASB No. 117 requires three
financial statements.
Financial Reporting
Statement of Financial Position Uses “Net Assets” instead of
owners’ equity or fund balance.
Statement of Activities and Changes in Net Assets
Statement of Cash Flows Statement of Functional
Expense (required only for voluntary health and welfare organizations).
Statement of Financial Position Uses “Net Assets” instead of
owners’ equity or fund balance.
Statement of Activities and Changes in Net Assets
Statement of Cash Flows Statement of Functional
Expense (required only for voluntary health and welfare organizations).
{{
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Report assets, liabilities, and
net assets.
Report assets, liabilities, and
net assets.
Net assets are presented in 3 categories:Unrestricted
Temporarily RestrictedPermanently Restricted
Net assets are presented in 3 categories:Unrestricted
Temporarily RestrictedPermanently Restricted
Use the term “Net assets” rather than
owners’ equity or fund balance.
Use the term “Net assets” rather than
owners’ equity or fund balance.
Statement of Financial Position
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Per FASB No. 116, unconditional promises by
donors to give are recognized as revenue in
the period of promise.
Per FASB No. 116, unconditional promises by
donors to give are recognized as revenue in
the period of promise.
Change in net assets is reported instead of net
income.
Change in net assets is reported instead of net
income.
Revenues & expenses are
measured on the accrual basis.
Revenues & expenses are
measured on the accrual basis.
Statement of Activities and Changes in Net Assets
Change in net assets = difference between
revenues and expenses
Change in net assets = difference between
revenues and expenses
© The McGraw-Hill Companies, Inc., 2004
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McGraw-Hill/Irwin
Per FASB No. 116, unconditional promises by
donors to give are recognized as revenue in
the period of promise.
Per FASB No. 116, unconditional promises by
donors to give are recognized as revenue in
the period of promise.
Change in net assets = difference between
revenues and expenses
Change in net assets = difference between
revenues and expenses
Statement of Activities and Changes in Net Assets
Expenses are presented in 2
categories:Program Services
Supporting Services
Expenses are presented in 2
categories:Program Services
Supporting Services
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Supporting ServicesAdministrative costs
and fund-raising.
Supporting ServicesAdministrative costs
and fund-raising.
Let’s take a quick look at the last two
statements!
Statement of Activities and Changes in Net Assets
Program ServicesActivities relating to
social services, research, and other
objectives of the organization.
Program ServicesActivities relating to
social services, research, and other
objectives of the organization.
Expenses are presented in 2
categories:Program Services
Supporting Services
Expenses are presented in 2
categories:Program Services
Supporting Services
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Statement of Cash Flows
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Statement of Functional Expense
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GAAP Hierarchy
Level ALevel AFASB Statements & Interpretations, FASB Statements & Interpretations,
APB Opinions, AICPA ARB’sAPB Opinions, AICPA ARB’s
Level ALevel AFASB Statements & Interpretations, FASB Statements & Interpretations,
APB Opinions, AICPA ARB’sAPB Opinions, AICPA ARB’s
Level BLevel BFASB Technical Bulletins, AICPA FASB Technical Bulletins, AICPA
Industry Audit & Accounting GuidesIndustry Audit & Accounting Guides
Level BLevel BFASB Technical Bulletins, AICPA FASB Technical Bulletins, AICPA
Industry Audit & Accounting GuidesIndustry Audit & Accounting Guides
Level CLevel CFASB EITF Consensus Positions, and FASB EITF Consensus Positions, and
AICPA AcSEC Practice BulletinsAICPA AcSEC Practice Bulletins
Level CLevel CFASB EITF Consensus Positions, and FASB EITF Consensus Positions, and
AICPA AcSEC Practice BulletinsAICPA AcSEC Practice Bulletins
Level DLevel DAICPA Accounting Interpretations, AICPA Accounting Interpretations,
FASB staff “Q&A”’s, Industry PracticeFASB staff “Q&A”’s, Industry Practice
Level DLevel DAICPA Accounting Interpretations, AICPA Accounting Interpretations,
FASB staff “Q&A”’s, Industry PracticeFASB staff “Q&A”’s, Industry Practice
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C a sh is re co rd eda s a re ve nu e in
th e p e rio d re ce ive d .
R e s tric ted g ifts a ren o t th e sa m e asco n d it io na l g ifts.
C o n d it io n a l p ro m isesto g ive a re re co gn izeda s re ve n u es w he n the
co n d it io n s a re m e t.
P le d ge s th a t a llowd o n ors to ch an ge
th e ir m in ds a re n o tu n co n d it io n a l.
U n co n d it io na l p ro m isesto g ive a re re co gn izeda s re ve n u es w he n the
p ro m ise is g ive n .
FASB Statem ent N o. 116
Accounting for Contributions
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Accounting for Contributions
D o n a tio n s o f w o rks o fa rt a n d h is to rica l
tre a su res a re ge n e ra llyn o t reco g n ize d .
1 . T h e se rv ice c re a teso r e nh a nce s a
n o n fina n c ia l a sse t.
2 . T h e serv ice s a resp e c ia lize d a nd w o u ld
h a ve h ad to bep u rch a se d , o the rw ise .
C o n trib u ted se rv icesa re reco g n ize d as
re ve nu e s if o n e o f tw oco n d itio n s is m e t.
E xcha n g es , such asm e m b e r d u e s, a retre a te d a s acc ru a l
re ve n u e s.
FASB Statem ent N o. 116
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Holding Contributions for Others
FASB Statem ent N o. 136
For irrevocable donationsthe recipient NFP records
a liability to theBENEFICIARY.
For revocable donations,the recipient NFP records
a refundable advanceliability to the DO NO R.
Note that neither of thesesituations allow for therecognition of revenue.
© The McGraw-Hill Companies, Inc., 2004
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Let’s look at accounting for health
care organizations.
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Three classifications of health care organization:
Investor-owned.Not-for-profit.Government-owned.
Three classifications of health care organization:
Investor-owned.Not-for-profit.Government-owned.
Financial Reporting for Health Care Organizations
© The McGraw-Hill Companies, Inc., 2004
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Identifying the classification is important. Identifying the classification is important. For example, the classification will determine For example, the classification will determine
how cash flows are accounted for.how cash flows are accounted for.
Identifying the classification is important. Identifying the classification is important. For example, the classification will determine For example, the classification will determine
how cash flows are accounted for.how cash flows are accounted for.
FASB No. 116 & 117
FASB No. 116 & 117
GASBGASB
Three classifications of health care organization:
Investor-owned.Not-for-profit.Government-owned.
Three classifications of health care organization:
Investor-owned.Not-for-profit.Government-owned.
Financial Reporting for Health Care Organizations
© The McGraw-Hill Companies, Inc., 2004
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Bad debts for health care organizations can be significantly higher than other
kinds of businesses.
Bad debts for health care organizations can be significantly higher than other
kinds of businesses.
Amounts that the entity does not intend to collect should not be reported as
revenues.
Amounts that the entity does not intend to collect should not be reported as
revenues.
In many cases, the patient is not responsible for the entire
bill.Third-party payors, such as insurance providers, are an
important part of the process.
In many cases, the patient is not responsible for the entire
bill.Third-party payors, such as insurance providers, are an
important part of the process.
Accounting for Patient Service Revenues
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Record the entry for Medi-Health’s revenues.
Record the entry for Medi-Health’s revenues.
Medi-Health General Hospital is a private, not-for-profit hospital. In March, Medi-Health had patient charges
totaling $980,000. Twelve percent of the patient charges are due from the patients. The remaining
amount is due from insurance providers.
Medi-Health General Hospital is a private, not-for-profit hospital. In March, Medi-Health had patient charges
totaling $980,000. Twelve percent of the patient charges are due from the patients. The remaining
amount is due from insurance providers.
Patient Service RevenuesExample
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Record the journal entry for Medi-Health’s uncollectible services.
Record the journal entry for Medi-Health’s uncollectible services.
Of the amount due from patients, $36,000 is related to
services rendered to poor patients that the hospital did
not intend to collect.
Of the amount due from patients, $36,000 is related to
services rendered to poor patients that the hospital did
not intend to collect.
Patient Service RevenuesExample
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Record the journal entry for Medi-Health’s expected bad debts from patients.
Record the journal entry for Medi-Health’s expected bad debts from patients.
For the remaining receivables from
patients, Medi-Health expects to receive 92%.
For the remaining receivables from
patients, Medi-Health expects to receive 92%.
Patient Service RevenuesExample
© The McGraw-Hill Companies, Inc., 2004
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The amount billed to the The amount billed to the third-party payor may not third-party payor may not agree with the contracted agree with the contracted amount that the third-amount that the third-party payor pays.party payor pays.
The difference is charged The difference is charged to an account called:to an account called:
Contractual Contractual AdjustmentAdjustment
The amount billed to the The amount billed to the third-party payor may not third-party payor may not agree with the contracted agree with the contracted amount that the third-amount that the third-party payor pays.party payor pays.
The difference is charged The difference is charged to an account called:to an account called:
Contractual Contractual AdjustmentAdjustment
Contractural Agreements with Third-Party Payors
© The McGraw-Hill Companies, Inc., 2004
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Record the journal entry for Medi-Health’s billings to the insurance companies.
Record the journal entry for Medi-Health’s billings to the insurance companies.
Of the $862,400 that Medi-Health has billed the insurance
companies, Medi-Health projects that it will collect 96% based on
contractural agreements.
Of the $862,400 that Medi-Health has billed the insurance
companies, Medi-Health projects that it will collect 96% based on
contractural agreements.
Third-Party PayorsExample
© The McGraw-Hill Companies, Inc., 2004
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I get such satisfaction
working for not-for-profit
companies!
End of Chapter 18