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

21 - 2©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Learning Objective 1

Learn about the four main

categories of not-for-profit

organizations.

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Categories of Not-For-ProfitOrganizations

Voluntary health and welfare organizations

Other not-for-profit entities

Health care entities

Colleges and universities

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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.

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Learning Objective 2

Differentiate between governmental

and nongovernmental

not-for-profit organizations.

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Classification of Organizations

Governmental not-for-profit organizations

Nongovernmental not-for-profitorganizations

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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.

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

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.

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Nongovernmental Not-For-ProfitOrganizations

These are NFP organizations thatlack the governmental element:

Voluntary health and welfare organizations

Colleges and universities

Other

Health care organizations

21 - 10©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Learning Objective 3

Identify the accounting principles

applicable to governmental and

nongovernmental not-for-profit

organizations.

21 - 11©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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.

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Financial Statements

FASB Statement No. 117 requiresthat all NFP entities provide:

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

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Classification of Net Assets

Three Classes of Net Assets

Unrestricted TemporarilyRestricted

PermanentlyRestricted

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Statement of Financial Position

The statement reports assets,liabilities, and net assets.

Comparative statements fromthe prior period are not required.

21 - 15©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Statement of Activities

This provides informationabout the change in amount

and nature of net assets.

The focus of accounting isthe organization as a whole.

21 - 16©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Statement of Activities

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.

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Statement of Activities

Generally, an organization reportsrevenues and expenses at gross amounts.

Peripheral gains and lossesare reported at net amounts.

Optional classifications

Operating ornonoperating

Recurring ornonrecurring

21 - 18©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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.

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Statement of Cash Flows

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.

21 - 20©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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.

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

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.

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Gifts of Long-Lived Assets

UnrestrictedUnrestrictedRestricted

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Investments and Investment Income

Investments are initially recorded at cost.

Contributed securities arerecorded at their fair market value.

Investment income is recognized as earned.

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Transactions

Exchange Transactions

Agency Transactions

Gifts in Kind

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Learning Objective 4

Introduce FASB not-for-profit

accounting principles.

21 - 26©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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.

21 - 27©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Collections

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

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

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Fund Accounting

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

21 - 29©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Learning Objective 5

Apply not-for-profit accounting

principles to voluntary health

and welfare organizations.

21 - 30©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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

21 - 31©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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).

21 - 32©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

Cash 4,000Unrestricted Support – Contributions 4,000

To record cash contributions

Expenses – Supporting Services 145Cash 145

To record payment of decals

21 - 33©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

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

21 - 34©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

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.

21 - 35©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

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

21 - 36©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

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

21 - 37©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

A fund-raising banquet was held.

Sales were $950 and relatedexpenses amounted to $650.

What are the journal entries?

21 - 38©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for Voluntary Healthand Welfare Organizations

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

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Other Issues

Gifts in kind

Membership fees

Donated securities and investment income

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Other Issues

Donated services and payment of salaries

Depreciation

Fixed assets purchased with restricted resources

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Other Not-For-Profit Organizations

Cemetery associations Social organizations

Civic organizations

Libraries

Museums

Political organizations

Religious organizations

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Learning Objective 6

Apply not-for-profit accounting

principles to hospitals and other

health care organizations.

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Accounting for a NongovernmentalNot-For-Profit Hospital

Patient service revenue

Premium fees

Other operating revenues

21 - 44©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Patient Service Revenues

Daily patient service(room, board, general nursing)

Nursing services(O/R, recovery room)

Other professional services

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Patient Service Revenues

Courtesyallowances

Contractualadjustments

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Statement of Operations and OtherHospital Financial Statements

Balance Sheet

Statement of Operations

Statement of Changes in Net Assets

Statement of Cash Flows

21 - 47©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Learning Objective 7

Apply not-for-profit accounting

principles to private not-for-profit

colleges and universities.

21 - 48©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Private Not-for-Profit Collegesand Universities

Nongovernment not-for-profitcolleges and universitiesapply the requirements of

SFASs 116 and 117.

21 - 49©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

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

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Expenses

Instruction

Research

Academic support

Public service

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Expenses

Student services

Institutional support

Operation and maintenance of plant

Student aid

21 - 52©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Financial Statements

Statement ofFinancial Position

Statement ofActivities

Statement ofCash Flows

21 - 53©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

End of Chapter 21