Introduction to Governmental and Not-for-Profit Accounting, 7e

Transcription

1 Introduction to Governmental and Not-for-Profit Accounting, 7e Chapter 12: Accounting For Not-For-Profit Organizations

2 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

3 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

4 Not-For-Profit Organization (NFPO) - Categories المنظمات الخيرية 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

5 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

6 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 من جانب واحد government Assets assumed by government without compensation

7 Financial Reporting - Overview 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 Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

8 Financial Reporting Classifying Net Assets Net assets, inflows/outflows: reported as Unrestricted, temporarily restricted, or permanently restricted Temporarily/permanently restricted only if اشترط donor imposed Unrestricted may have non-donor imposed restrictions Because of contracts, suppliers, trustee designations Non-donor restrictions must be disclosed Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

9 Financial Reporting Statement of Financial Position: Outline 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 Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

10 Financial Reporting - Statement of Activities: Outline*

11 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

12 Financial Reporting - Statement of Activities: Inflow Terms Revenues: inflows from selling goods/services Organization s ongoing major operations Gains: inflows from peripheral, incidental هامشي activities Donations may be revenues or gains Based on frequency, whether sought-out

13 Financial Reporting - Statement of 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

14 Financial Reporting Statement of Cash Flows Reports all cash receipts and payments Organized in three categories or activities: Operating Investing Financing

15 Financial Reporting Statement of Functional Expenses Required, 4 th 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

16 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

17 Contributions Other Than Services and Collections - Example Entries Unrestricted Restricted (time or purpose restriction)

18 Contributions Other Than Services and Collections - Reclassification Example

19 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

20 Contributions - Unconditional Promises to Sample entries Give (Pledges) (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

21 Contributions Other Than Services and Collections - Conditional Promises to Give 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 description Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall الوصايا 12-*

22 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

23 Contributions to Collections 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 Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

24 Other Accounting Matters Investments: Valuation, Income, Gains, Losses 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 Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 12-*

25 Other Accounting Matters Investments: Valuation, Gains, Losses Using a single adjustment account Year 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

26 Other Accounting Matters Investments: Valuation, Gains, Losses Using 2 adjustment accounts Year 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

27 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

28 Other Accounting Matters 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

29 Other Accounting Matters 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

30 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

31 Other Accounting Matters Fund-Raising Expenses 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 likelihood

32 Other Accounting Matters 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

33 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

34 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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