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Non-Profit & Government Accounting

Terms in this set (79)

The principal and earnings of a gift held in a trust that can be spent for the college education of the children of deceased policemen should be accounted for in which of the following funds?
Private Purpose Trust Fund
In what way can the amounts in an Investment Trust Fund be invested?
Only as provided in the trust agreement
To what type of account are contributions to a Pension Trust Fund usually credited?
An additions account
Which account in a Private Purpose Trust Fund should be credited for the proceeds on the sale of an investment that exceeds its book value?
Additions
Financial statements for a Pension Trust fund
are included in a government's annual financial report
Agency Funds are classified as _______-type funds.
fiduciary
An Agency Fund is used when the governmental unit is the _____ of resources that belong to some other organization.
custodian
Agency Funds ________ (do or do not) have title to the resources in the fund.
do not
The financial statement for an Agency Fund is _______.
a statement of fiduciary net position
Revenues generated for a government by the activities recorded in its Tax Agency Fund are usually recorded in the _____ Fund.
General
Agency Funds ________ (are or are not) used only as tax collection funds.
are not
The fee for the collection of property taxes by an Agency Fund will result in revenue in which of the following funds?
General Fund
Blaken Township established an Agency Fund to account for the collection and distribution of a general sales tax. The tax is collected for the General Fund, an independent school district, and several independent drainage districts. the school district and the drainage districts are entities that are separate from the city. During the year, $500,000 was collected in sales taxes. Entries to record the collection and distribution of the resources for the city are recorded in which of the following funds?
General Fund and Agency Fund
Which of the following funds can be used to account for the spendable income from a Private Purpose Trust Fund?
None b/c the spendable income would be accounted for in the Private Purpose Trust Fund
To what provisions must the use of assets accumulated in a trust fund conform?
The trust agreement; State & local laws
A citizen donated $1 million to a city upon her death. Her will provided that these resources be maintained in a trust and spent to provide schoolchildren with free tickets to a local baseball games. In which fund is accounting for these activities done?
Private Purpose Trust fund
Private Purpose Trust Funds follow the __________ measurement focus and the _________ basis of accounting.
economic resources; accrual
Amounts originally contributed to a Private Purpose Trust Fund are recorded as __________.
additions
The following financial statements are prepared for a Private Purpose Trust Fund: _________ & __________.
statement of changes in fiduciary net position; statement of fiduciary net position.
The operations of a Private Purpose Trust Fund are usually __________ (more or less) complex than those of the General Fund.
less
The most important document, with respect to a Private Purpose Trust Fund, is the ___________.
trust agreement
In government-wide financial statements, for which activities is depreciation reported?
For both governmental & business-type activites
In government-wide financial statements, for which activities is the economic resources measurement focus & accrual basis of accounting used?
For both governmental & business-type activities
In which set of financial statements are fiduciary-type funds reported?
only in the fund financial statements
If the General Fund makes a transfer to the Debt Service fund, how should the transfer be reported in the financial statements?
The transfers in and out should be reported in the fund operating statement but not in the government-wide operating statement.
A primary government has two component units, called CA and CB. CA meets the criteria for blending with other governmental funds; CB meets the criteria for discrete reporting. How should CA and CB be reported in the primary government's government-wide financial statements?
Report CA in the column headed "Governmental Activities," and report CB in a separate column headed "Component Units."
A city issues $500,000 of 10-year general obligation bonds on April 1, 2013. It is required to redeem debt principal of $50,000 on April 1 of each year, starting April 1,2014, with interest of 4% per annum paid on the unpaid principal. How much interest expenditure or expense should the city recognize in its operating statements for the calendar year 2013?
Fund statement: 0
Government-Wide Statement: 15,000
A village issues $3,000,000 of general obligation bonds to build a new firehouse. How should the debt be reported?
as a liability in the government-wide statement of net position
A village levies property taxes in the amount of $4,290,000 for the fiscal year ended June 30,213. It collects $4,200,000 during the year. Regarding the $90,000 of delinquent receivables, it expects to collect $60,000 in July and august of 2013 and another $20,000 after August 2013 but before March 2014. It expects to write off $10,000 as uncollectible. How much should the village recognize as property tax revue in its government-wide statement of activities for the fiscal year ended June 30, 2013?
$4,280,000
Where are Internal Service Fund "profits" or "losses" allocated?
to the functions that purchased the services in the government-wide statements
Where is interest on general obligation long-term debt reported?
on the accrual basis in the government-wide statements
Where are fiduciary funds reported?
in the fund statements
What are infrastructure assets?
long-lived capital assets that are generally stationary and can be preserved for a significantly greater number of years than most capital assets. Ex: roads, bridges, tunnels, water and sewer systems, dams, and lighting systems.
The three categories of revenues that must be deducted from expenses to report net expenses or revenues for each program or function are:
1. Charges for services
2. Program-specific operating grants and contributions
3. Program-specific capital grants and contributions
What is the purpose of a classified statement of net position?
to provide information on the relative liquidity of assets & liabilities. Assets & liabilities are each separated as between those that are current and those that are non-current. Current assets are cash and other assets that the entity expects to convert to cash within a year or to be consumed in operations in a year. Current liabilities are those that the entity expects to liquidate within a year.
The three components of net position in the government-wide statement of net position are:
1. invested in net assets, net of related debt
2. restricted
3. unrestricted
What are the major reconciling items between fund financial statements & government-wide financial statements:
1. Reporting capital outlays as expenditures in fund statements, but reporting depreciation expense in government-wide statements.
2. Reporting proceeds of long-term debt as inflows of resources (and repayment of debts as outflows of resources) in fund fin stmts, but reporting them as liabilities and repayments of liabilities on gov-wid statements.
3. Reporting revenues on the modified accrual basis (when "measurable and available") in fund fin stmts, but reporting them on the accrual basis in gov-wid stmts.
4. Reporting expenditures in fund fin stmts, but reporting expenses in gov-wid statements.
5. Reporting Internal Service Funds as proprietary-type funds in the fund stmts, but reporting them mostly as governmental activities (and adjusting expenses by Internal Service Fund profits and losses) in government-wide statements.
When would a governmental unit choose not to depreciate infrastructure assets?
if it adopts the "modified approach" to reporting those assets. The modified approach requires that the government have an asset management system and document that the assets are being preserved at or above a condition level that it establishes and discloses. ( if infrastructure assets are not depreciated, additions or improvements that increase the capacity of the assets are capitalized, but other expenditures are expensed in the year incurred.)

The governmental unit must also make condition assessments at least every 3 years and document the results of the assessments, showing that the assets are being preserved at established condition levels.
Having an asset management system means that the government:
a) has an up-to-date inventory of the assets
b) makes periodic assessments of the physical condition of the assets that it summarizes on a measurement scale
c) estimates each year the amount needed to preserve the assets at the condition level that it has established
What characteristics distinguish NFPO's from for-profit organizations?
As contrasted w/for-profit entities, NFP's:
1) Receive significant amounts of resources in the form of contributions from providers who do not expect to receive monetary benefits in return
2) operate for purposes other than to earn profits
3) lack defined ownership interests that can be sold, transferred or redeemed
What characteristics distinguish government organizations from NFPOs?
As distinguished from NFP entities, governmental entities have one or more of these characteristics:
1) their officers are either popularly elected or a controlling majority of their governing boards are appointed or approved by entities that are clearly governmental
2) they may have the power to tax
3) they may have the power to issue tax-exempt debt
4) they can be dissolved unilaterally by a government and their net assets assumed by it without compensation
What financial statements must be prepared by all Voluntary health and welfare organizations (VHWO) and Other non-for-profit organizations (ONPO) ?
1) a statement of financial position
2) a statement of activities
3) statement of cash flows
What additional financial statements must be prepared by VHWOs?
A statement of functional expenses
Identify and briefly describe the 3 classifications of net assets on the financial statements of NFPOs
1) unrestricted
2) temporarily restricted
or 3) permanently restricted
unrestricted
net assets are resources that are neither temporarily nor permanently restricted
temporarily restricted
net assets result generally from contributions and other asset inflows whose use is limited by donor-imposed stipulations that expire either by the passage of time or can be fulfilled and removed by actions of the organization in accordance with the stipulations.
permanently restricted
net assets result generally from contributions and other asset inflows whose use is limited by donor-imposed stipulations that expire neither by the passage of time nor can be fulfilled or otherwise removed by actions of the organization.
State the four elements of the general rule for reporting the receipt of contributions other than services and collections.
1) reported as revenues or gains in the period received
2) reported as assets, decreases of liabilities, or expenses, depending on the form the benefits take
3) measured at the fair value of the benefits received
4) reported as either restricted support or unrestricted support
Illustrate the kinds of restrictions that donors may impose on the use of resources they contribute to NFPOs
donors may impose temporary or permanent restrictions on the use of donated resources.

Example of a donor-imposed temporary restriction is a donation that must be used for a specific purpose, such as a special training program. The restriction is satisfied as soon as the money is spent for that purpose.

Another example of a temporary restriction is one relating to when the gift may be used. An example of a donor-imposed permanent restriction is an endowment whose principal must be maintained intact permanently, but whose income may be used either for any purpose the organization wishes or for a specific purpose, such as the conduct of specific training programs.
How are pledges that are expected to be noncollectable reported in the financial statements of NFPOs?
as deductions from revenue generated by the pledges and as contras (subtractions) from the related receivables.
Discuss the differences between a donor-imposed restriction and a conditional promise to give. How is each reported in the financial statements?
donor imposed restriction limits the use of the contributed assets beyond the broad limits resulting form the nature of the organization and the purposes for which it was organized. Contributions with donor-imposed restrictions, even when received in the form of a promise to give, must be reported generally as restricted revenues.

A conditional promise to give is a promise that binds the donor on the occurrence of a specified future and uncertain event. Conditional promises to give are not recognized as revenues and receivables until the conditions on which they depend are substantially met.
Describe the circumstances under which contributed services must be recognized as revenues and expenses in the financial statements.
NFPOs must report the fair value of contributed services as revenues and expenses in the financial statements provided the services received:
1) create or enhance non financial assets
2) or require specialized skills, are provided by individuals who possess those skills, and would typically need to be purchased if the services were not donated.
When should an NFPO make a reclassification of its net assets?
when resources classified as restricted have been released from restrictions. Reclassifications move resources from one classification of net assets to another as a result of satisfaction of restrictions that caused the resources to be classified initially as restricted.

Examples of reclassification are the satisfaction of program restrictions and the expiration of time restrictions, causing the transfer of resources from temporarily restricted to unrestricted.
Under what circumstances must an NFPO recognize a contributed work of art as revenue? Under what circumstances does the organization have an option not to recognize it as revenue?
if the contributed work is not part of a collection.

the option not to recognize as revenue provided the donation is added to a collection and the collection meets all of the following conditions:
1) the collection is held for pubic exhibition, education, or research in furtherance of public service
2) the collection is protected, kept unencumbered, cared for and preserved
3) the collection is subject to an organizational policy that requires proceeds from the sale of collection items to be used to acquire other items for the collection
NFPO's investments - Record FV of contributed services if:
1. Services create or enhance non financial assets OR
2. Services are needed and require specialized skills & performed by someone with those skills
Identify and briefly describe the major funds used internally by NFPOs
1) The Unrestricted Current Fund
Included in this fund are unrestricted resources that are available for the general operations of the organization.
2) Restricted Current Fund
Included in these funds are resources available for use in the operations of an organization, as specified by donors, but could also include resources provided under contract.
3) Land, Buildings and Equipment Fund
This fund is used to account for financial resources to be used to acquire land, buildings, and equipment. It could also be used to account for capital assets currently used in the operations of the organization, together with associated depreciation and long-term debt.

While the funds identified above generally are used by all VHWOs and ONPOs, some of them also need "special" funds to allow for unique characteristics of their operating environment. Examples of such funds include Endowment Funds, custodian (Agency) Funds, Loan Funds and Annuity Funds.
4 Categories of NFPO:
1. Voluntary health and welfare organizations
2. Health care organizations
3. Colleges and universities
4. Other
What makes government organizations different?
1. Officers are popularly elected or appointed/approved by other governments
2. May have the power to tax
3. May have the power to issue tax-exempt debt
4. Can be dissolved unilaterally by a government their net assets assumed by it without compensation
Financial Reporting for NFPOs
1. set by FASB
2. full accrual basis of accounting
3. reporting focuses on total entity, not funds
4. reporting by net asset classification
5. statements: financial position, activities, cash flow
- VHWOs must also prepare statement of functional expenses
Classifying Net Assets for NFPOs
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
Statement of activities: Inflow Terms - NFPOs
Revenues: Inflows from selling goods/services
Gains: Inflows from peripheral, incidental activities
Donations may be revenues or gains (based on frequency, whether sought-out)
NFPOs - Statement of activities: Outflow Terms
Outflow categories:
1. Program expenses (reported by functional classification - by program or service)
- on the statement or in the notes
- program (an activity directly related to organization's purpose)
2. Management and general expense (or administrative)
3. Fundraising expense
Statement of cash flows - NFPOs
1. Reports all cash receipts and payments
2. Organized in three categories or activities:
- Operating
- Investing
- Financing
Statement of Functional Expenses: NFPOs
1. Required, 4th statement for all VHWOs
2. Additional perspective on the way resources spent
3. For each program or function
- identify expenses by natural/object classification - e.g. salaries, supplies, travel
4. ONPOs may present statement voluntarily
NFPOs - Contributions other than Services and Collections - General Rule
1. Reported in the period received
2. Assets, decreases of liabilities, or expenses
- EX: a contribution of free electricity (recorded as a revenue and expense)
3. Use FMV of contribution
4. Reported as restricted or unrestricted support
NFPOs - Contributions - Unconditional Promises to Give (Pledges)
1. Recognize net realizable value as receivable and revenues/gains when promised
2. Temporarily restricted if intended for future periods ( use present value, discount, for future receipts)
3. Must disclose allowance for uncollectable pledges, when expected
NFPOs - Contributions other than services and collections - Conditional Promises to Give
1. Future and uncertain, includes bequests
2. Record any receipts as refundable advance (deferred revenue)
3. Recognize revenue only when conditions substantially met (when met, the contribution becomes unconditional)
4. Must disclose amounts and description
Fiduciary Funds
"PAPI"
Pension Trust Fund
Agency Fund (short term)
Private Purpose Trust Fund
Investment Trust Fund
Which organization establish GAAP for NFP Health Care organizations? Do these organizations establish GAAP also for governmental health care organizations?
The Financial Accounting Standards Board (FASB) sets standards for NFP hospitals in its Accounting Standards Codification (ASC). Governmental hospitals are governed by GAAP published in Governmental Accounting Standards Board (GASB) Statements and Interpretations. The accounting guidance in the AICPA's Audit and Accounting Guide - Health Care Organizations also applies to governmental hospitals.
Many hospitals use funds for internal record keeping. Distinguish b/w the kinds of resources accounted for in the General Fund and the kinds accounted for in restricted funds.
General Funds are used to account for day-to-day operations of a hospital and its unrestricted resources.

Donor-Restricted Funds are used to account for resources that must be used in compliance with the terms of an agreement, like a gift or grant.
Health Care Organizations: Specific Purpose Funds
used for resources restricted by donors for specific operating purposes.
Health Care Organizations: Plant Replacement and Expansion Funds
are used for resources restricted by donors to replace or expand plant assets.
Health Care Organizations: Endowment Funds
are used for donated resources whose principal must be maintained in perpetuity, for a specific time period or until other restrictions have been satisfied.
Not-for-profit hospitals present:
1. Balance Sheet
2. Statement of Operations
3. Statement of Changes in Net Assets
4. Statement of Cash Flows.

1. The balance sheet reports assets, liabilities, and net assets segregated classified as unrestricted, temporarily restricted, and permanently restricted balances.

2. The statement of operations reports on the day-to-day activities of the hospital and focuses on revenues, expenses and changes in unrestricted net assets.

3. The statement of changes in net assets presents highly aggregated information about changes in unrestricted net assets and provides detailed information about changes in temporarily restricted and permanently restricted net assets to arrive at changes in total net assets.

4. The statement of cash flows reports on the effects of the current period's operations on three categories of cash flows—operating, investing, and financing.
Contractual Adjustment
The difference between a hospital's established billing rate and the actual payment amount negotiated with a third party payer.
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For financial reporting purposes, not-for-profit patient service revenues are reported net of contractual adjustments, charity care, employee discounts, and discounts to clergy. Bad debts, however, are reported as expenses. For governmental hospitals, estimated uncollectible accounts are also deducted from patient service revenue; governmental hospitals do not report the provision for bad debts as expenses.
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Gross patient service revenues are reduced by the amount determined to be charity care. It is not reported as an expense. Hospitals are required to disclose the estimated direct and indirect costs of charity care in the notes to their financial statements.
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Both prospective and retrospective contractual adjustments affect the computation of net patient service revenue. However, prospective contractual adjustments are known at the time of billing, whereas retrospective adjustments will not be known until a later date. Provision for retrospective adjustments should be estimated at the balance sheet date. Any change in estimates after that date are reported in future periods.
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