In this article we will discuss about the accounting for non-profit-organizations done.
Transactions for a Private Not-For-Profit Organization Illustrated:
The following transactions demonstrate typical journal entries for a private not-for-profit organization. Because FASB SFAS 117 focuses on the entity as a whole, the organization does not need to record transactions in separate funds. However, not-for-profits can choose to use a fund format for internal management purposes. FASB SFAS 777 permits reporting by funds as supplemental information, provided that all interfund transactions have been eliminated.
Assume, for example, that Shenandoah Seminary, a private college, began the year 2008 with unrestricted net assets of $1,250,000 and a permanently restricted endowment of $700,000.
ADVERTISEMENTS:
During 2008 the seminary received the following contributions from alumni and friends:
Because the seminary should be able to collect the pledges within 12 months, it need not compute or record present value.
The seminary estimated that it will receive 85 percent of these unrestricted pledges so that it makes the following entry:
Before the end of the fiscal period, the seminary collected $100,000 of the amount pledged and wrote off $5,000 of the remaining pledges as this journal entry reflects:
Because of the high costs involved in obtaining a college education, many schools distribute a significant amount of financial aid to their students. At one time, schools reported such scholarships and other financial assistance as operating expenses separately from revenue. Now, however, to provide a more accurate picture of the impact that scholarships and financial assistance have on tuition, schools report the two figures together and then net them.
Consequently, for illustration purposes, a comparison of tuition and fees to scholarships and other assistance can be easily made for private colleges and universities for fiscal years ending during 2006:
Thus, students at these schools directly paid an average of 59.5 to 81.5 percent of the actual tuition and fees that their schools charged.
Returning to the current example, the seminary later receives a $20,000 cash gift that the outside donor has restricted to provide support for a series of lectures by visiting scholars. In addition, the seminary charges its students $800,000 in tuition and other fees. Assume, however, that the seminary awards $200,000 in scholarships and other financial assistance.
The journal entries for the restricted gift and for the tuition charges and scholarships follow:
Assume further that the seminary in this illustration incurred liabilities of $640,000 ($575,000 for operating expenses broken down as the following entry shows and $65,000 for equipment).
ADVERTISEMENTS:
Of this total, the seminary paid $625,000 before year-end:
Transactions Reported on the Statement of Activities:
The year-end reporting must reflect the changes within each of the three categories of net assets. In preparing the statement of activities, private not-for-profits must report any temporarily restricted resources that have been released from restriction because the nonprofit performed some activity or the passage of time occurred. Assume here that the instructional expenses shown in entry (4) include $15,500 of expenses relating to the series of lectures by visiting scholars established in entry (3).
ADVERTISEMENTS:
The following table summarizes changes in unrestricted, temporarily restricted, and permanently restricted net assets for the year:
Because all expenses are reflected as decreases in unrestricted net assets, the $15,500 release of the temporarily restricted net assets is added to unrestricted net assets so that this increase and the related expense appear in the same column. The preceding table does not reflect journal entries 2, 5, and 6 because they did not create changes in the seminary’s net assets.