Lecture Advanced accounting (6th Edition): Chapter 19 - Jeter, Chaney

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Lecture Advanced accounting (6th Edition): Chapter 19 - Jeter, Chaney. Chapter 19 - Accounting for nongovernment nonbusiness organizations: Colleges and universities, hospitals and other health care organizations. This chapter is a very full one – we discuss all the nongovernment, nonbusiness organizations (NNOs) – and that’s a lot of different types! Again, the terminology is the most difficult part of the chapter.
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Lecture Advanced accounting (6th Edition): Chapter 19 - Jeter, Chaney. Chapter 19 - Accounting for nongovernment nonbusiness organizations: Colleges and universities, hospitals and other health care organizations. This chapter is a very full one – we discuss all the nongovernment, nonbusiness organizations (NNOs) – and that’s a lot of different types! Again, the terminology is the most difficult part of the chapter..

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Advanced Accounting Jeter Chaney Accounting For Nongovernme 1 nt NonbusiPrepared by Sheila Ammons, Austin Community College Learning Objectives • Describe the source of accounting standards for nongovernment nonbusiness organizations (NNOs). • Identify the three basic statements for NNOs. • Describe the basic funds used by nongovernment nonbusiness organizations. • Distinguish between a current restricted fund and an unrestricted fund. • Explain the term “assets whose use is limited.” • Distinguish between a mandatory and a nonmandatory transfer. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. 2 Learning Objectives • Understand how donated services are recorded. • Describe the funds used to account for property, plant and equipment. • Explain the basic accounting used by endowment funds. • Indicate how equity investments are reported in the financial statements. • Explain the change in accounting for loan funds brought about by new standards. • Understand the use of an annuity or life income fund. • Discuss the sp Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. ospitals. Nongovernment Nonbusiness Organizations (NNOs) • Four Major Classifications of NNOs: – Nonprofit institutions of higher education. – Hospitals and other health care providers. – Voluntary health and welfare organizations (VHWOs). – Other nongovernment nonbusiness organizations (ONNOs). 4 Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Hierarchy of Reporting Standards (NNOs) • The hierarchy used to establish generally accepted reporting standards for NNOs other than government­ owned special entities – is the same as that for profit oriented business organizations – and included in the FASB Codification. • FASB standards for nonprofits are found in FASB ASC Topic 958, Not­for­Profit Entities. LO 1 The source of accounting standards. 5 Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Financial Reporting for Not­for­ Profit • Three basic financial statements required: 1) Statement of financial position (balance sheet) • Net Asset categories: – Unrestricted net assets – Temporarily restricted net assets – resources that must be used for a specific purpose or in a specific time period (restriction is donor imposed). – Permanently restricted net assets – endoCopyright © 2015. John Wiley & Sons, Inc. All rights reserved. benspendt but snot the principal. Fund Accounting • Most NNOs use fund accounting for recordkeeping and reporting purposes. • Six funds commonly used: – Current Fund (restricted and unrestricted). – Plant Fund. – Endowment Fund. – Loan Fund. – Agency or Custodial Fund. – Annuity and Life Income Fu LO 3 Basic funds used by NNOs. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Accrual Basis of Accounting • Financial statements for NNOs (accrual basis) – Revenues are reported when earned and realized or realizable, and – Expenditures are reported when materials or services are received, – Expenses accrued, – Expenses incurred before the reporting date are applicable to future periods are deferred. • For external reporting purposes, – Revenues arCopyright © 2015. John Wiley & Sons, Inc. All rights reserved. d8 Accounting for Current Funds • Current Unrestricted Funds Financial resources that may be expended at the discretion of the governing board Current Restricted Funds Resources restricted because of legal, contractual, or external restrictions on their use. Current unrestricted resources may be expended at the discretion of the governing board, whereas current restricted resources may be expended only in accordance with externally imposed restrictions. LO 4 Distinguish between restricted and unrestricted funds. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Accounting for Current Funds Accounting for Board Designated Funds – Part of current unrestricted fund. – Resources designated by governing board for specific purposes, projects, or investments. – Aid in planning and control of expenditures and limit discretion of management. – Governing boarducanereverse or modify designations. external restrictions on the use of resources LO 4 Distinguish between restricted and unrestricted funds. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Accounting for Current Funds Assets Whose Use is Limited • Hospitals = classified as assets whose use is limited. • Assets set aside by the governing board of a hospital for board­designated purposes. – Assets whose use is limited under terms of debt indentures, trust agreements, third­party reimbursement arrangements, or similar arrangements are also presented as assets whose use is limited. LO 5 Assets whose use is limited. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Accounting for Current Funds • Colleges and Universities – Board designated funds for specific current operating purposes are accounted for by footnote or by reclassification of the Unrestricted Current Fund Balance. – Some board­restricted current resources can be transferred to other funds. LO 4 Distinguish between restricted and unrestricted funds. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Accounting for Current Funds Mandatory and Nonmandatory Transfers • Unique to colleges and universities • Mandatory transfers – Transfers from Current Funds group to other fund groups arising from • binding legal agreements • grant agreements • Nonmandatory transfers – Transfers from Current Fundsdgroup to other t fund. groups at diCopyright © 2015. John Wiley & Sons, Inc. All rights reserved. ard. Contributions • All NNOs under FASB jurisdiction are required to recognize contributions as revenue in the period received. – This includes unconditional promises to give. – The standard does not apply to tax exemptions, abatements or incentives, or to transfers of assets from a government to a business enterprise. • Contributions include gifts of cash, pledges, donated services, and gifts of noncash assets. • Conditional promises to give are recognized when they become unconCopyright © 2015. John Wiley & Sons, Inc. All rights reserved. ions are Contributions • Pledges are recorded as revenues when a promise to give is nonrevocable and unconditional, at present value of expected receipts. – Pledges are signed commitments to contribute specific amounts of money to an organization on a future date or in installments. – Although resembling promissory notes, pledges generally are not enforceable contracts. – All NNOs should establish an allowance for uncollectible pledges. LO 7 How contributions are recorded. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Contributions • Exercise 19­6: A well­known celebrity sponsored a telethon for the Help for the Blind Foundation on November 1, 2015. Pledges in the amount of $1,000,000 were called in. Using similar telethon campaigns as a basis, it is estimated that 25% of the pledges will be uncollectible. During 2016, $700,000 of contributions from these pledges were collected. The remainder were uncollectible. • Required: Identify the appropriate fund(s) and prepare the journal entries necessary in 2015 and 2016 to record these transactions. LO 7 How contributions are recorded. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Contributions