A Brief Note On Accounting For Not-For-Profit Organizations

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Accounting for
Not-for-Profit Organizations


Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

After studying Chapter 13, you should be able to:

Distinguish not-for-profit organizations (NFPs) from entities in the governmental and commercial sectors of the U.S. economy

Identify the authoritative standards-setting body for establishing GAAP for nongovernmental NFPs


Learning Objectives (Cont’d)

Explain financial reporting and accounting for NFPs:

Required financial statements

Classification of net assets

Accounting for revenues, gains, and support

Accounting for expenses

Accounting for assets

Learning Objectives (Cont’d)

Describe the accounting for NFP combinations and consolidations 

Prepare financial statements in accordance with the generally accepted accounting principles governing
NFP organizations

Describe optional fund accounting


Not-for-Profit Sector
The not-for-profit sector of the U.S. economy is very diverse, consisting of many different kinds of organizations 

The majority of NFPs are philanthropic and quite often rely on contributions and the services of volunteers 

Some NFPs are designed to serve the interest of the organizations’ members

Most are not governments or governmental in nature

A minority of NFPs are owned or operated by governments 13-5

How Does a Nongovernmental NFP
Differ from a Business Entity?

Contributions of resources from providers who do not expect a proportionate return (i.e., nonexchange transactions) 

Operating purposes other than to earn a profit for owners (i.e., no one expects a return on their investment)

Lack of defined ownership (i.e., lack of owner oversight)

How Does a Nongovernmental NFP
Differ from a Governmental Entity?

It was not created by a government, but rather by individuals who are not placed in power through popular election or appointment by government officials

It does not have the power to levy taxes

It may not have the power to issue taxexempt debt


GAAP for Nongovernmental NFPs

The FASB, not the GASB, sets accounting and financial reporting standards for nongovernmental not-for-profit organizations

Unless otherwise indicated, all FASB standards apply to NFP organizations, but the FASB
Accounting Standards Codification (ASC) in
Section 958 apply specifically to NFPs


Financial Statements for NFPs

Statement of financial position (Ill. 13-2)

Statement of activities (Ill. 13-3)

Statement of cash flows (Ill. 13-4)

Statement of functional expenses for VHWOs (Ill.

Notes to the financial statements


Statement of Financial Position

Can also be called a balance sheet

Net assets (the difference between assets and liabilities) must be classified into three classes:
 Unrestricted
 Temporarily


 Permanently


Flexibility in displaying information, including fundbased data, is allowed as long as net assets are classified 13-10

Statement of Activities

Reports on changes in all classes of net assets for a period of time

Changes take the form of revenues, gains, expenses, and losses

Net assets released from restrictions decrease temporarily restricted net assets and increase unrestricted net assets, as restrictions are met

All expenses decrease unrestricted net assets


Statement of Activities (Cont’d)

FASB allows flexibility in presenting information; it can be presented as a single column or three separate columns, one for each class of net assets 

Within net asset classes additional classifications can be used, such as operating and nonoperating, expendable and nonexpendable, earned and unearned, and recurring and nonrecurring

Expenses are reported on the face or in the notes by functional categories (i.e., program expenses vs. support expenses)

Statement of Cash Flows