Idea Transcript
Accounting for Colleges & Universities Chapter 17
Learning Objectives
Understand why most government C&Us choose to report as “business-type only” special purpose governments Explain unique aspects of C&U reporting Prepare journal entries consistent with C&U financial reporting requirements
Learning Objectives (continued)
Prepare government C&U financial statements Understand principal differences between reporting government and nongovernment not-for-profit C&Us Prepare nongovernment not-for-profit C&U financial statements
Early Contributors for C&U Accounting Standards
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
Nongovernment (private) C&Us follow FASB’s not-for-profit 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
Entity with governmental and proprietary funds must present full set of basic financial statements per GASB #34 Enterprise-only entities (special purpose governments) present • 3 Enterprise Fund financial statements • Notes to the financial statements • MD&A and other RSI
External vs. Internal Inconsistency
Most public C&Us have chosen to report as enterprise-only 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
Statement of Net Assets (or Balance Sheet) [Page 686] Statement of Revenues, Expenses, and Changes in Net Assets [Page 688] Statement of Cash Flows [Page 692] Management’s Discussion and Analysis (RSI) Other Required Supplementary Information (RSI)
Statement of Net Assets (Balance Sheet)
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: 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: 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: 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 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: 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
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
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
State appropriations not for capital purposes are reported as noncapital financing activity Use of direct method required
Sample Journal Entries
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
General Operations – #1 thru #16 Restricted Gifts for Operations and Plant Purposes – #17 thru #26 Loan Funds – #1 thru #5 [Page 698] Endowment Gifts – #1 thru #8 [Pages 700– 701]
Annuity and Life Income Funds
[Page 707]
#1 Tuition, Fees, & Appropriations [Page 693]
Cash Accounts Receivable Revenues – Tuition & Fees Revenues – State Appropriations
2,538 62 1,400 1,200
#2 Scholarships & Waivers [Page 694]
Revenue Deductions – Scholarship Allowances Expenses – Education & General Accounts Receivable
12 2
Tuition and fees are reported net of uncollectible amounts and scholarship allowances.
14
#3 Other Revenues [Page 694] Cash Revenues – Auxiliary Enterprise Sales
700 700
Purchase & Use Supplies [Page 695]
#4 Purchase Inventory of Materials & Supplies Cash Accounts Payable #5 Use Expenses – Education & General Expenses – Auxiliary Enterprises Inventory of Materials & Supplies
600 560 40
250 300 550
Salaries & Wages and Other Operating Expenses [Page 694] #6 Salaries & Wages Expenses – Educational & General Expenses – Auxiliary Enterprises Cash #7 & #8 Other Operating Expenses Expenses – Educational & General [#7] Expenses – Auxiliary Enterprises [#8] Cash
1,920 280 2,200
100 10 110
#9 Student Aid Cash Grants [Page 694] Expenses – Educational & General Cash
8 8
Purchase of Capital Assets [Page 695]
#10 Equipment Cash
10
#12 Buildings Cash
12
10
12
Borrowing [Page 695] #11 Current Operations Cash Notes Payable #13 Capital Outlay Cash – Construction Notes Payable
6 6
500
500
#14 Capital Asset Construction [Page 695] Construction in Progress Cash – Construction Contracts Payable
240 200 40
#15 Mortgage & Interest Payments [Page 695]
Mortgage Payable Expenses – Education & General (Interest) Cash
20 5 25
#16 Operating Debt Interest Accrual [Page 695, not thousands] Expenses – Educational & General Accrued Interest Payable
100 100
#17 Cash Receipts [Page 695] Cash – Restricted for Specific Programs Deferred Revenues – Federally Sponsored Research Revenues – Private Gifts
300 100 200
#18 Expenses Paid by Restricted Assets [Pages 695 – 696] Expenses – Education & General Expenses – Auxiliary Enterprises Accounts Payable Cash – Restricted for Specific Programs
Deferred Revenues – Federally Sponsored Research Revenues – Grants
232 2 7 227
40 40
#19 Stock Donation [Page 696] 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 [Page 696] 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 696] Mortgage Payable Expenses – Educational & General (Interest) Cash
10 5 15
Donation Received and Invested [Page 296]
#22 Donation received Cash – Debt Service Revenues – Private Gifts
25
#23 Donation invested Investments – Debt Service Cash – Debt Service
25
25
25
#24 Gift for New Building [Page 697] Cash – Plant Expansion Revenues – Capital Contributions
200 200
#25 Uninsured Loss [Page 697] Loss from Fire Equipment
1 1
#26 Depreciation [Page 697] Expenses – Education & General Expenses – Auxiliary Enterprises Accumulated Depreciation – Buildings Accumulated Depreciation – Equipment
200 30 175 55
Other Resources
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
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 [Page 698]
#1 Donation received Cash – Restricted for Loans Revenues – Private Gifts #2 Loans made Loans Receivable Cash – Restricted for Loans
100 100
50 50
#3 Investments made [Page 698, not in thousands] Investments – Restricted for Loans Accrued Interest Receivable – Restricted for Loans Cash – Restricted for Loans
25,000 100 25,100
#4 Interest received [Page 698, not in thousands] Cash – Restricted for Loans Accrued Interest Receivable – Restricted for Loans Revenues – Investment Income
500 100 400
#5 Write-off an Account [Page 698, not in thousands] Loss on Uncollectible Loans Loans Receivable
400 400
Endowment and Similar Gifts
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
3rd Party Management
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
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 (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 700] Cash – Endowments Revenues – Endowment Gifts
2,000,000 2,000,000
#2 Investments made [Page 700] Investments in Preferred Stock – Endowments Investments in Common Stock – Endowments Investments in Bonds – Endowments Accrued Interest Receivable – Endowments Cash Endowments
500,000 1,000,000 455,000
1,000 1,956,000
#3 Cash received on investments [Page 700]
Cash – Endowments Revenues – Investment Income Accrued Interest Receivable – Endowments
88,700 87,700 1,000
#4 Earnings available for specified purpose [Page 700]
Cash – Restricted for Specific Programs Cash – Endowments
87,700 87,700
#5 Increase in fair value of investments [Page 701]
Investments – Endowments Revenues – Investment Income
1,500 1,500
#6 Sale of investment [Page 701] Cash – Endowments Investments in Common Stock Revenues – Gain on Sale of Investments
10,500 10,000 500
#7 Additional Donations [Page 701] Investments in Common Stock – Endowments Investments in Bonds – Endowments Revenues – Endowment Gifts
75,000 850,000 925,000
#8 Third Party Trust [Page 701] No entry required (may make memorandum entry). Trust would be disclosed in the notes to the financial statements.
A Government University
Statement of Net Assets [Page 704] Statement of Revenues, Expenses, and Changes in Net Assets [Page 705] Statement of Cash Flows [Page 706]
Annuity & Life Income Gifts
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
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) 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 707] Cash Investments Annuities Payable Revenues – Private Gifts – Annuities
20,000 180,000 175,589 24,411
(b) Annual Payment [Page 707] Annuities Payable Cash
25,000 25,000
(c) Close investment account [Page 707]
Investment Income Annuities Payable
11,000 11,000
(d) Year-end Adjustment [Page 707] Revenue Deductions – Change in Value of Annuity Agreement Annuities Payable
1,292 1,292
Life Income Gifts – Stages
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 BusinessType 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 University Reporting
Follows FASB pronouncements for not-forprofit accounting Key reporting differences • Net assets classified per FASB #117 • Report changes in categories of net assets • Report reimbursement-type grants as revenues (that increase temporarily restricted net assets) when awarded
Private Not-for-Profit 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 University Reporting Financial Statements Balance Sheet [Page 709] Statement of Activities [Page 710] Statement of Cash Flows (direct method shown here but most would use indirect method) [Page 711]