Chapter

13
Accounting for
Not-for-Profit Organizations

McGraw-Hill/Irwin

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

13-2

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
13-3

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

13-4

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)
13-6

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

13-7

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

13-8

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.
13-5)



Notes to the financial statements

13-9

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

restricted

 Permanently



restricted

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

13-11

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)
13-12

Statement of Cash Flows