Accounting For Not-for-Profit Organizations

Chapter 22
Accounting for Not-forProfit Organizations
to accompany
Advanced Accounting, 11th edition
by Beams, Anthony, Bettinghaus, and Smith
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
22-1
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.

22-2
Not-for-Profits: Objectives (cont.)

4. Apply not-for-profit accounting principles
to voluntary health and welfare
organizations.
to hospitals and other health care
organizations.
to private not-for-profit colleges and
universities.
22-3
Accounting for Not-for-Profit Organizations
1: CATEGORIES OF NOT-FORPROFITS

22-4
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

22-5
Categories of NFPs
1.
2.
3.
4.
Voluntary health and welfare

Hospitals and health care
Colleges and universities
Other not-for-profits
Churches
Museums
Other NFPs are similar to voluntary health and
welfare, without requiring a statement of
functional expenses.

22-6
2: GOVERNMENTAL AND
NONGOVERNMENTAL NOTFOR-PROFITS

22-7
Governmental NFPs
Governmental not-for-profits are NFPs with
Officers elected or appointed by government
Government that can unilaterally dissolve and
assets revert to government
Power to enact/enforce taxes
Follow GASB

22-8
Nongovernmental NFPs
NFPs that lack the governmental element
Follow FASB
FASB ASC 958 incorporates the two previous
FASB Statements which provided guidance for
Nongovernmental Not-for-Profits:
FASB Statement No. 116
Contributions
FASB Statement No. 117
Financial statements
22-9
3: ACCOUNTING PRINCIPLES

22-10
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
22-11
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
22-12
Statement of Activities
Changes in net assets shown separately for
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets
Revenues and contributions are shown in all
three categories, but expenses are shown
only in unrestricted net assets.
Reclassifications
Move amounts from temporarily restricted to
unrestricted net assets
Expiration of time restrictions
FulfillmentCopyright
of purpose
restrictions
2012 Pearson Education,
22-13
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
22-14
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)
22-15
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
22-16
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 Copyright 2012 Pearson Education,
22-17
Other Accounting Issues

Measurement
Contributions at fair value
Fair value at time of pledge
Don't 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
22-18
4: VOLUNTARY HEALTH AND

WELFARE

22-19
Fund Raising
Expenses - supporting services - fund raising
Cash
Cash
Unrestricted gains special event
Unrestricted gains special event
Cash
145
145
1,950
1,950
250
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
22-20
Cash Donations and Pledges

Cash
Contributions receivable
Allowance for uncollectibles
Unrestricted support contributions
Temporarily restricted support contributions
4,000
6,000
600
7,600
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, orCopyright
unrestricted)
22-21
Collect a Time-Restricted Pledge

Cash
Contributions receivable
1,800
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
22-22
Receive Equipment and Use It

Equipment
Temporarily restricted net assets
contributions
Depreciation expense - program services community service
Accumulated depreciation equipment
Temporarily restricted net asset reclassification out
1,500
1,500
500
500
500
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. Copyright 2012 Pearson Education,
22-23
Receive Cash with Purpose

Restriction
Cash
Temporarily restricted support
contributions
Expenses - program services research
Cash
1,000
1,000
900
900
900
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.
22-24
Receive Donated Services

Expenses - support services - management
and general
Unrestricted support - donated services
Construction in process
500
500
1,200
1,200
Specialized services (accounting) that would

have to be purchased: record as both expense
and revenue.
General services (non-specialized) that result in
nonfinancial assets: record asset and revenue.
Services of other general labor (door-to-door
collections): not recorded.
22-25
Statement of Financial Position

22-26
Statement of Activities

22-27
Statement of Activities (cont.)

22-28
Statement of Cash Flows

22-29
Statement of Functional Expenses

Statement
of Activities

22-30
5: HOSPITALS AND OTHER

HEALTH CARE

22-31
Hospitals and Health Care

Applies to nongovernmental, not-for-profit
hospitals and health care agencies, including
Clinics
Ambulatory care organizations
Continuing-care retirement communities
Health maintenance organizations
Home health agencies
Nursing homes
Accounting is governed by
Governmental: GASB
Private, for-profit: FASB as for businesses
22-32
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
22-33
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

22-34
Patient Revenue
Patient accounts receivable
1,300
Patient service revenues unrestricted
1,300
Courtesy discounts
9
Contractual adjustments
300
Patient accounts receivable
309
Bad debt expense
26
Allowance
for uncollectibles
The full
amount
is charged to the patient bill 26
Upon approval, the bill is reduced for courtesy

discounts and contractual adjustments
Contra-revenue accounts
Uncollectibles are estimated and written off as
needed, similar toCopyright
businesses
22-35
Cash Contributions
Cash
275
Unrestricted support - nonoperating gains
Temporarily restricted support
Nursing services expense
250
Cash
250
Unrestricted
net assets -can
reclassification
in
Cash
contributions
be unrestricted,
25
250
250
250
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. Copyright 2012 Pearson Education,
22-36
Receive Donated Assets/Services

Inventory of materials and supplies
Unrestricted support - donated supplies
Nursing services expenses
130
130
70
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.
22-37
Hospital Statements
Statement of net assets
Statement of operations
Statement of changes in net assets
Statement of cash flows
The NFP "Statement of activities" includes
changes to unrestricted, temporarily and
permanently restricted net assets.
The Hospital's "Statement of Operations"
and "Statement of changes in net assets"
together, provide that information.
22-38
Statement of Operations: Hospital

22-39
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.
22-40
6: COLLEGES AND
UNIVERSITIES

22-41
Colleges and Universities

Applies to nongovernmental, not-for-profit
colleges and universities
Governmental: GASB
Private, for-profit: FASB as for businesses

22-42
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"
22-43
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
22-44
Tuition Revenues
Accounts receivable
Unrestricted revenues - tuition and fees
Tuition reduction: unrestricted - student aid
Accounts receivable
Expenses - educational and general institutional support
Allowance for uncollectibles
1,000
1,000
50
50
30
30
Tuition is recorded at gross amount

Tuition waivers are contra-revenues
Bad debts are recorded as for businesses
Grouped with institutional support expenses
22-45
Receive Appropriations
Cash
Unrestricted support - state appropriation
700
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
22-46
Funds Held for Students

Cash
Grant funds held for students
Grant funds held for students
Cash
150
150
150
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.
22-47
Endowments
Cash
Permanently restricted revenues - endowment
contribution
Cash
Temporarily restricted revenues - endowment income
Expenses - unrestricted - student aid
Cash
Temporarily restricted net assets - reclassifications out
Unrestricted
net assets
reclassifications endowment,
in
Receive
cash
for -permanent
income restricted to student aid

Receive income on endowment
Classify as temporarily restricted
Spend cash on student aid
Reclassify net assets
50
50
4
4
3
3
3
with
22-48
Auxiliary Services
Cash
Revenues - auxiliary enterprises
Expenses - auxiliary enterprises
Cash
61
61
28
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.
22-49
Statement of Activities: Colleges

22-50
State. of Activities: Colleges (cont.)

22-51
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22-52

Accounting For Not-for-Profit Organizations

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Chapter 22

Accounting for Not-forProfit Organizations

Copyright 2012 Pearson Education,

Not-for-Profits: Objectives (cont.)

Accounting for Not-for-Profit Organizations

Copyright 2012 Pearson Education,

Copyright 2012 Pearson Education,

Voluntary health and welfare

Copyright 2012 Pearson Education,

Accounting for Not-for-Profit Organizations

Copyright 2012 Pearson Education,

Copyright 2012 Pearson Education,

Accounting for Not-for-Profit Organizations

Copyright 2012 Pearson Education,

Examples: Research expense, Educational

Other Accounting Issues

Accounting for Not-for-Profit Organizations

4: VOLUNTARY HEALTH AND

Copyright 2012 Pearson Education,

Cash Donations and Pledges

Collect a Time-Restricted Pledge

Temporarily restricted net asset - reclassification

Receive Equipment and Use It

Contribution of equipment is temporarily

Receive Cash with Purpose

Receive cash for research.

Receive Donated Services

Specialized services (accounting) that would

Statement of Financial Position

Copyright 2012 Pearson Education,

Copyright 2012 Pearson Education,

Statement of Activities (cont.)

Copyright 2012 Pearson Education,

Statement of Cash Flows

Copyright 2012 Pearson Education,

Statement of Functional Expenses

Copyright 2012 Pearson Education,

Accounting for Not-for-Profit Organizations

5: HOSPITALS AND OTHER

Copyright 2012 Pearson Education,

Hospitals and Health Care

Revenues and Other Receipts

Copyright 2012 Pearson Education,

Upon approval, the bill is reduced for courtesy

temporarily or permanently restricted

Receive Donated Assets/Services

Donated supplies are unrestricted support

Statement of Operations: Hospital

Copyright 2012 Pearson Education,

Statement of Changes in Net Assets:

Shows the net changes in unrestricted net

Accounting for Not-for-Profit Organizations

Copyright 2012 Pearson Education,

Colleges and Universities

Copyright 2012 Pearson Education,

Tuition and Scholarships

Tuition is recorded at gross amount

Appropriations received from governments

Funds Held for Students

Receive cash that is to be distributed to

income restricted to student aid

Auxiliary services: residence halls, food

Statement of Activities: Colleges