Chapter 17D - Accounting for Accounting Colleges &...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Accounting for Accounting Colleges & Universities Chapter 17 Learning Objectives Learning Understand why most government C&Us choose to report as “business­type only” special purpose governments Explain unique aspects of C&U reporting Prepare journal entries consistent with C&U financial reporting requirements Learning Objectives (continued) (continued) Prepare government C&U financial statements Understand principal differences between reporting government and nongovernment not­ for­profit C&Us Prepare nongovernment not­for­profit C&U financial statements Early Contributors for C&U Accounting Standards Accounting National Association of College and University Business Officers (NACUBO) • Publishes Financial Accounting & Reporting Manual (FARM) which provides detail for implementing GASB (public) or FASB (private) standards • Provides input to GASB and FASB on new standards American Institute of Certified Public Accountants (AICPA) Basic Standards for C&Us Basic Nongovernment (private) C&Us follow FASB’s not­for­profit accounting standards Government (public) C&Us follow GASB #35, Basic Financial Statements – and Management’s Discussion and Analysis – for Colleges and Universities, which applies GASB #34 to C&U environment Full Model vs Enterprise-only Model Full Entity with governmental and proprietary funds must present full set of basic financial statements per GASB #34 Enterprise­only entities (special purpose governments) present • • • 3 Enterprise Fund financial statements Notes to the financial statements MD&A and other RSI External vs. Internal Inconsistency External Most public C&Us have chosen to report as enterprise­only activities During the year, these same C&Us use unique fund structure to manage operations • Uses expenditures rather than expenses • Fund structure is unique to C&Us – developed over time by NACUBO GAAP Reporting Requirements GAAP Statement of Net Assets (or Balance Sheet) [Page 688] Statement of Revenues, Expenses, and Changes in Net Assets [Page 690] Statement of Cash Flows [Page 694] Management’s Discussion and Analysis (RSI) Other Required Supplementary Information (RSI) Statement of Net Assets (Balance Sheet) (Balance Presentation is not unique to C&Us Net Assets uses standard three account classification, with one big change Restricted Net Assets has two categories • Nonexpendable – used for permanently restricted amounts • Expendable – amounts will be expended at some point in the future Operating Statement: Operating Specific Requirements Tuition and fee revenues to be reported net of uncollectible accounts and scholarship allowances Operating grants and gifts reported as nonoperating revenues Capital grants and gifts reported after nonoperating revenues (expenses) Some operating grants may be operating revenues if they result from or in exchange transaction with donor Operating Statement: Operating Specific Requirements Auxiliary enterprises Provide goods and services to students, faculty, & others that are not directly related to mission of C&U Revenues are separately identified in operating revenues Examples include • • • • Residence Halls Food Service Bookstore Parking Operating Statement: Operating Specific Requirements State appropriations for • Operations reported as nonoperating revenues • Capital outlay reported after nonoperating revenues (expenses) Additions to permanent endowments reported with capital appropriations, capital grants, and capital gifts Expenses usually reported by function or natural classification (utilities) Special & extraordinary items and changes in accounting principle last items on statement before Change in Net Assets Tuition and Fees Revenue Tuition Note that scholarships may be netted against revenues or shown as a separate expense – must know the difference Allowances come from scholarships that reduce the amount of tuition and fees owed by students Expenses come from amounts actually paid by C&U to students Tuition waivers to employees are part of compensation expense Tuition and Fee Revenues: Tuition Timing Issues Special case when revenue spans two fiscal years – often involves Summer session Current guidance is to recognize it proportionately Restricted Gifts and Grants Restricted Gifts & grants from private foundations and individuals reported as revenues when received – amounts reported as restricted net assets until spent Permanent endowment gifts recognized as revenues when C&U takes actions required under gift Revenue & Expense Classifications Revenue Revenues reported by source Expenses may be reported as • Object (or natural) classification • Function NACUBO recommends natural classification in statements and functional classification schedule in notes Statement of Cash Flows Statement State appropriations not for capital purposes are reported as noncapital financing activity Use of direct method required Sample Journal Entries Sample Assumes accounting system is maintained on GAAP basis Both revenues and expenses recorded as either • Education and general, or • Auxiliary enterprises Subsidiary effects not demonstrated For ease of display, all amounts are in thousands unless otherwise noted Journal Entries by Fund Journal General Operations – #1 thru #16 Restricted Gifts for Operations and Plant Purposes – #17 thru #26 Loan Funds – #1 thru #5 [Page 700] Endowment Gifts – #1 thru #8 [Pages 702–703] Annuity and Life Income Funds [Page 709] #1 Tuition, Fees, & Appropriations [Page 695] [Page Cash Accounts Receivable 2,538 62 Revenues – Tuition & Fees 1,400 Revenues – State Appropriations 1,200 In this section, all amounts in the journal entries are in thousands of dollars, unless otherwise noted. #2 Scholarships & Waivers #2 [Page 696] Revenue Deductions – Scholarship Allowances Expenses – Education & General 12 2 Accounts Receivable Tuition and fees are reported net of uncollectible amounts and scholarship allowances. 14 #3 Other Revenues [Page 696] [Page Cash Revenues – Auxiliary Enterprise Sales 700 700 Purchase & Use Supplies Purchase [Page 696] #4 Purchase Inventory of Materials & Supplies 600 560 Cash 40 Accounts Payable #5 Use Expenses – Education & General 250 Expenses – Auxiliary Enterprises 300 Inventory of Materials & Supplies 550 Salaries & Wages and Salaries Other Operating Expenses [Page 696] [Page Other #6 Salaries & Wages Expenses – Educational & General Expenses – Auxiliary Enterprises 1,920 280 2,200 Cash #7 & #8 Other Operating Expenses Expenses – Educational & General [#7] Expenses – Auxiliary Enterprises [#8] Cash 100 10 110 #9 Student Aid Cash Grants [Page 696] [Page Expenses – Educational & General Cash 8 8 Purchase of Capital Assets Purchase [Page 697] #10 Equipment 10 10 Cash #12 Buildings Cash 12 12 Borrowing [Page 697] Borrowing [Page #11 Current Operations Cash 6 6 Notes Payable #13 Capital Outlay Cash – Construction Notes Payable 500 500 #14 Capital Asset Construction [Page 697] [Page Construction in Progress Cash – Construction Contracts Payable 240 200 40 #15 Mortgage & Interest Payments [Page 697] [Page Mortgage Payable Expenses – Education & General (Interest) Cash 20 5 25 #16 Operating Debt Interest Accrual Accrual [Page 697, not thousands] Expenses – Educational & General Accrued Interest Payable 100 100 #17 Cash Receipts [Page 697] [Page Cash – Restricted for Specific Programs 300 Deferred Revenues – Federally Sponsored Research 100 Revenues – Private Gifts 200 #18 Expenses Paid by Restricted Assets [Page 698] [Page Expenses – Education & General 232 Expenses – Auxiliary Enterprises 2 Accounts Payable 7 Cash – Restricted for Specific Programs 227 Deferred Revenues – Federally Sponsored Research Revenues – Grants 40 40 #19 Stock Donation [Page 698] [Page Investments – Plant Expansion Revenues – Capital Contributions 20 20 Donation reported at fair value. C&U must apply provisions of GASB #31 as do other governmental entities. #20 Debt Service Donation #20 [Page 698] Cash – Debt Service Revenues – Private Gifts 15 15 This donation (and one in Entry 22) will be reported as operating grants on Statement of Revenues, Expenses, and Changes in Net Assets. However, on the Statement of Cash Flows, the donations are reported as capital and related financing activities since the donations will be used for capital debt-related transactions. #21 Mortgage Payment Made [Page 698] [Page Mortgage Payable Expenses – Educational & General (Interest) Cash 10 5 15 Donation Received and Invested [Page 698] [Page #22 Donation received Cash – Debt Service 25 25 Revenues – Private Gifts #23 Donation invested Investments – Debt Service Cash – Debt Service 25 25 #24 Gift for New Building [Page 699] [Page Cash – Plant Expansion Revenues – Capital Contributions 200 200 #25 Uninsured Loss [Page 699] [Page Loss from Fire Equipment 1 1 #26 Depreciation [Page 699] [Page Expenses – Education & General 200 Expenses – Auxiliary Enterprises 30 Accumulated Depreciation – Buildings 175 Accumulated Depreciation – Equipment 55 Other Resources Other C&U often have unique arrangements • Gifts to used for loans to students, faculty, & staff • Split interest gift agreements that provide benefits to C&U and some other individual (sometimes the donor) Primary aspects of reporting • Timing of revenue recognition • Use of restricted asset accounting to indicate use of resources is limited to specific purposes Loan Funds Loan Must have separate accountability to ensure donors funds are being used properly – restricted asset accounting is frequent tool If only fund’s income may be loaned, principal part of C&U endowment Unrestricted resources set aside by C&U board are not restricted assets Funds may be major program at C&U, requiring separate, professional management Donation received & loans made Donation [Page 700] [Page #1 Donation received Cash – Restricted for Loans 100 100 Revenues – Private Gifts #2 Loans made Loans Receivable Cash – Restricted for Loans 50 50 #3 Investments made #3 [Page 700, not in thousands] Investments – Restricted for Loans 25,000 Accrued Interest Receivable – Restricted for Loans Cash – Restricted for Loans 100 25,100 #4 Interest received #4 [Page 700, not in thousands] Cash – Restricted for Loans 500 Accrued Interest Receivable – Restricted for Loans Revenues – Investment Income 100 400 #5 Write-off an Account #5 [Page 700, not in thousands] Loss on Uncollectible Loans Loans Receivable 400 400 Endowment and Similar Gifts Endowment Categories • Given in perpetuity – true or pure endowment • Donor specifies principal may be spent after a particular date or event – term endowment Revenue recognized when C&U invests gift per donor’s instructions As with Loan Funds, C&U board may use unrestricted resources in similar manner – does not use restricted asset accounting 3 Party Management rd Donor may designate 3rd party to manage principal – not reported as an asset or revenue of C&U but disclosed in the notes Income from trust reported as revenue when received • If restricted for specified purposes, increases restricted net assets • If no restrictions, becomes part of unrestricted net assets Determining & Reporting Income Determining How to account for net appreciation of endowments is a much debated issue Options • Addition to expendable endowment – total return approach • Increase to endowment principal – classical trust (or fiduciary principle) May be decided by donor’s stipulation or state law Determining & Reporting Income Determining (continued) Gains and losses – including most unrealized changes in fair value – must be reported as investment income Corresponding debit will depend on which of the options is selected Following sample entries not in thousands #1 Endowments created [Page 702] [Page Cash – Endowments 2,000,000 Revenues – Endowment Gifts 2,000,000 #2 Investments made [Page 702] [Page Investments in Preferred Stock – Endowments 500,000 Investments in Common Stock – Endowments 1,000,000 Investments in Bonds – Endowments 455,000 Accrued Interest Receivable – Endowments Cash Endowments 1,000 1,956,000 #3 Cash received on investments [Page 702] [Page Cash – Endowments Revenues – Investment Income 88,700 87,700 Accrued Interest Receivable – Endowments 1,000 #4 Earnings available for specified purpose [Page 702] [Page Cash – Restricted for Specific Programs Cash – Endowments 87,700 87,700 #5 Increase in fair value of investments #5 [Page 703] Investments – Endowments Revenues – Investment Income 1,500 1,500 #6 Sale of investment [Page 703] [Page Cash – Endowments Investments in Common Stock 10,500 10,000 Revenues – Gain on Sale of Investments 500 #7 Additional Donations [Page 703] [Page Investments in Common Stock – Endowments Investments in Bonds – Endowments Revenues – Endowment Gifts 75,000 850,000 925,000 #8 Third Party Trust [Page 701] [Page No entry required (may make memorandum entry). Trust would be disclosed in the notes to the financial statements. A Government University Government Statement of Net Assets [Page 706] Statement of Revenues, Expenses, and Changes in Net Assets [Page 707] Statement of Cash Flows [Page 708] Annuity & Life Income Gifts Annuity Common examples • Annuity trust – requires fixed dollar payment regardless of income of fund • Life income trust – requires payment to beneficiary based on earnings of fund Time period • Annuity may last for specified number of years or life on beneficiary • Life income usually lasts for life of beneficiary Annuity Gifts Annuity IRS and some States have specific laws governing administration of annuity gifts C&U board will want assurances that • Assets donated will generate enough income to make required payments • If payments made from principal, residual balance will be available for C&U use Annuity Gifts (continued) (continued) Upon receipt of gift Assets recorded at fair value along with liabilities that C&U must assume Liability recorded at present value – requires annual adjustment Difference goes to Revenues–Private Gifts account Subsequent earnings, gains, losses, and payments affect Annuities Payable account (a) Receipt of gift [Page 709] [Page Cash Investments Annuities Payable Revenues – Private Gifts – Annuities 20,000 180,000 175,589 24,411 (b) Annual Payment [Page 709] [Page Annuities Payable Cash 25,000 25,000 (c) Close investment account (c) [Page 709] Investment Income Annuities Payable 11,000 11,000 (d) Year-end Adjustment [Page 709] [Page Revenue Deductions – Change in Value of Annuity Agreement Annuities Payable 1,292 1,292 Life Income Gifts – Stages Life Inception – record assets at fair value; record liabilities assumed; difference goes to Revenues–Private Gifts–Restricted account During term – record revenues, expenses, gains, losses, and payments per instructions/laws End of benefit period – reclassify resources as unrestricted if no purpose restrictions C&U Engaged in Both Governmental and BusinessGovernmental Type Activities Some C&U may elect to report complete model Report includes GASB #34 requirements • Government [University]­wide statements • Major fund statements • • Governmental Proprietary Fiduciary Notes MD&A and other RSI Private Not-for-Profit Private University Reporting Follows FASB pronouncements for not­for­profit accounting Key reporting differences • • • Net assets classified per FASB #117 Report changes in categories of net assets Report reimbursement­type grants as revenues (that increase temporarily restricted net assets) when awarded Private Not-for-Profit Private University Reporting Key reporting differences (continued) • Report uncollectible accounts as expenses • Report Pell grants as collections of tuition and fees (not separate source) • Report net assets released from restrictions • Apply FASB SCF guidance • Some revenues may be operating that were nonoperating for governmental C&U (contributions) Private Not-for-Profit Private University Reporting Financial Statements Balance Sheet [Page 711] Statement of Activities [Page 712] Statement of Cash Flows (direct method shown here but most would use indirect method) [Page 713] ...
View Full Document

This note was uploaded on 10/17/2011 for the course ACCT 4325 taught by Professor Staff during the Spring '08 term at UT Arlington.

Ask a homework question - tutors are online