Chapter Eighteen

1. Chapter Eighteen Accounting and Reporting for Private Not-For-Profit Organizations

2. Authoritative Jurisdiction

3. Financial Reporting • The financial statements should focus on the entity as a whole. • Reporting requirements for not-for-profits should be similar to business entities, unless there are critical differences in the needs of users. Two basic ideas form the FASB’s framework for not-for-profit standards:

4. 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). FASB No. 117 requires three financial statements.

5. Statement of Financial Position Report assets, liabilities, and net assets. • Net assets are presented in 3 categories: • Unrestricted • Temporarily Restricted • Permanently Restricted Use the term “Net assets” rather than owners’ equity or fund balance. ? ?

6. Statement of Activities and Changes in Net Assets Change in net assets = difference between revenues and expenses Change in net assets is reported instead of net income. Revenues & expenses are measured on the accrual basis. Per FASB No. 116, unconditional promises by donors to give are recognized as revenue in the period of promise.

7. Statement of Activities and Changes in Net Assets Change in net assets = difference between revenues and expenses Expenses are presented in 2 categories: Program Services Supporting Services Per FASB No. 116, unconditional promises by donors to give are recognized as revenue in the period of promise.

8. Statement of Activities and Changes in Net Assets Let’s take a quick look at the last two statements! Supporting Services Administrative costs and fund-raising. Program Services Activities relating to social services, research, and other objectives of the organization. Expenses are presented in 2 categories: Program Services Supporting Services

9. Statement of Cash Flows

10. Statement of Functional Expense

11. GAAP Hierarchy Level A FASB Statements & Interpretations, APB Opinions, AICPA ARB’s Level B FASB Technical Bulletins, AICPA Industry Audit & Accounting Guides Level C FASB EITF Consensus Positions, and AICPA AcSEC Practice Bulletins Level D AICPA Accounting Interpretations, FASB staff “Q&A”’s, Industry Practice

12. Accounting for Contributions

13. Accounting for Contributions

14. Holding Contributions for Others

15. Let’s look at accounting for health care organizations.

16. Financial Reporting for Health Care Organizations • Three classifications of health care organization: • Investor-owned. • Not-for-profit. • Government-owned.

17. Financial Reporting for Health Care Organizations Identifying the classification is important. For example, the classification will determine how cash flows are accounted for. • Three classifications of health care organization: • Investor-owned. • Not-for-profit. • Government-owned. FASB No. 116 & 117 GASB

18. Accounting for Patient Service Revenues Bad debtsfor 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. 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.

19. Patient Service RevenuesExample 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. Record the entry for Medi-Health’s revenues.

20. Patient Service RevenuesExample Of the amount due from patients, $36,000 is related to services rendered to poor patients that the hospital did not intend to collect. Record the journal entry for Medi-Health’s uncollectible services.

21. Patient Service RevenuesExample For the remaining receivables from patients, Medi-Health expects to receive 92%. Record the journal entry for Medi-Health’s expected bad debts from patients.

22. The amount billed to the third-party payor may not agree with the contracted amount that the third-party payor pays. The difference is charged to an account called: Contractual Adjustment Contractural Agreements with Third-Party Payors

23. Third-Party PayorsExample Of the $862,400 that Medi-Health has billed the insurance companies, Medi-Health projects that it will collect 96% based on contractural agreements. Record the journal entry for Medi-Health’s billings to the insurance companies.

24. End of Chapter 18 I get such satisfaction working for not-for-profit companies!