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Ch 18: NonProfit Accounting

What are some general characteristics of NPs that effect their accounting?

(1) NPs receive contributions from providers who do not expect a return of equal or greater value; (2) Operating purpose is other than providing goods and services for profit; (3) May be governmental or private

What are some types of NPs?

Charitable; Educational; Civic organizations; Political parties; Trade organizations; Fraternal associations

Who has authoritive jurisdiction over Public and Private NPs?

Public: GASB; Private: FASB

What are the two basic ideas underlying FASB's framework for NP standards?

(1) The financial statements should focus on the entity as a whole; (2) Reporting requirements for NPs should be similar to business entities, unless there are critical differences in the needs of users

SFAS 116

Accounting for contributions received and contributions made: Donors' UNCONDITIONAL promises to give are recognized as both a revenue and a receivable in the period of promise

SFAS 117

Focuses on basic information for the organization as a whole and requires three financial statements: (1) Stmt of Financial Position (uses Net Assets instead of owners' equity or fund balance); (2) Stmt of Activities and Changes in Net Assets; (3) Stmt of Cash Flows. For voluntary health and welfare orgs only: Stmt of Functional Expense

Statement of Financial Position

Uses Net Assets rather than owners' equity. Presented in three categories: (1) Unrestricted; (2) Temporarily restricted; (3) Permanently restricted

Who determines what are unrestricted assets

restrictions must be imposed by outside donors before an asset is classified as restricted, board-designated or internally restricted assets are classified as unrestricted

Temporarily restricted

For a particular purpose or for use in a future time period

Permanently restricted

Expected to remain restricted for as long as the organization exists

How are revenues and expenses handled in the Statement of Activities and Changes in Net Assets

Rev - Exp = "Change in Net Assets" (instead of Net Income). Rev/Exp are measured on the accrual bases.

How are expenses presented in the Statement of Activities and Changes in Net Assets?

(1) SUPPORTING SERVICES: Administrative & fund-raising; (2) PROGRAM SERVICES: Activites relating to social services, research, or other objectives of the organization

Statement of Cash Flows

Use the standard FASB classifications and either the direct or indirect methods

Statement of Functional Expense

Required only for voluntary health and welfare organizations. Consists of a detailed analysis of expenses by both function and object. Allocation of joint fund-raising and program service costs is permitted only when certain criteria is met.

What is the GAAP Hierarchy?

(1) GASB Statements and interpretations, AICPA & FASB pronouncements; (2) GASB technical bulletins, AICPA industry audit and accounting guides and statements of position; (3) AICPA Accounting Standards Executive Committee Practice Bulletins & Consensus Positions of GASB-organized accountants; (4) GASB Implementation Guides and Widely recognized and prevalent industry practices

How are cash contributions recorded?

As revenue in the period received.

How are conditional promises to give recorded?

As revenue when the conditions are met. Restricted gifts are not the same as conditional gifts.

How are unconditional promises to give recorded?

As revenues when the promise is given. Pledges that allow donors to change their mind are not unconditional

How are donations of works of art and historical treasures recognized?

Generally, they are not.

When are contributed services recognized?

They are only recognized if one of the following: (1) The service creates or enhances a nonfinancial asset; (2) The services are specialized and would have had to be purchased otherwise

Why is accounting for patient service revenues a specialized area?

(1) Bad debts and fee reductions for health care organizations are significantly higher than those of other businesses. The entity should not record any amounts that it does not intend to collect. (2) In many cases, third-party payors are an important part of the bill payment process.

Journal entry for patient charges where third-party payor owes a portion

DR: A/R Third Party Payors; DR: A/R Patients; CR: Patience Service Revenue

Journal entry for portion of patient charges that the hospital does not intend to collect

DR: Patient Service Revenue; CR: A/R Patients

Journal entry writing off bad debt from patients

DR: Bad debt expense; CR: Uncollectible Accounts

Contractual Adjustment

Name of accunt that holds the difference between the amount billed the third-party payor and the amount contractually paid by third-party

Journal entry showing expected amount from third-party payors

DR: Contractual Adjustments; CR: Allowance for uncollectible Accounts

How is a hospital's net patient revenues calculated?

Amounts charged to patients less contractual adjustments


Requires all schools to record depreciation

How is hospital charity care work recorded?

It is not recorded if the organization has no intention of seeking collection

How are donated items recorded?

An asset is reported as well as an increase in unrestricted net assets because of the contribution

When donated services are able to be recorded, how are they recorded?

The contribution causes an increase in unrestrcited net assets along with an accompanying decrease in unrestrcited net assets because the salary expense is recognized

How is interest income recorded?

Revenue is an increase in unrestricted net assets

How are charges to patients recorded?

Inrease in unrestrcited net assts shown as net patient service revenues

How are bad debts recorded?

Amount is anticipated and recorded as an expense that decreases unrestricted net assets

How are donations valued?


What are the qualifications for reporting mailings between program and support costs?

Costs are only assigned to program service costs if (1) the literature includes a specific call to action that would still have been made without the fundraising request, (2) Cannot be sent only to previous donors, (3) Desired action must be specific and help accomplish the overall mission

SFAS 124

Investments in equity securities with readily determined market values and debt investments are to be reported at FMV. Unrealized gains/losses are reported in the statement of net activities. Unless the donor specifically restricts the gains/losses/interest/dividends they are reported as unrestricted.

How are promises to pay which are not expected to be collected within one year reported?

Discounted to present value using an appropriate interest rate, as temporarily restricted.

How are contributions (revenue) recognized?

at FMV

What is the journal entry for donations and distributions of materials?

DR: Inventory; CR: Unrestricted Net Assets - Contributions. ---- DR: Community Service Expense - Assistance to the needy; CR: Inventory

According to SFAS 116, art and historical treasures are exempt from recording for governmental/public NPs?

(1) Added to collection for public exhibition, education, or research; (2) protected & preserved; (3) sold with proceeds going toward other collection items

Journal entry for recording professional services

DR: General & Administrative Expenses - Accounting Services; CR: Unrestricted Net Assets - Contributed Services

Journal entry for exchange transactions:

DR: Cash; CR: Unrestricted Net Assets - Revenues from dues; CR: Unrestricted Net Assets - Contributions

Which types of healthcare organizations follow FASB statements?

Investor-owned and Not-for-Profit (Govtal follow GASB)

In accruing patient charges for the current month, which accounts should a hospital credit?

Patient service revenues

On a Statement of Functional Expenses for a Voluntary Health and Welfare Organizatin, how are expenses classified?

Program services expenses and supporting services expenses (same as all other NPs)

What is the statement that is required only of vountary health and welfare organizations?

Statement of Functinal Expense

What is the basis used in reporting the Statement of Activities and Changes in Net Assets?

Accrual basis

A gift to a nonprofit school that is not restricted by the donor is credited in the general fund to:

Contribution revenues

Journal entry to record a gift when control of the assets has been maintained by the donor.

DR: Cash; CR: Refundable Advance

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