Advanced Accounting
by Debra Jeter and Paul Chaney
Chapter 20: Accounting for
Nongovernment Nonbusiness
Organizations: Colleges and
Universities, Hospitals, and Other
Health Care Organizations
Slides Authored by Hannah Wong, Ph.D.
Rutgers University
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Sources of Accounting Standard
 First level of priority
 FASB
 APB
Statement and Interpretations
Opinions
 AICPA
Accounting Research Bulletins
 Second level of priority
 FASB
Technical Bulletins
 AICPA
Guides
Industry Audit and Accounting
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Sources of Accounting Standard
 Third level of priority
 Consensus
positions of the FASB emerging
issues task force
 AICPA
AcSec Practice Bulletins
 Fourth level of priority
 AICPA
Accounting Interpretations
 Implementation
 Industry
guides
practices
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Basic Financial Statements
 Statement of financial position
 Asset
categories:
Unrestricted net assets
Temporarily restricted net assets
(donor imposed restriction)
Permanently restricted net assets
(endowments)
 Statement of activities
 Statement of cash flows
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Basic Funds
 Current fund
 unrestricted
 restricted
fund (general fund - hospitals)
fund (special purpose fund - hospitals)
 Plant fund
 Endowment fund
 Loan fund
 Agency or custodial fund
 Annuity and life income fund
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Restricted VS Unrestricted Funds
 Current unrestricted funds
 financial
resources that may be expended
at the discretion of the governing board
 Current restricted funds
 resources
restricted
because of legal,
contractual, or
external restrictions
on their use
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Board Designated Funds
 Part of current unrestricted fund
 resources designated by governing board for
specific purposes, projects, or investment
 to limit discretion of management
 governing board can modify designations at
will
 = assets whose use is limited in hospitals
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Mandatory VS Nonmandatory
Transfers
 Unique to colleges and universities
 Mandatory transfers
 transfers
from the current funds group to other
fund groups arising from
binding legal agreements
grant agreements
 Nonmandatory transfers
 transfers
from the current funds group to other
fund groups at the discretion of the governing
board
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Contributions
Pledges
Pledges receivable
300,000
Revenue - contributions
300,000
To record gross amount of campaign pledges
Estimated Uncollectible Pledges
Expenses - Provision for uncollectible pledges
Allowance for uncollectible pledges
45,000
45,000
To record provision for estimated uncollectible pledges
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Contributions
Donated Services
Management and general expense
Donated services revenue
21,000
21,000
Donated services are recognized only if the services received:
(1) require specialized skills
(2) are provided by individuals possessing those skills and
(3) would need to be purchased if not provided by donation
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Plant Funds - Colleges
 4 Self-balancing subgroups:
 unexpended plant fund
 resources
used to purchase property, plant
and equipment
 similar
to capital project fund in
governmental accounting
 funds for renewals and replacements
 similar
to capital project fund in
governmental accounting
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Plant Funds - Colleges
 funds for retirement of indebtedness
 resources
to be used to retire or pay interest
on debt incurred in acquisition of property
 similar
to debt service fund in governmental
accounting
 Investment in plants
 property,
plant and equipment, related debt,
and net investment in plan
 similar
to a combination of the account
groups in governmental accounting
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Plant Funds - Colleges
Current Unrestricted Fund
Nonmandatory Transfer to plant fund
50,000
Cash
50,000
To record transfer to plant fund
Unexpended Plant Fund
Cash
750,000
Notes payable
500,000
Revenue - contributions - restricted
200,000
Fund balance - unrestricted
50,000
To record receipt of resources
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Plant Funds - Colleges
Unexpended Plant Fund
Land
750,000
Cash
750,000
To record acquisition of land
Fund balance - restricted
Fund balance - unrestricted
200,000
50,000
Notes payable
500,000
Land
750,000
To transfer assets and liabilities to investment in plant fund
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Plant Funds - Colleges
Investment in Plant Fund
Land
750,000
Notes payable
500,000
Net investment in plant
250,000
To record acquisition of land and related indebtedness
from the unexpended plant fund
Funds for Retirement of Indebtedness
Fund balance - restricted
200,000
Cash
Interest expense
Cash
200,000
20,000
20,000
To record payment of principal and interest on indebtedness
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Plant Funds - Colleges
Investment in Plant Fund
Notes payable
Net investment in plant
200,000
200,000
To record reduction in indebtedness
Depreciation expense
Accumulated depreciation
235,000
235,000
To record depreciation on property, plant and equipment
included in the assets of the investment in plant fund
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Plant Funds - Hospitals
 PPE transactions of hospitals are recorded
in the general fund
 contributed resources restricted for
acquisition of PPE are recorded in a plant
replacement and expansion (restricted)
fund
 upon expenditure, the assets acquired and
the plant fund balance are transferred to
the general fund
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Endowment Funds
Endowment Fund
Cash
400,000
Due to unrestricted fund
250,000
Due to restricted fund
150,000
To record receipt of dividend and interest
Current Unrestricted Fund
Due from endowment fund
250,000
Unrestricted income
250,000
To record unrestricted endowment fund income
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Endowment Funds
Current Restricted Fund
Due from endowment fund
Restricted income
150,000
150,000
To record restricted endowment fund income
Research expense
100,000
Cash
100,000
To record payment of research grant
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Accounting for Investments
Cash
800,000
Revenue - contributions - unrestricted
800,000
To record unrestricted contribution
Equity investments
800,000
Cash
800,000
To record purchase of marketable securities
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Accounting for Investments
Cash
30,000
Investment income - unrestricted
30,000
To record receipt of dividend
Equity investments
20,000
Unrealized gain on investment - unrestricted
20,000
(1) investment in equity securities with readily determinable
fair values and all debt securities should be recorded at market value
(2) unrealized gains and losses are recognized
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Loan Funds
 To account for
 loans
to students and staff of colleges,
 loans
to employees of hospitals
 loans
to beneficiaries of the interests of
certain ONNOs
 revenues and expenses must be
recognized on an accrual basis
 generally revolving
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Annuity and Life Income Funds
 Annuity funds
 the
organization receives contribution of
assets and makes periodic payments of a
stated amount to a beneficiary
 Life income funds
amount of payment
varies depending on the
 the
earnings of the fund
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Annuity Funds
Investments
Annuity payable
325,000
268,400
Revenue - contributions- permanent restriction
56,600
To record establishment of fund
Cash
26,000
Annuity payable
26,000
To record investment income
Annuity payable
Cash
26,000
26,000
To record annual annuity payment
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Issues Relating to Hospitals
 Charity care
 Contractual allowances
 Capitation revenues
 malpractice
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Advanced Accounting
by
Debra Jeter and Paul Chaney
Copyright © 2001 John Wiley & Sons, Inc. All rights reserved.
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