accounting for colleges and universities
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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Accounting for Colleges and Universities
Chapter
15
15-2
Learning Objectives
After studying Chapter 15, you should be able to: Distinguish between GAAP for public and private
colleges and universities (C&Us) Describe financial reporting for public and private
C&Us
15-3
Learning Objectives (Cont’d)
Discuss accounting and reporting issues for all C&Us, such as accounting for:
Assets, liabilities, and net assets/net position
Revenues and expenses
Cash flows
Journalize transactions for private C&Us
Prepare financial statements for public and private C&Us
15-4
Learning Objectives (Cont’d)
Discuss issues related to C&Us, such as:Planned givingAuditingFederal financial assistance
15-5
GAAP for Colleges & Universities
Private colleges and universitiesThe FASB Accounting Standards Codification is the
source of GAAPNon-GAAP guidance is provided by the AICPA Auditing
and Accounting Guide, Not-for-Profit Entities, and the National Association of College and University Business Officials (NACUBO)
Public colleges and universitiesThe GASB serves as the source of GAAPNon-GAAP guidance is provided by the AICPA Auditing
and Accounting Guide, State and Local Governments, and NACUBO
15-6
Statement of net position (see Ill. 15-1), classifying net position into:
Net investment in capital assets
Restricted
Unrestricted
Statement of revenues, expenses and changes in net position (see Ill. 15-2)
Statement of cash flows (see Ill. 15-3)
Financial Statements for a Public C&U
15-7
Statement of financial position (see Ill.15-4), classifying net assets into:
Unrestricted
Temporarily restricted
Permanently restricted
Statement of activities (see Ill. 15-5)
Statement of cash flows (see Ill. 15-6)
Financial Statements for a Private C&U
15-8
Assets loaned to students, faculty, and staff
Provided by gifts, grants, investment income, and transfers from other funds – classify according to any restrictions imposed by contributors
When a loan is made (e.g., $1,000 loan)
DebitCredit
Loan Receivable 1,000
Cash 1,000
When the loan is paid reverse the prior entry and record interest income received on the loan
Loan Assets
15-9
Recording and reporting of capital assets for C&Us is similar to that of for-profit businesses
FASB and GASB standards are similar
GASB standards require public C&Us to report two capital asset categories not found in private C&Us reporting using FASB standards Infrastructure, which allows for use of the
“modified approach”
Intangible assets (reported as a separate asset class under FASB standards)
Assets—Capital
15-10
Liabilities
If a C&U is required to return some or all of student deposits that are received for housing, equipment, or services, a short-term liability is recorded
For example, a $100 refundable deposit was received
DebitCredit
Cash 100
Deposits Held in Custody for Others 100
15-11
Operating Statements
Differences exist in the reporting format for privateC&Us and public C&Us using a business-type model
Private C&Us must report the amount of net assets released from restrictions, public C&Us do not
Public C&Us must separate operating activity from nonoperating activity on the face of the financial statements, private C&Us do not
15-12
Tuition and fees Federal, state, and local appropriations Federal, state, and local grants and contracts Private gifts Investment income Auxiliary services
NACUBO Revenue Classifications
15-13
Revenues—Tuition & Fees
Record Tuition & Fees (T&F) at gross amountTuition & Fees should also be reported net of tuition
discounts and scholarships using a contra account
For example – gross T&F was $5,000, with $250 given in scholarships
Debit Credit
T&F Receivable 4,750
T&F Discounts and Allowances 250
T&F—Unrestricted 5,000
15-14
Revenues—Tuition & Fees (Cont’d)
Refunds of T&F are direct adjustments to the T&F—Unrestricted account
At FYE report T&F net of estimated uncollectible amounts
For public C&Us a contra-revenue account is allowable for recording and reporting estimated uncollectible amounts
For private C&Us revenue should be directly adjusted for uncollectible amounts – for example
T&F—Unrestricted
Allowance for Doubtful Accounts
15-15
Support Revenue(Non-exchange Transactions)
C&Us receive contributions similar to other NFP organizations (see Chapter 13)
These gifts are considered increases to
Temporarily restricted net assets for a private C&U
Restricted net position for a public C&U
Public and private C&Us record any estimates for uncollectible support revenues in the same manner as estimated uncollectible T&F
15-16
Grants may be exchange transactions if the grantor receives direct benefits in the form of something of value in exchange for the grant
e.g., if a university tests a product under a federal contract, but the government retains the patent (or rights) to use the product
Grants considered exchange transactions are recorded as unrestricted net assets/position; whereas, non-exchange transactions are recorded as temporarily restricted net assets (private) or restricted net position (public)
Support Revenue—Grants
15-17
Recognized on the accrual basis NACUBO recommended classifications:
Instruction Research Public service Academic support Student services Institutional support Student aid Auxiliary enterprises
Operating Expenses
15-18
Private C&Us must identify program and support expenses on the face of the statement of activities or in the notes to the statement
Private and public C&Us record expenses in the same manner
Operating Expenses (Cont’d)
15-19
Statements of Cash Flows
Private C&Us prepare the statement of cash flows similar to for-profit entities
Public C&Us prepare the statement of cash flows following the GASB standard:
Direct method of presentation must be used
Four categories are identified – operating, noncapital financing, capital and related financing, and investing activities
15-20
Endowment—the donor has stipulated that theprincipal of his/her gift is not expendable as of thereporting date (permanently restricted). However
thegift can be invested for the purpose of producingincome. Generally, there are two forms ofendowment:
Permanent—the principal must remain intact for perpetuity
Term—the principal remains intact for a period of time
Planned Giving—Endowments
15-21
The C&U shares the interest and/or investment with the donor or another beneficiary
There are four widely used types of split-interest agreements Charitable lead trusts Charitable remainder trusts Charitable gift annuities Pooled (life) income funds
Planned Giving—Split-interest Agreements
15-22
Restricted Net Assets/Position—
Split-interest Agreements (Cont’d)
Annuity agreements are gifts in which donors require a stipulated amount of money returned to them or other beneficiary each year. At some point in time (e.g., death) the C&U owns the assets and income
Pooled (life) income agreements require that total income earned on the donor’s pro rata share of donated assets be returned to the donor or other beneficiary
15-23
UPMIFA
UPMIFA is the Uniform Prudent Management of Institutional Funds Act implemented by at least 47 states
The act provides guidance on the management of funds received for charitable purposes in the absence of donor stipulations
Three primary areas of importance are related to investment of funds, expenditures, and release or modification of restrictions on assets provided through donation
15-24
C&Us are encouraged to provide qualitative measures that help assess accomplishments:
Outputs, e.g., faculty productivity, number of graduates, job placements
Outcomes (effectiveness), e.g., increased knowledge of students, satisfaction of alumni, value added to students in the areas of skills and knowledge
Nonfinancial Performance Measures
15-25
C&Us that expend more than $500,000 of federal awards a year are subject to a Single Audit
Auditors will use generally accepted auditing standards, government auditing standards (yellow book), and OMB Circular A-133
Auditors must be sure the C&U has complied with the cost principles in OMB Circular A-21 and the cost and administrative principles in OMB Circular A-110
Auditing Issues in C&Us
15-26
C&Us may have institutionally related foundations for fund-raising, alumni relations, or management of assets
In general, C&Us report related entities in the same manner as other not-for-profit entities (private C&Us) or business-type governmental entities (public C&Us)
Related Entities
15-27
Public colleges and universities follow GASB standards
Private colleges and universities follow FASB standards
Colleges and universities receive a substantial amount of federal funds leading to additional compliance requirements and Single Audits
END
Concluding Comments
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