Introduction to Governmental and Not-for-Profit · PDF fileIntroduction to Governmental and Not-for-Profit Accounting, 7e ... Not-For-Profit Organization (NFPO) - Categories 1. Voluntary

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

Introduction to Governmental and

Not-for-Profit Accounting, 7e

Chapter 12: Accounting For

Not-For-Profit Organizations


Chapter 12 Topics

• Characteristics of Not-for-Profits

• Financial Reporting

• Contributions Other Than Services and Collections

• Contributed Services

• Contributions to Collections

• Investments and Split Interest Agreements

• Other Accounting Matters

• Fund Accounting in Not-for-Profits


What is a Not-For-Profit

Organization (NFPO)?

• Receives contributions without expectation

of return

• Operates for purposes other than profit

• No ownership interest to sell, etc.

• Four categories of NFPOs

Categories


Not-For-Profit Organization (NFPO)

- Categories

1. Voluntary health and welfare organizations

• Provide voluntary social services

• Primary resources from contributions from general

public

• Also receive governmental grants/contracts

• No charge or low charge for services

• Tax exempt

• American Cancer Society, Boy Scouts of America

2. Health care organizations

المنظمات الخيرية


Not-For-Profit Organization (NFPO)

- Categories

3. Colleges and universities

4. Other

• Derive resources primarily from membership dues

and fees

• Labor unions, private foundations, political parties

• Social and country clubs

• Religious organizations, professional/research

organizations

• Private elementary, secondary schools


What Makes Government

Organizations Different?

• Officers are popularly elected or

appointed/approved by other governments

• May have the power to:

– Tax

– Issue tax-exempt debt

• Can be dissolved unilaterally by a

government

– Assets assumed by government without

compensation

من جانب واحد

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

• Set by FASB; full accrual basis of

accounting

• Reporting focuses on total entity, not funds

• Reporting by net asset classification

– Restrictions placed only by donors

• Statements: financial position, activities,

cash flow

– VHWOs must also prepare statement of

functional expenses

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Financial Reporting - Overview


• Net assets, inflows/outflows: reported as

– Unrestricted, temporarily restricted, or

permanently restricted

– Temporarily/permanently restricted only if

donor imposed

– Unrestricted may have non-donor imposed

restrictions

• Because of contracts, suppliers, trustee

designations

• Non-donor restrictions must be disclosed

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Financial Reporting –

Classifying Net Assets

اشترط


Assets (in order of liquidity) XXX

Total assets XXX

Liabilities and net assets:

Liabilities (in order of liquidation) XXX

Total liabilities XXX

Net assets:Unrestricted XXX

Temporarily restricted XXX

Permanently restricted XXX

Total net assets XXX

Total liabilities and net assets XXX

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Financial Reporting – Statement of

Financial Position: Outline


Financial Reporting - Statement of

Activities: Outline*


Donor Restrictions

• Temporary – may be removed by:

– Passage of time-imposed restrictions

– Accomplishment of purpose-imposed

restrictions

• Permanent:

– Restricted in perpetuity, like endowments

– But use of income from donation may be

unrestricted or temporarily restricted



Activities: Inflow Terms

• Revenues: inflows from selling

goods/services

– Organization’s ongoing major operations

• Gains: inflows from peripheral, incidental

activities

• Donations may be revenues or gains

– Based on frequency, whether sought-out

هامشي



Activities: Outflow Terms

• Outflow categories

– Program expenses—reported by functional

classification (by program or service)

• On the statement or in notes

• Program—an activity directly related to

organization’s purpose(s)

– Management and general expense (or

administrative)

– Fund-raising expense

Financial Reporting – Statement

of Cash Flows• Reports all cash receipts and payments

• Organized in three categories or activities:

– Operating

– Investing

– Financing


Financial Reporting – Statement

of Functional Expenses• Required, 4th statement for all VHWOs

• Additional perspective on the way

resources spent

• For each program or function

– Identify expenses by natural/object

classification—e.g. salaries, supplies, travel

• ONPOs may present statement voluntarily



Contributions Other Than Services

and Collections - General Rule

• Reported in the period received

• Assets, decreases of liabilities, or

expenses

– Example: a contribution of free electricity

• Recorded as a revenue and expense

• Use fair market value of contribution

• Reported as restricted or unrestricted

support


Contributions Other Than Services

and Collections - Example Entries

• Unrestricted

• Restricted (time or purpose restriction)


Contributions Other Than Services and

Collections - Reclassification Example


Contributions - Unconditional Promises to

Give (Pledges)

• Recognize net realizable value as

receivable and revenues/gains when

promised (#1 next page)

• Temporarily restricted if intended for future

periods

– Use present value (discount) for future

receipts (#2 next page)

• Must disclose allowance for uncollectible

pledges, when expected


Contributions - Unconditional Promises to

Give (Pledges)

• Sample entries

(1) Contributions receivable 50,000

Allowance for uncollectible contributions 5,000

Unrestricted support-contributions 45,000

(2) Contributions receivable 10,000

Temporarily restricted support-contributions 9,700

Discount on contributions receivable 300


• Future and uncertain, includes bequests

• Record any receipts as refundable

advance (deferred revenue)

• Conditions ≠ restrictions

• Recognize revenue only when conditions

substantially met

– When met, the contribution becomes

unconditional

• Must disclose amounts and description12-*

Contributions Other Than Services and

Collections - Conditional Promises to Giveالوصايا


Contributed Services

• Record fair value of contributed services if: – Services create or enhance nonfinancial

assets OR

– Services are needed and require specialized skills and performed by someone with those skills

• Disclose nature, extent of services received

Expenses-counseling services 3,000

Unrestricted support-services 3,000


• Report fair value of donated art, artifacts, rare books, etc. as assets/revenues/gains

• Option to NOT report as assets, revenues, IF:– Held for public

– Protected, preserved, cared for, etc.

– Sale proceeds used for other collection items

• Consistency: must capitalize all or none

• Disclosure requirements for notes and statements

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Contributions to Collections


• Report investments at fair value:

– Equity securities at closing sales price

– Debt securities at market price

• Unrealized gains/losses (resulting from fair

value reporting) on statement of activities

– May separate realized from unrealized

gains/losses

– Requires second valuation/adjustment

account

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Other Accounting Matters – Investments:

Valuation, Income, Gains, Losses



Valuation, Gains, Losses

• Using a single adjustment accountYear one, year-end valuation adjustment:

Investments 300

Net unrealized and realized investment

gains and losses 300

Year two, at time of sale:

Cash 4,400

Net unrealized and realized investment

gains and losses 100

Investments 4,300



Valuation, Gains, Losses

• Using 2 adjustment accountsYear one, year-end valuation adjustment:

Investment valuation account 300

Change in net unrealized investment gains and losses 300

Year two, at time of sale:

Change in unrealized investment gains and losses 300

Investment valuation account 300

Cash 4,400

Realized gains and losses on investments 400

Investments 4,000

Other Accounting Matters –

Investments: Interest & Dividends

• Recognize as income is earned

• Income generally increases unrestricted

net assets

• If income must be used to support

particular program

– Report as increase in temporarily restricted

net assets

– Reclassify from temporarily restricted to

unrestricted when purpose restriction met



Split Interest Agreements

• Donor enters into trust agreement with

NFPO

– Revocable or irrevocable

• NFPO may have lead or remainder

interest

– Lead interest receives distributions during

agreement term

– Remainder interest receives all or part of

assets at end of agreement term



Split Interest Agreements

• Irrevocable split interest agreement—

cannot be canceled

– When executed, recognize contribution

revenue and related assets equal to fair value

of beneficial interest

– Recognize changes in fair value of assets

• Revocable agreement—can be canceled

– No recognition

– Simply an intention to give



Other Accounting Matters

• Exchanges - same as for-profit entities

– Accrual, recognize bad debt expense

• Subscription, membership income – same

– Recognize revenue in period service provided

– Initiation fees when due, usually unrestricted

• Depreciation expense – same

– Don’t necessarily depreciate capitalized

collections

• Allocate between fund-raising, program

expenses if

– Purpose, audience, and content rule met

– Otherwise, all fund-raising

• Purpose/content: asks audience to take

specific action that will help accomplish

mission

• Audience: not based on contribution

likelihoodCopyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 12-*


Fund-Raising Expenses


Board Designations

• Trustees of NFPO designate portion of

unrestricted net assets

• Does not create restriction

• Report as sub-category of unrestricted of

net assets

– On face of financial statements or in notes


Unrestricted net assets 100,000

Unrestricted net assets—

designated for plant expansion

100,000


Fund Accounting in NFPOs

• Internally, NFPOs may use fund

accounting; not permitted by GAAP

• Fund types:

– Unrestricted current fund (aka general fund or

unrestricted operating fund

– Restricted current funds

– Endowed funds

– Plant funds

Appendix –

Colleges and Universities

• Present same financials required for other

NFPOs

• Generally use pancake format to

distinguish between changes in

unrestricted from temporarily restricted

and permanently restricted net assets

• Report operating and nonperating

revenue



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Introduction to Governmental and Not-for-Profit · PDF fileIntroduction to Governmental and Not-for-Profit Accounting, 7e ... Not-For-Profit Organization (NFPO) - Categories 1. Voluntary