government final : not for profits

Not-for-profit organizations

organized for the purpose of providing charitable goods and/or services. Do not have owners that benefit from a residual interest in the earnings of the organization.

Tax exemption

to be tax-exempt, the org must have a limited purpose, confine its activities to its limited purpose, and not be involved in political activities.

501(c)(3)

• 501(c)(3) allows donors to deduct contribution to the org from taxable income. enhances attractiveness

• entity is required to file Form 990 on an annual basis

• Form 990 provides financial information, a breakdown of expenses is required.

• information from 990 allows govern. + donors to see that monies are spent for the intended purposes and to determine how efficient the org is in providing those services

• NFPs with annual revenues less that $50k must file an annual e-card (990-N) with the IRS to maintain exempt status

Unrelated Business Income Tax (UBIT)

if tax-exempt org generates income from activities that are unrelated to its tax expect purpose it is subject to tax at the corporate or trust rate

• if the unrelated income is deemed too significant, the NFP may lose its tax-exempt status

• filed on Form 990T

Single Audit Act

standardizes and consolidates the auditing and reporting requirements for organizations expending $750k+ of federal awards within a fiscal year by requiring a single audit or a program specific audit

• auditor is required to express an opinion on major programs adding up to a minimum % of the federal funds expended

Accounting for non-governmental, not-for-profit organizations falls under the guidance of the FASB

Must:

1. recognize depreciation

2. pledges(unconditional promises to give) are recognized on the accrual basis

3. investments in debt and equity securities are carried at MV, realized/unrealized gains/losses are netted and reported in statement of activites

4. transfers of assets to a NFP entity for a specified third party beneficiary are offset by liability

Financial Statements

1. Statement of Financial Position (balance sheet)

2. Statement of Activities (Operating statement)

3. Statement of Cash Flows (operating, investing, and financing)

4. Statement of Functional Expenses (matrix that classifies expense by function)

NPF Accounting Equation

Assets = Liabilities + Net Assets

Two classes of net assets are to be reported

1. Net Assets with Donor Restrictions (restricted): additional disclosures are made regarding specific amounts and restrictions

2. Net Assets without donor restrictions (unrestricted): include disclosure of any amounts that are set aside as board designated funds

Revenue Recognition

• accrual basis

• pledges for future sums are recorded as Pledges Receivable and a credit to Revenues in the appropriate net assets classification at current FV

Contributions

• must be distinguished from exchange revenues

• contributions that are conditional on certain events are not recognized as revenue until all conditions are met

  • record as Deferred Rev until all conditions are met

  • restricted revs may be recorded before being expended for the restricted purpose

Expenses

• all expenses are recored under net assets - unrestricted and grouped by function

• two main functional classifications

  • programs services (fulfilling the mission of the org)

  • adminstration

  • fund-raising

• want most expenses to go to program services

Plant Assets

purchased with restricted funds are reclassified as unrestricted at the time of purchase

Donated non-financial assets + services

recognized as both a revenue and an asset if services:

1. create or enhance a non-financial asset

2. involve specialized skills that would have to be otherwise purchased

• Expense

  • Contribution Revenue

Collections (works of art, ect)

• if sold, proceeds must be reinvested in collections and/or used for the direct care of existing collections

• may be recored as assets offset by restricted net assets

• may be unrecorded in the ledger and included in note disclosure

Performance Measure of NFPs

program service expenses / total expenses

Some activities may fulfill more than one function

AICPA guidance on allocating fundraising costs to program servies if:

1. the purpose of the joint activity includes the accomplishment of program functions

2. the audience is selected based on more potential for contributions

3. the content of the activity calls for specific action that helps fulfill the organization’s mission

if any of the above three conditions are not met for a particular activity, the costs should NOT be allocated to program functions but instead should be reported as fund raising

Mergers

• creates a new entity with a new board and is accounted for using the carryover method (no goodwill is recognized)

Acquistions

• identifiable assets and liabilities are recognized at FV and any resulting goodwill is reported

• if the amount paid is less than FV (or if acquisition is result of donation) the donated portion is recognized as contribution revenue

Goodwill from an acquisition

• if entity is business-like in nature, the goodwill is capitalized as an asset

• if revenues are the result of contributions, goodwill is expensed on the date of acquisition

Colleges and Universities pronouncements

• FASB does accounting for private colleges and universities

• GASB does accounting for public colleges and universities

Pledges

pledges to be collected for future periods are initially recorded as restricted revenues at the present value of expected receipts. if available for unrestricted purposes, the amounts are reclassified as unrestricted in the periods they are collected. future collections that exceed the recorded present values are treated as additional contributions revenue

Quasi-endowments

unrestricted funds may be set aside by the board as if they were endowed by an outside party. theses amounts may be reported a board designated within the category net assets w/o donor restrictions

revenues and expenditures

revenues are classified as unrestricted or restricted based on the donor’s wishes (colleges and universities)

Tuition

unrestricted. recognized net of student scholarship and fellowships for which no work must be performed

• student work is expensed

• uncollectible accounts are treated as a revenue reduction

Split Interest Agreements

donors will often set up a trust that provides benefits to both a nfp and other beneficiaries. generally, the PV of expected benefits are recognized as revenue when an irrevocable trust is established

Charitable Lead Trust

trust pay stipulated amount or percentage to the NFP for a stipulated period of time; when the time has expired, the reminder of the trust is paid back to the donor or other beneficiary

Charitable Lead Trust JE

If university is not acting as trustee over the assets

• Contribution Receivable. $PV of future receipts

  • Contributions Revenue - Restricted

If assets are transferred to the university as the trustee

• Investments $FMV

  • Contributions Rev - Restricted. $PV of future income

  • Liability $plug

Charitable Remainder Trust

trust pays a stipulated dollar amount or percentage of the trust’s FMV to a third party beneficiary for a specified time period. when time has expired, the trust remainder goes to the NFP institution

Charitable Remainder Trust JE

• Investments. $FMV

  • Liability (contractual obligation). $PV of future payments

  • Contribution Revenue - Restricted. $Plug

Accounting Standards for Healthcare

• FASB standards apply to nongovernmental healthcare organizations

• GASB standards apply to governmental healthcare organziations

Governmental healthcare entities following GASB must clarify net assets as

• invested in capital assets net of related debt

• restricted

• unrestricted

if unrestricted net assets are designated by the board for particular purposes, the assets are classified as “assets whose use is limited”

Revenues (healthcare)

• patient service revenue: total equals gross patient service revenues less contractual allowances. the amount of charity care provided should be disclosed in the notes to the financial statements

• premium revenues: recognized for fixed fees paid on a per member basis for healthcare services provided to members for a covered group. these are classed capitation agreements

• other revenues: includes earning from cafeteria, gift shop, parking lot, tuition,ect