21 - 1 ©2003 prentice hall business publishing, advanced accounting 8/e,...

21 - 1©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting forNot-for-Profit Organizations

Chapter 21


Learning Objective 1

Learn about the four main

categories of not-for-profit

organizations.


Categories of Not-For-ProfitOrganizations

Voluntary health and welfare organizations

Other not-for-profit entities

Health care entities

Colleges and universities


The Nature of Not-For-ProfitOrganizations

A not-for-profit entity…

(1) receives contributions of resources fromproviders who do not expect pecuniary returns,

(2) operates for purposes other than profits,

and (3) does not possess ownership interestslike those of business enterprises.



Differentiate between governmental

and nongovernmental

not-for-profit organizations.


Classification of Organizations

Governmental not-for-profit organizations

Nongovernmental not-for-profitorganizations


Governmental Not-For-ProfitOrganizations

Officers are elected by popular vote orappointment by a state or local government.

Governments can unilaterally dissolve the entity.

The entity has the power to enactand enforce a tax levy.

They are special-purpose governments.


Governmental Not-For-ProfitOrganizations

GASB Statements No. 34 and No. 35require special purpose governments

with more than one governmentalprogram or both governmentaland business-type activities topresent both government-wideand fund financial statements.


Nongovernmental Not-For-ProfitOrganizations

These are NFP organizations thatlack the governmental element:

Voluntary health and welfare organizations

Colleges and universities

Other

Health care organizations



Identify the accounting principles

applicable to governmental and

nongovernmental not-for-profit

organizations.


Not-For-Profit Accounting Principles

FASB Statements No. 116 and 117are applicable to all nongovernmental

not-for-profit entities.

FASB Statements No. 124 and 135are specifically related to

not-for-profit organizations.


Financial Statements

FASB Statement No. 117 requiresthat all NFP entities provide:

Statement of Financial Position

Statement of Activities

Statement of Cash Flows


Classification of Net Assets

Three Classes of Net Assets

Unrestricted TemporarilyRestricted

PermanentlyRestricted


Statement of Financial Position

The statement reports assets,liabilities, and net assets.

Comparative statements fromthe prior period are not required.



This provides informationabout the change in amount

and nature of net assets.

The focus of accounting isthe organization as a whole.



It reports increases in unrestrictednet assets as revenues and...

reports decreases in unrestrictednet assets as expenses.

Temporarily restricted or permanentlyrestricted net assets consist of

donor- restricted contributions.



Generally, an organization reportsrevenues and expenses at gross amounts.

Peripheral gains and lossesare reported at net amounts.

Optional classifications

Operating ornonoperating

Recurring ornonrecurring


Statement of Functional Expenses

Voluntary health and welfare organizationsmust report expenses classified by

function and by natural classification.

This statement is not required for ONPOs.



Statement No. 117 extends theprovisions of FASB Statement No. 95

to not-for-profit organizations.

Statement No. 117 encouragesNFP organizations to use

the direct method.


Contributions

Statement No. 116 defines a contributionas “an unconditional transfer of cash

or other assets...in a voluntary,nonreciprocal transfer...”

A promise to give is a written or oralagreement to contribute cash orother assets to another entity.


Donor-Imposed Restrictions

It provides that the donor’s money bereturned or the donor is released from

the promise to give if the condition is not met.


Gifts of Long-Lived Assets

UnrestrictedUnrestrictedRestricted


Investments and Investment Income

Investments are initially recorded at cost.

Contributed securities arerecorded at their fair market value.

Investment income is recognized as earned.


Transactions

Exchange Transactions

Agency Transactions

Gifts in Kind



Introduce FASB not-for-profit

accounting principles.


Measurement Principles

NFP organizations measurecontributions at fair value.

If the fair value of the contributed asset decreasessignificantly between the pledge date and the

date the asset is received, the difference isrecognized in the period the decrease occurred.


Collections

Statement No. 116 encourages retroactivecapitalization of collections of works of art.

If collections are capitalized, they arerecognized as revenues or gains.


Fund Accounting

Many not-for-profit organizations continue touse fund accounting for internal accounting.



Apply not-for-profit accounting

principles to voluntary health

and welfare organizations.


Voluntary Health and WelfareOrganizations

VHWOs are supported by and providevoluntary services to the public.

March of Dimes

Girl Scouts

American Cancer Society

Meals on WheelsBoy Scouts


Accounting for Voluntary Healthand 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 cashcontributions of $4,000 and unconditional

pledges of $6,000 ($2,000 collectible in 2006).



Cash 4,000Unrestricted Support – Contributions 4,000

To record cash contributions

Expenses – Supporting Services 145Cash 145

To record payment of decals



Contributions Receivable 6,000Allowance for Uncollectible Contributions 600Unrestricted Support – Contributions 3,600Temporarily Restricted Support – Contributions 1,800

To record unrestricted promises to give, promises restrictedfor use in 2006, and estimated uncollectibles



On January 1, 2005, Martin Constructiondonated a used van to the organization.

The FMV of the van is $1,500.

The van has a three-year remaining useful life.



Equipment 1,500Temporarily Restricted Support – Contributions 1,500

To record receipt of donated van

Depreciation Expense – Program Services – Community Service 500

Accumulated Depreciation 500To record depreciation



Temporarily Restricted Net Assets – Reclassification Out 500

Unrestricted Net Assets – Reclassification In 500

To record reclassification of net assets for whichthe temporary restriction is satisfied



A fund-raising banquet was held.

Sales were $950 and relatedexpenses amounted to $650.

What are the journal entries?



Cash 950Unrestricted Gains – Special Event 950

To record proceeds from a fund-raising event

Unrestricted Gains – Special Event 650Cash 650

To charge costs of fund-raising event againstsupport from the event


Other Issues

Gifts in kind

Membership fees

Donated securities and investment income


Other Issues

Donated services and payment of salaries

Depreciation

Fixed assets purchased with restricted resources


Other Not-For-Profit Organizations

Cemetery associations Social organizations

Civic organizations

Libraries

Museums

Political organizations

Religious organizations




principles to hospitals and other

health care organizations.


Accounting for a NongovernmentalNot-For-Profit Hospital

Patient service revenue

Premium fees

Other operating revenues


Patient Service Revenues

Daily patient service(room, board, general nursing)

Nursing services(O/R, recovery room)

Other professional services


Patient Service Revenues

Courtesyallowances

Contractualadjustments


Statement of Operations and OtherHospital Financial Statements

Balance Sheet

Statement of Operations

Statement of Changes in Net Assets





principles to private not-for-profit

colleges and universities.


Private Not-for-Profit Collegesand Universities

Nongovernment not-for-profitcolleges and universitiesapply the requirements of

SFASs 116 and 117.


Accounting for a PrivateNot-For-Profit College or

UniversityTuition and fees

Appropriations from federal,state, and local governments

Contributions

Student financial aid

Endowments

Sales and services


Expenses

Instruction

Research

Academic support

Public service


Expenses

Student services

Institutional support

Operation and maintenance of plant

Student aid


Financial Statements

Statement ofFinancial Position

Statement ofActivities

Statement ofCash Flows


End of Chapter 21

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