Financial and Accounting Guide for Not-for-Profit Organizations, 6th Edition

by Malvern J. Gross (Retired Partner, PricewaterhouseCoopers LLP); Richard F. Larkin (The Lang Group); John H. McCarthy (Partner, PricewaterhouseCoopers LLP)

• ISBN13: 9780471380399
• ISBN10: 0471380393
• Edition: 6th
• Format: Hardcover
• Copyright: 2000-01-01
• Publisher: Wiley

Summary

Nonprofit organizations are subject to complex sets of regulations that reflect the diverse organizations that are covered under these rules: charitable organizations, social welfare organizations, memberships organizations, advocacy groups, and many more. Nonprofit accounting is especially difficult in the areas of fund accounting, cash vs. accrual accounting, transfers and appropriations, treatment of fixed assets and contributions, pledges, and non-cash contributions. This core volume (ISBN 0-471-38039-3) is supplemented annually.

Table of Contents

Responsibilities of Treasurers and Chief Executive Officers	1	(20)
Keeping Financial Records	3	(1)
Preparing Accurate and Meaningful Financial Statements	3	(2)
Budgeting and Anticipating Financial Problems	5	(1)
Safeguarding and Managing Financial Assets	6	(1)
Complying with Federal and State Reporting Requirements	6	(1)
25 Myths about Not-for-Profit Financial Management	7	(10)
Conclusion	17	(4)
PART ONE KEY FINANCIAL CONCEPTS
Accounting Distinctions between Not-for-Profit and Commercial Organizations	21	(9)
Stewardship versus Profitability	21	(2)
Principal Areas of Accounting Differences	23	(5)
Conclusion	28	(2)
Cash versus Accrual basis Accounting	30	(11)
Cash and Accrual Statements Illustrated	30	(6)
Combination Cash Accounting and Accrual Statements	36	(2)
Modified Cash Basis	38	(2)
Legal Requirements	40	(1)
Conclusion	40	(1)
Fund Accounting and Internal Financial Reporting	41	(18)
Fund Accounting Defined	44	(2)
Categories of Funds	46	(4)
Alternative Fund Groupings	50	(1)
A Typical Set of ``Fund'' Financial Statements	51	(5)
Elimination of Funds for Reporting Purposes	56	(2)
Conclusion	58	(1)
Interfund Transfers and Appropriations	59	(15)
Transfers between Funds	59	(9)
Appropriations	68	(5)
Conclusion	73	(1)
Fixed Assets---Some Accounting Problems	74	(12)
Nature of the Problem	74	(2)
Alternatives for Handling Fixed Assets	76	(5)
Fixed Assets Where Title May Revert to Grantors	81	(1)
Separate Building Fund	81	(3)
Conclusion and Recommendations	84	(2)
Fixed Assets---Depreciation	86	(11)
Arguments against Taking Depreciation	86	(1)
Why Depreciation Should Be Recorded	87	(2)
Presentation in the Financial Statements	89	(3)
Funding Depreciation	92	(2)
Transfers of Replacement Funds to the Plant Fund	94	(2)
Conclusion	96	(1)
Investment Income, Gains and Losses, and Endowment Funds	97	(21)
Accounting Principles	98	(10)
Fixed Rate of Return Concept	108	(10)
Accounting for Investments by Not-for-Profit Organizations, Summary of FASB Statement 124	116	(2)
Affiliated Organizations, ``Pass-Through'' Transactions, and Mergers	118	(24)
Types of Relationships Often Found	119	(3)
Definition of the Reporting Entity	122	(8)
Mergers of Not-for-Profit Organizations	130	(12)
Factors to Be Considered in Deciding Whether a ``Pass-Through'' Gift Is Truly Revenue and Expense to a Pass-Through Entity	132	(3)
SFAS 136---Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions of Others	135	(4)
Factors Related to Control That May Indicate That an Affiliated Organization (A) Should Be Combined with the Reporting Organization (R), if Other Criteria for Combination Are Met (Per AICPA SOP 94-3)	139	(3)
Contributions, Pledges, and Noncash Contributions	142	(49)
Expendable Current Support	144	(10)
Gift-in-Kind	154	(5)
Support Not Currently Expendable	159	(32)
Checklist: Factors to Be Considered in Deciding Whether a Particular Gift (for Operating Purposes) Should Be Classified as Purpose-Restricted or Not	174	(3)
Checklist: Factors to Be Considered in Distinguishing Contracts for the Purchase of Goods or Services from Restricted Grants	177	(2)
Checklist: Factors to Be Considered in Assessing Whether Contributed Services Are Considered to Require Specialized Skills	179	(2)
Checklist: Factors to Be Considered in Determining Whether or Not an Organization Would Typically Need to Purchase Services if Not Provided by Donation	181	(3)
Checklist: Factors to Be Considered in Assessing Whether a Donor Has Made a Bona Fide Pledge to a Donee	184	(3)
Checklist: Factors to Be Considered in Deciding Whether a Gift or Pledge Subject to Donor Stipulations Is Conditional or Restricted	187	(4)
Accounting Issues Relating to Fundraising	191	(20)
Accounting for Gifts	192	(10)
Accounting for Fundraising Expenses	202	(5)
Other Tax Considerations	207	(4)
PART TWO FINANCIAL STATEMENT PRESENTATION
Cash Basis Financial Statements	211	(13)
Simple Cash Basis Statement	212	(1)
Simple Statement with Last Year's Figures and Budget	213	(2)
Combined Cash Basis Income Statement and Balance Sheet	215	(2)
Separate Statement of Receipts and Disbursements and Statement of Net Assets	217	(3)
Statement of Income with Certain Cash Transations Omitted	220	(2)
Modified Cash Basis Statements	222	(1)
Conclusion	223	(1)
Accrual Basis Financial Statements	224	(13)
Simple Accrual Basis Statements	225	(3)
Accrual Basis Statements---Fundraising Organization	228	(4)
Accrual Basis Statements---International Organization	232	(4)
Conclusion	236	(1)
Multiclass Financial Statements	237	(56)
Statement of Financial Accounting Standards No. 117---Financial Statements of Not-for-Profit Organizations	239	(5)
Preparation of Statement of Cash Flows	244	(18)
``Class'' Financial Statements Explained	262	(6)
Columnar Format Presentation	268	(2)
A Complicated Set of Class Financial Statements	270	(11)
Summary or Condensed Statements	281	(3)
Conclusion	284	(9)
Financial Statements of Not-for-Profit Organizations---Review Points	285	(8)
PART THREE ACCOUNTING AND REPORTING GUIDELINES
Voluntary Health and Welfare Organizations	293	(40)
Fund Accounting	296	(3)
Accounting Principles	299	(1)
Accounting for Contributions	299	(3)
Accounting for Other Income	302	(1)
Accounting for Expenses	303	(1)
Accounting for Assets	303	(2)
Net Assets	305	(1)
Financial Statements	306	(19)
Recommended Simplified Presentation	325	(1)
The Evolution of Standards	325	(8)
Checklist: Factors to Be Considered in Deciding Whether Allocation of Joint Costs of Multipurpose Activities (Under AICPA SOP 98-2) Is Appropriate	328	(3)
Checklist: Consideration of Whether Items Might Be Reported as Operating or Nonoperating (Within the Context of ¶23 of SFAS No. 117)	331	(2)
Colleges and Universities	333	(22)
Authoritative Pronouncements	334	(1)
Fund Accounting	335	(6)
The Principal Financial Statements	341	(7)
Accounting Principles	348	(6)
Simplified Format for Financial Statements	354	(1)
Health Care Providers	355	(34)
Introduction	356	(1)
Authoritative Pronouncements	357	(2)
Financial Statements	359	(5)
Accounting Principles	364	(18)
Additional Considerations for Tax-Exempt Debt Issuers	382	(7)
Accounting Standards for Other Not-for-Profit Organizations	389	(13)
Accounting Principles	390	(7)
Financial Statements	397	(1)
Combined Financial Statements	398	(4)
Checklist: Factors to Be Considered in Deciding Whether a Payment Described as Membership Dues is Properly Recorded by the Recipient as Dues or as a Contribution	399	(3)
Special Accounting Issues for Specific Organizations	402	(22)
Associations and Professional Societies	403	(3)
Churches	406	(2)
Clubs	408	(2)
Libraries	410	(1)
Museums	411	(1)
Performing Arts Organizations	412	(2)
Private Foundations	414	(5)
Religious Organizations Other Than Churches	419	(1)
Research and Scientific Organizations	420	(1)
Private Elementary and Secondary Schools	421	(1)
Public Broadcasting Stations	422	(2)
The Financial Accounting Standards Board and Future Trends in Not-for-Profit Accounting	424	(15)
Financial Accounting Standards Board	425	(5)
Trends in Not-for-Profit Accounting	430	(5)
Conclusion	435	(4)
PART FOUR CONTROLLING THE NOT-FOR-PROFIT ORGANIZATION
The Importance of Budgeting	439	(24)
The Budget: A Plan of Action	440	(6)
Monthly and Quarterly Budgets	446	(3)
Timely Interim Statements	449	(9)
A Five-Year Master Plan	458	(4)
Conclusion	462	(1)
Avoiding Bankruptcy	463	(16)
Early Recognition of Problems	463	(7)
Remedial Action	470	(6)
Confronting Bankruptcy	476	(1)
Conclusion	477	(2)
Small Organizations---Obtaining the Right Bookkeeper	479	(8)
Level of Bookkeeping Services Needed	480	(3)
Personality Characteristics	483	(1)
Alternatives to Bookkeepers	483	(2)
Timing in Hiring a Replacement	485	(1)
Conclusion	486	(1)
Small Organizations---Providing Internal Control	487	(16)
Reasons for Internal Control	488	(2)
Fundamentals of Internal Control	490	(1)
Some Basic Controls	491	(10)
Fidelity Insurance	501	(1)
Conclusion	502	(1)
Effective Internal Accounting Control for Not-for-Profit Organizations	503	(27)
Introduction to Internal Accounting Control	504	(1)
Elements of an Effective Internal Accounting Control System	505	(7)
Basic Internal Accounting Control System	512	(8)
Specific Nonprofit Internal Accounting Controls	520	(10)
Independent Audits	530	(17)
Functions and Limitations	531	(5)
Benefits of an Independent Audit	536	(2)
Selecting a Certified Public Accountant	538	(2)
Public Accountants	540	(1)
Audit Committees	541	(2)
Conclusion	543	(4)
Checklist: Criteria for Selection of a CPA	544	(3)
Investments	547	(16)
Pooling versus Individual Investments	548	(3)
Calculating Share Values in Pooled Investments	551	(4)
Allocation of Pooled Income	555	(1)
Professional Investment Advice	555	(3)
Safeguarding Investment Securities	558	(2)
Conclusion	560	(3)
PART FIVE PRINCIPAL FEDERAL TAX AND COMPLIANCE REQUIREMENTS
Principal Federal Tax Requirements	563	(32)
Organizations Exempt from Tax	564	(3)
Charitable Organizations	567	(4)
Private Foundations	571	(7)
Private Operating Foundations	578	(1)
Other Concerns for Charities	579	(4)
Noncharitable Exempt Organizations	583	(5)
Unrelated Business Income	588	(4)
Registration and Reporting	592	(3)
Principal Federal Tax Forms Filed	595	(46)
Form 990: Return of Organization Exempt from Income Tax	595	(24)
Form 990-PF: Return of Private Foundation	619	(18)
Form 990-T: Exempt Organization Business Income Tax Return	637	(3)
Conclusion	640	(1)
State Compliance Requirements	641	(14)
Registration for Organizations Soliciting Funds	642	(1)
Registration for Organizations Having Assets within the State	643	(1)
Individual State Requirements	643	(12)
Audits of Federally Funded Programs	655	(16)
Basic Requirements	655	(3)
Requirements and Definitions	658	(5)
Responsibilities of the Receiving Organization	663	(3)
What to Expect from the Audit	666	(2)
Conclusion	668	(3)
PART SIX SETTING UP AND KEEPING THE BOOKS
Cash Basis Bookkeeping	671	(19)
Three Steps in a Bookkeeping System	672	(1)
Checkbook System	672	(5)
Cash Basis System	677	(12)
Conclusion	689	(1)
Simplified Accrual Basis Bookkeeping	690	(21)
Books and Records	691	(1)
Chart of Accounts	692	(2)
Monthly Accrual Entries	694	(7)
Payroll Taxes	701	(2)
Fixed Asset Register and Depreciation Schedule	703	(6)
Investment Ledger	709	(1)
Conclusion	709	(2)
Full Accrual Basis Bookkeeping	711	(19)
Books and Records	712	(2)
Chart of Accounts	714	(2)
Sales Register	716	(3)
Accounts Receivable Subsidiary Ledger	719	(3)
Cash Receipts Book	722	(1)
Accounts Payable Register	722	(2)
Cash Disbursements Book	724	(2)
Monthly Accrual Entries	726	(3)
Conclusion	729	(1)
Fund Accounting Bookkeeping	730	(14)
Chart of Accounts	731	(3)
Books and Records	734	(4)
Interfund Transactions	738	(4)
Trial Balance	742	(1)
Conclusion	743	(1)
Automating the Accounting Records	744	(17)
When to Consider Automating or Upgrading	745	(1)
What to Automate	746	(5)
Selecting the Right Software	751	(5)
Implementing the New System	756	(1)
Common Pitfalls to Successful Automation	757	(2)
Conlusion	759	(2)
Appendix A Use of Rulings and Underscorings	761	(3)
Appendix B Accounting and Disclosure Guide for Not-for-Profit Organizations	764	(11)
Appendix C Implementation of SFAS No. 116 and No. 117	775	(4)
Appendix D New AICPA Audit and Accounting Guide: Not-for-Profit Organizations	779	(14)
Bibliography	793	(4)
Index	797