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Essentials of Accounting for Governmental and Not-for-Profit Organizations

Essentials of Accounting for Governmental and Not-for-Profit Organizations. Chapter 11: College and University -- Private Institutions. Overview of Chapter 11. Who has standard setting authority? Overview of Financial Statements and General Accounting Principles Split-Interest Agreements.

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Essentials of Accounting for Governmental and Not-for-Profit Organizations

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  1. Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 11: College and University -- Private Institutions

  2. Overview of Chapter 11 • Who has standard setting authority? • Overview of Financial Statements and General Accounting Principles • Split-Interest Agreements

  3. Standard setting authority • GASB • Authority over government related colleges • GASB35 for Public Colleges and Universities • FASB • NACUBO - National Association of College and University Business Officers wrote guidelines before FASB addressed college issues • Private colleges and universities • Major FASBs 93, 116,117, 124

  4. Required Statements • Required statements set forth in FASB 117 -- same as in previous chapter for VHWOs and other nonprofits • Statement of Financial Position • Statement of Activities • Or, Statement of Unrestricted Revenues, Expenses and Other Changes in Unrestricted Net Assets plus • Statement of Changes in Net Assets • Statement of Cash Flows • Suggested, not required: Statement of Functional Expenses

  5. Basic Principles • 1. Full accrual basis including depreciation • 2. Restricted resources assumed used before unrestricted • 3. FASB 116 applies for pledge and contributions of service • 4. Plant assets may be initially recorded as unrestricted or temporarily restricted

  6. Basic Principles • 5. Investments at fair value • 6. Option to record collections or not, plus note disclosure • 7. Student aid, no services, net revenue; others as expense. • 8. Foundations -- part of revenue may have to be disclosed in university statements • 9. Fund-raising allocation issues based on purpose, audience and content

  7. Illustrative Entries pp. 308-309 • #1: Collections of various types of receivables • #2: Payments of current and long-term debt • #3-4: Accruing tuition and other revenues less allowance for scholarships not based on service • #5: Write off of bad debts from prior year and establishment of bad debts expense estimate as part of Institutional Support Expense • #6-7: Recording direct contributions of cash and by pledges • #8: Collected and accrued investment income • #9-10: Recording expenses including depreciation • #11: Reclassifications to unrestricted category

  8. Illustrative Entries pp. 309-310 • #12: Research expenses and purchase of long-term assets • #13: Sale of assets, gain distributed in accordance with terms of gift • #14: Receivable for loans to faculty or students (may be a travel advance) • #15: Purchase of long-term investments

  9. Illustrative Entries pp. 310-311 • #16: Board decides to set up quasi-endowment: Designated, but not restricted on external financial statements • #17: Year end recognition of changes in fair value of investments • #18: Reclassification of debt from noncurrent to current • #19: Closing entries for the 3 categories of net assets

  10. Statement of Unrestricted Revenue, Expenses and Other Changes in Unrestricted Net Assets • Illustrations 11-1 and 2 are an alternate approach to Illustration 10-1, p. 289 • Compare to Revenues in Illustration 9-4 for Public Colleges • No distinction between operating and nonoperating revenues -- state appropriations treated like other revenues • State Colleges did not have category for release of restrictions • Expenses and Losses: • Education and General; Auxiliary --- these are functional classifications --- could have been used in Illustration 10-1, p. 289

  11. Statement of Changes in Net Assets • When Unrestricted Revenues only are shown in Stmt of Revenues, Expenses, etc., this statement shows changes in temporarily restricted and permanently restricted. • Could have additional statements showing details of changes in temporarily restricted and permanently restricted assets if complex.

  12. Statement of Fin. Position and SCF • Similar to statements illustrated in Chapter 10 • Board designation -- listed as unrestricted on Statement of Financial Position • 3 Categories on SCF -- direct or indirect format ok • Increase in net assets is for all 3 net assets categories - unrestricted, temporarily, permanently restricted -- adjustments remove most temporary and permanent amounts • Investing section includes long-term investments, long-term asset activity and loan receivable activity • Interest payments and revenues in Operating section -- financing includes principal payments only -- the endowment is the amount of contributions received, purchase of investments shown in investing section

  13. Split-Interest Agreements • Five types: • Charitable lead trust funds • Perpetual trusts held by third parties • Charitable remainder trusts • Charitable gift annuities • Pooled (life) income funds

  14. Charitable lead trust funds • Fixed amount or fixed % of assets paid to NFP for certain term • Then remaining assets to another party • NFP may or may not hold the assets • When irrevocable trust begins • NFP recognizes a receivable and temporarily restricted revenue equal to present value of expected receipts • Additional assets and a liability recognized if NFP is the holder of the assets • Changes in present value or expected receipts affect temporarily restricted assets in future years.

  15. Perpetual trusts held by third parties • Trust benefits NFP only (no remainder interest). • When established the NFP records the present value of anticipated receipts as an asset and as contribution revenue in the permanently restricted . • Receipt of the income each year treated as temporarily restricted or unrestricted income. • Changes in present value and/or fair value of assets to be received affects permanently restricted revenues.

  16. Charitable remainder trusts • An fixed amount or specified % of the trust is paid to a beneficiary for a certain length of time • At end, NFP gets the remaining assets • When set up Assets are recorded at fair value, liability set up for present value of expected payments to the beneficiary, difference to unrestricted, temp. rest. or permanently restricted depending on terms.

  17. Charitable gift annuities and Pooled life income funds • Charitable gift annuity accounting similar to charitable remainder trust • Life income funds -- • Pool in which donors or recipients of their choice get income for life, remainder to NFP • May require use of actuarial techniques to determine appropriate present value amounts

  18. Slides prepared by • Dr. Louella Moore • Arkansas State University

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