© the mcgraw-hill companies, inc., 2004 slide 18-1 mcgraw-hill/irwin chapter eighteen accounting...

© The McGraw-Hill Companies, Inc., 2004

Slide 18-1

McGraw-Hill/Irwin

Chapter Eighteen

Accounting and Accounting and Reporting for Reporting for

Private Not-For-Private Not-For-Profit Profit

OrganizationsOrganizations


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Authoritative Jurisdiction


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Two basic ideas form the FASB’s framework for not-for-profit standards:

Two basic ideas form the FASB’s framework for not-for-profit standards:

Financial Reporting

The financial The financial statements should statements should focus on the entity focus on the entity

as a whole.as a whole.

The financial The financial statements should statements should focus on the entity focus on the entity

as a whole.as a whole.

Reporting Reporting requirements for not-requirements for not-for-profits should be for-profits should be similar to business similar to business

entities, unless there entities, unless there are critical are critical

differences in the differences in the needs of users.needs of users.

Reporting Reporting requirements for not-requirements for not-for-profits should be for-profits should be similar to business similar to business

entities, unless there entities, unless there are critical are critical

differences in the differences in the needs of users.needs of users.


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FASB No. 117 requires three

financial statements.

FASB No. 117 requires three

financial statements.

Financial Reporting

Statement of Financial Position Uses “Net Assets” instead of

owners’ equity or fund balance.

Statement of Activities and Changes in Net Assets

Statement of Cash Flows Statement of Functional

Expense (required only for voluntary health and welfare organizations).

Statement of Financial Position Uses “Net Assets” instead of



Statement of Cash Flows Statement of Functional

Expense (required only for voluntary health and welfare organizations).

{{


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Report assets, liabilities, and

net assets.

Report assets, liabilities, and

net assets.

Net assets are presented in 3 categories:Unrestricted

Temporarily RestrictedPermanently Restricted

Net assets are presented in 3 categories:Unrestricted

Temporarily RestrictedPermanently Restricted

Use the term “Net assets” rather than


Use the term “Net assets” rather than


Statement of Financial Position


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Per FASB No. 116, unconditional promises by

donors to give are recognized as revenue in

the period of promise.




Change in net assets is reported instead of net

income.

Change in net assets is reported instead of net

income.

Revenues & expenses are

measured on the accrual basis.

Revenues & expenses are

measured on the accrual basis.


Change in net assets = difference between

revenues and expenses




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Expenses are presented in 2

categories:Program Services

Supporting Services



Supporting Services


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Supporting ServicesAdministrative costs

and fund-raising.

Supporting ServicesAdministrative costs

and fund-raising.

Let’s take a quick look at the last two

statements!


Program ServicesActivities relating to

social services, research, and other

objectives of the organization.

Program ServicesActivities relating to

social services, research, and other

objectives of the organization.



Supporting Services



Supporting Services


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Statement of Cash Flows


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Statement of Functional Expense


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GAAP Hierarchy

Level ALevel AFASB Statements & Interpretations, FASB Statements & Interpretations,

APB Opinions, AICPA ARB’sAPB Opinions, AICPA ARB’s

Level ALevel AFASB Statements & Interpretations, FASB Statements & Interpretations,

APB Opinions, AICPA ARB’sAPB Opinions, AICPA ARB’s

Level BLevel BFASB Technical Bulletins, AICPA FASB Technical Bulletins, AICPA

Industry Audit & Accounting GuidesIndustry Audit & Accounting Guides

Level BLevel BFASB Technical Bulletins, AICPA FASB Technical Bulletins, AICPA

Industry Audit & Accounting GuidesIndustry Audit & Accounting Guides

Level CLevel CFASB EITF Consensus Positions, and FASB EITF Consensus Positions, and

AICPA AcSEC Practice BulletinsAICPA AcSEC Practice Bulletins

Level CLevel CFASB EITF Consensus Positions, and FASB EITF Consensus Positions, and

AICPA AcSEC Practice BulletinsAICPA AcSEC Practice Bulletins

Level DLevel DAICPA Accounting Interpretations, AICPA Accounting Interpretations,

FASB staff “Q&A”’s, Industry PracticeFASB staff “Q&A”’s, Industry Practice

Level DLevel DAICPA Accounting Interpretations, AICPA Accounting Interpretations,

FASB staff “Q&A”’s, Industry PracticeFASB staff “Q&A”’s, Industry Practice


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C a sh is re co rd eda s a re ve nu e in

th e p e rio d re ce ive d .

R e s tric ted g ifts a ren o t th e sa m e asco n d it io na l g ifts.

C o n d it io n a l p ro m isesto g ive a re re co gn izeda s re ve n u es w he n the

co n d it io n s a re m e t.

P le d ge s th a t a llowd o n ors to ch an ge

th e ir m in ds a re n o tu n co n d it io n a l.

U n co n d it io na l p ro m isesto g ive a re re co gn izeda s re ve n u es w he n the

p ro m ise is g ive n .

FASB Statem ent N o. 116

Accounting for Contributions


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Accounting for Contributions

D o n a tio n s o f w o rks o fa rt a n d h is to rica l

tre a su res a re ge n e ra llyn o t reco g n ize d .

1 . T h e se rv ice c re a teso r e nh a nce s a

n o n fina n c ia l a sse t.

2 . T h e serv ice s a resp e c ia lize d a nd w o u ld

h a ve h ad to bep u rch a se d , o the rw ise .

C o n trib u ted se rv icesa re reco g n ize d as

re ve nu e s if o n e o f tw oco n d itio n s is m e t.

E xcha n g es , such asm e m b e r d u e s, a retre a te d a s acc ru a l

re ve n u e s.



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Holding Contributions for Others


For irrevocable donationsthe recipient NFP records

a liability to theBENEFICIARY.

For revocable donations,the recipient NFP records

a refundable advanceliability to the DO NO R.

Note that neither of thesesituations allow for therecognition of revenue.


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Let’s look at accounting for health

care organizations.


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Three classifications of health care organization:

Investor-owned.Not-for-profit.Government-owned.



Financial Reporting for Health Care Organizations


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Identifying the classification is important. Identifying the classification is important. For example, the classification will determine For example, the classification will determine

how cash flows are accounted for.how cash flows are accounted for.

Identifying the classification is important. Identifying the classification is important. For example, the classification will determine For example, the classification will determine

how cash flows are accounted for.how cash flows are accounted for.

FASB No. 116 & 117

FASB No. 116 & 117

GASBGASB





Financial Reporting for Health Care Organizations


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Bad debts for health care organizations can be significantly higher than other

kinds of businesses.

Bad debts for health care organizations can be significantly higher than other

kinds of businesses.

Amounts that the entity does not intend to collect should not be reported as

revenues.

Amounts that the entity does not intend to collect should not be reported as

revenues.

In many cases, the patient is not responsible for the entire

bill.Third-party payors, such as insurance providers, are an

important part of the process.

In many cases, the patient is not responsible for the entire

bill.Third-party payors, such as insurance providers, are an

important part of the process.

Accounting for Patient Service Revenues


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Record the entry for Medi-Health’s revenues.

Record the entry for Medi-Health’s revenues.

Medi-Health General Hospital is a private, not-for-profit hospital. In March, Medi-Health had patient charges

totaling $980,000. Twelve percent of the patient charges are due from the patients. The remaining

amount is due from insurance providers.

Medi-Health General Hospital is a private, not-for-profit hospital. In March, Medi-Health had patient charges

totaling $980,000. Twelve percent of the patient charges are due from the patients. The remaining

amount is due from insurance providers.

Patient Service RevenuesExample


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Record the journal entry for Medi-Health’s uncollectible services.

Record the journal entry for Medi-Health’s uncollectible services.

Of the amount due from patients, $36,000 is related to

services rendered to poor patients that the hospital did

not intend to collect.

Of the amount due from patients, $36,000 is related to

services rendered to poor patients that the hospital did

not intend to collect.



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Record the journal entry for Medi-Health’s expected bad debts from patients.

Record the journal entry for Medi-Health’s expected bad debts from patients.

For the remaining receivables from

patients, Medi-Health expects to receive 92%.

For the remaining receivables from

patients, Medi-Health expects to receive 92%.



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The amount billed to the The amount billed to the third-party payor may not third-party payor may not agree with the contracted agree with the contracted amount that the third-amount that the third-party payor pays.party payor pays.

The difference is charged The difference is charged to an account called:to an account called:

Contractual Contractual AdjustmentAdjustment

The amount billed to the The amount billed to the third-party payor may not third-party payor may not agree with the contracted agree with the contracted amount that the third-amount that the third-party payor pays.party payor pays.

The difference is charged The difference is charged to an account called:to an account called:

Contractual Contractual AdjustmentAdjustment

Contractural Agreements with Third-Party Payors


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Record the journal entry for Medi-Health’s billings to the insurance companies.

Record the journal entry for Medi-Health’s billings to the insurance companies.

Of the $862,400 that Medi-Health has billed the insurance

companies, Medi-Health projects that it will collect 96% based on

contractural agreements.

Of the $862,400 that Medi-Health has billed the insurance

companies, Medi-Health projects that it will collect 96% based on

contractural agreements.

Third-Party PayorsExample


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I get such satisfaction

working for not-for-profit

companies!

End of Chapter 18

© the mcgraw-hill companies, inc., 2004 slide 18-1 mcgraw-hill/irwin chapter eighteen accounting...

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