3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

Module 2 - Private Not-for-Profit Colleges and Universities

Site: New Era University Printed by: Era A. Ellorimo

ACTG12-18 - Accounting for Government & NonProfit Date: Monday, 29 March 2021, 9:55 AM
Course:
Organizations
Book: Module 2 - Private Not-for-Profit Colleges and Universities

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

Description

Lesson 1: Title

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

Table of contents

1. Introduction

2. Learning Outcomes

3. Accounting for Private Not-for-Profit College or University

4. University Accounting and Financial Reporting within Existing Fund Structure

5. Financial Statements for Private for Not-for-Profit Colleges and Universities

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

1. Introduction

The primary objective of a college or university is to provide educational services to its constituents

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

2. Learning Outcomes

1. to show sources from which resources have been received and

2. to demonstrate how those resources have been utilized in meeting educational objectives

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

3. Accounting for Private Not-for-Profit College or University

Colleges and universities maintain accounts and reports on an accrual basis:

Revenues - when earned

Expenses - when related materials and services are received

- reported by function

Classification - based on donor-imposed restrictions

Responsibilities of not-for-profit universities:

1. Academic - instruction, research, and public service

2. Financial - management and reporting of business and financial affairs
3. Student services - all student activities not directly classifies as academic or financial
4. Public relations - communication and establishment of goodwill with academic and administrative staff, alumni, and the community

ACCOUNTING FOR REVENUE

3 Major Group of revenues

1. Educational and general revenues - operating revenue

2. Auxiliary enterprises revenues - non-operating revenue, to permit evaluation of performance and the degree of self-support.
3. Expired term endowment revenues - restriction has lapsed

Classification of revenue

1. Operating revenue

student tuition fees, government appropriations, and governmental grants

Tuition fees - full amount of the standard rate are recognized as REVENUE
Scholarships:

a. Deduction from revenue - does not require any employment-type of work

b. Expense - student must provide employment type of work

Reimbursements - reduction of revenue

2. Non-operating revenue

- all government appropriations, gifts, investment income, endowment income, and interest

- Auxiliary enterprises revenue and expired term endowment revenues

ACCOUNTING FOR EXPENSES

- Accrual basis
- Natural or by function (most common is by function)
1. Educational and general expenses
2. Auxiliary expenses

ACCOUNTING FOR CONTRIBUTIONS

- unconditional transfers of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal
transfer
- voluntary non-exchange transactions with private parties
- recognized as revenue or gains in the period received

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities
- Conditional pledges are recognized as revenue when the conditions are substantially met
- present value of estimated future cash flows using a discount rate commensurate with the risks involved - for contributions that
extend over a long period of time
- Promises receivable with one year need not discounted
- unconditional pledge with no restriction

DONOR IMPOSED RESTRICTIONS AND RECLASSIFICATIONS

Reclassify when:
1. donor's stipulated time elapsed
2. donor's stipulated purpose has been fulfilled
3. over the useful life of donated assets

Exchange transactions

- increase in unrestricted net assets

1. grants
2. awards
3. sponsorships
4. appropriations

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3/29/2021 Module 2 - Private Not-for-Profit Colleges and Universities

4. University Accounting and Financial Reporting within Existing Fund Structure

5 BROAD CATEGORIES OF COLLEGE AND UNIVERSITY FUNDS:

I. CURRENT OR OPERATING FUNDS

- day to day activities of a university

1. Current fund - Unrestricted

- main operating fund, available for any current activity commensurate with the university's objectives without restriction

2. Current fund - Restricted

- may also be used on day-to-day operations but within the framework of the specified purposes imposed

II. LOAN FUNDS

- making loans to students, faculty, and staff.

- both principal and earnings must be available for loan purposes

- if only the income from a gift or grant may be used for loan purposes, the principal should not be in the loan fund but in the endowment
fund

- resources of loan funds consist mainly of gifts that are temporarily restricted.

1. Unrestricted loan funds

- BOT sets the policies of the loan funds

2. Restricted loan funds

- grants or donations have restrictions imposed by donors or grantors

III. ENDOWMENT FUNDS AND SIMILAR FUNDS

- permanent endowments, term endowments, and board-designated (quasi) endowment

1. Pure or regular endowment fund

a. Principal (corpus) has been specified by the donor as nonexpendable or to be held in perpetuity or kept intact

b. income (dividend or interest) normally permits to be expended for current operations

2. Term endowment fund

a. Principal (corpus) is expendable after a specified time period or event

b. income (dividend or interest) normally permits to be expended for current operations

3. Quasi-endowment fund - imposed by BOT; unrestricted

- discretionary funds, technically they do not belong to the endowment category; hence, the addition to the title of "and Similar
funds"

a. Principal (corpus) is expendable

b. income (dividend or interest) is expendable for current operations

IV. ANNUITY AND LIFE INCOME FUNDS

- funds may be accepted by a university under the stipulation that periodic payments are to continue as an annuity to the donor or other
designated beneficiary for an indicated time period

1. Annuity funds

- account for resources acquired under the condition that the college or university make stipulated periodic payments to
individuals as provided by the agreement with the donor

2. life income fund

- contributed under the requirement that the income be paid to a designated beneficiary

V. PLANT FUNDS

- account for capital assets and for resources to be used to acquire additional capital assets or to retire indebtedness related to capital
assets.

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1. Unexpended Plant fund

- set aside for future acquisition of a colleges/ universities plant assets

2. Fund for renewals and replacement

- set aside for renewals and replacement of existing plant asset

3. Fund for retirement of agency

- set aside for retirement of long term indebtedness

4. Investment in plant fund

- funds already spent

- represent investment in plant assets except for investment in plant assets held in endowment and annuity and life income funds

- contains liabilities related to the plant assets carried in this fund

VI. AGENCY FUNDS

- resources that are not the property of the university but are held in the university's safe keeping

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5. Financial Statements for Private for Not-for-Profit Colleges and Universities

Required Financial Statements

1. Statement of Financial Position

2. Statement of Activities

- acceptable alternative is to present two other statements:

a. Statement of unrestricted revenues, expenses, and other changes in unrestricted net asset

b. Statement of changes in net assets

3. Statement of Cash Flows

4. Accompanying Notes

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