CH 21

Accounting for
Not-for-Profit Organizations
Chapter 21
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 1

Learning Objective 1
Learn about the four main

categories of not-for-profit
organizations.

Categories of Not-For-Profit
Organizations
Voluntary health and welfare organizations
Other not-for-profit entities
Health care entities
Colleges and universities

The Nature of Not-For-Profit
Organizations
A not-for-profit entity
(1) receives contributions of resources from
providers who do not expect pecuniary returns,
(2) operates for purposes other than profits,
and (3) does not possess ownership interests
like those of business enterprises.

Differentiate between governmental

and nongovernmental
not-for-profit organizations.

Classification of Organizations
Governmental not-for-profit organizations
Nongovernmental not-for-profit
organizations

Governmental Not-For-Profit
Organizations
Officers are elected by popular vote or

appointment by a state or local government.
Governments can unilaterally dissolve the entity.
The entity has the power to enact
and enforce a tax levy.
They are special-purpose governments.

Governmental Not-For-Profit
Organizations
GASB Statements No. 34 and No. 35

require special purpose governments
with more than one governmental
program or both governmental
and business-type activities to
present both government-wide
and fund financial statements.

Nongovernmental Not-For-Profit
Organizations
These are NFP organizations that

lack the governmental element:
Health care organizations
Colleges and universities
Other

Identify the accounting principles

applicable to governmental and
nongovernmental not-for-profit
organizations.

Not-For-Profit Accounting
Principles
FASB Statements No. 116 and 117

are applicable to all nongovernmental
not-for-profit entities.
FASB Statements No. 124 and 135

are specifically related to
not-for-profit organizations.

Financial Statements
FASB Statement No. 117 requires

that all NFP entities provide:
Statement of Financial Position
Statement of Activities
Statement of Cash Flows

Classification of Net Assets
Three Classes of Net Assets
Temporarily Permanently
Unrestricted
Restricted Restricted

Statement of Financial Position
The statement reports assets,

liabilities, and net assets.
Comparative statements from

the prior period are not required.

This provides information

about the change in amount
and nature of net assets.
The focus of accounting is

the organization as a whole.

It reports increases in unrestricted

net assets as revenues and...
reports decreases in unrestricted
net assets as expenses.
Temporarily restricted or permanently
restricted net assets consist of
donor- restricted contributions.

Generally, an organization reports

revenues and expenses at gross amounts.
Peripheral gains and losses
are reported at net amounts.
Optional classifications
Operating or Recurring or
nonoperating nonrecurring
Statement of Functional Expenses

must report expenses classified by
function and by natural classification.
This statement is not required for ONPOs.

Statement No. 117 extends the

provisions of FASB Statement No. 95
to not-for-profit organizations.
Statement No. 117 encourages

NFP organizations to use
the direct method.

Contributions
Statement No. 116 defines a contribution

as an unconditional transfer of cash
or other assets...in a voluntary,
nonreciprocal transfer...
A promise to give is a written or oral

agreement to contribute cash or
other assets to another entity.
Donor-Imposed Restrictions
It provides that the donors money be

returned or the donor is released from
the promise to give if the condition is not met.

Gifts of Long-Lived Assets
Restricted
Unrestricted
Unrestricted

Investments and Investment
Income
Investments are initially recorded at cost.
Contributed securities are

recorded at their fair market value.
Investment income is recognized as earned.

Transactions
Exchange Transactions
Agency Transactions
Gifts in Kind

Introduce FASB not-for-profit

accounting principles.

Measurement Principles
NFP organizations measure

contributions at fair value.
If the fair value of the contributed asset decreases

significantly between the pledge date and the
date the asset is received, the difference is
recognized in the period the decrease occurred.

Collections
Statement No. 116 encourages retroactive

capitalization of collections of works of art.
If collections are capitalized, they are

recognized as revenues or gains.

Fund Accounting
Many not-for-profit organizations continue to

use fund accounting for internal accounting.

Apply not-for-profit accounting

principles to voluntary health
and welfare organizations.

Voluntary Health and Welfare
Organizations
VHWOs are supported by and provide

voluntary services to the public.
March of Dimes American Cancer Society
Girl Scouts Boy Scouts Meals on Wheels

Accounting for Voluntary Health
and Welfare Organizations
In 2005, Neighbors Helping Neighbors (NHN)

distributed decals to all residents in the community.
The decals cost NHN $145.
The organization received unrestricted cash
contributions of $4,000 and unconditional
pledges of $6,000 ($2,000 collectible in 2006).

Expenses Supporting Services 145

Cash 145
To record payment of decals
Cash 4,000
Unrestricted Support
Contributions 4,000
To record cash contributions

Contributions Receivable 6,000
Allowance for
Uncollectible Contributions 600
Unrestricted Support
Contributions 3,600
Temporarily Restricted
Support Contributions 1,800
To record unrestricted promises to give, promises restricted
for use in 2006, and estimated uncollectibles

On January 1, 2005, Martin Construction

donated a used van to the organization.
The FMV of the van is $1,500.
The van has a three-year remaining useful life.

Equipment 1,500
Support Contributions 1,500
To record receipt of donated van
Depreciation Expense Program
Services Community Service 500
Accumulated Depreciation 500
To record depreciation
Net Assets Reclassification Out 500
Unrestricted Net Assets
Reclassification In 500
To record reclassification of net assets for which
the temporary restriction is satisfied

A fund-raising banquet was held.

Sales were $950 and related
expenses amounted to $650.
What are the journal entries?

Cash 950
Unrestricted Gains Special Event 950
To record proceeds from a fund-raising event
Unrestricted Gains Special Event 650
Cash 650
To charge costs of fund-raising event against
support from the event

Other Issues
Gifts in kind
Membership fees
Donated securities and investment income

Other Issues
Donated services and payment of salaries
Depreciation
Fixed assets purchased with restricted resources

Other Not-For-Profit Organizations
Cemetery associations Social organizations
Civic organizations
Political organizations
Libraries
Museums Religious organizations


principles to hospitals and other
health care organizations.

Accounting for a Nongovernmental
Not-For-Profit Hospital
Patient service revenue
Premium fees
Other operating revenues

Patient Service Revenues
Daily patient service

(room, board, general nursing)
Nursing services
(O/R, recovery room)
Other professional services

Patient Service Revenues
Courtesy Contractual
allowances adjustments

Statement of Operations and Other
Hospital Financial Statements
Balance Sheet
Statement of Operations
Statement of Changes in Net Assets


principles to private not-for-profit
colleges and universities.

Private Not-for-Profit Colleges
and Universities
Nongovernment not-for-profit
colleges and universities
apply the requirements of
SFASs 116 and 117.

Accounting for a Private
Not-For-Profit College or
University
Tuition and fees
Appropriations from federal,
state, and local governments
Student financial aid
Contributions
Endowments
Sales and services
Expenses
Instruction
Research
Public service
Academic support

Expenses
Student services
Institutional support
Student aid
Operation and maintenance of plant

Financial Statements
Statement of
Financial Position
Statement of
Activities
Statement of
Cash Flows

End of Chapter 21

CH 21

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CH 21

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Accounting for

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 1

Learn about the four main

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 2

Voluntary health and welfare organizations

Other not-for-profit entities

Health care entities

Colleges and universities

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 3

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 4

Differentiate between governmental

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 5

Governmental not-for-profit organizations

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 6

Officers are elected by popular vote or

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 7

GASB Statements No. 34 and No. 35

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 8

These are NFP organizations that

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 9

Identify the accounting principles

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 10

FASB Statements No. 116 and 117

FASB Statements No. 124 and 135

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 11

FASB Statement No. 117 requires

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 12

Three Classes of Net Assets

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The statement reports assets,

Comparative statements from

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 14

This provides information

The focus of accounting is

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 15

It reports increases in unrestricted

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 16

Generally, an organization reports

Voluntary health and welfare organizations

This statement is not required for ONPOs.

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Statement No. 117 extends the

Statement No. 117 encourages

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 19

Statement No. 116 defines a contribution

A promise to give is a written or oral

It provides that the donors money be

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 21

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 22

Investments are initially recorded at cost.

Contributed securities are

Investment income is recognized as earned.

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 23

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 24

Introduce FASB not-for-profit

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NFP organizations measure

If the fair value of the contributed asset decreases

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 26

Statement No. 116 encourages retroactive

If collections are capitalized, they are

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 21 - 27

Many not-for-profit organizations continue to