Transcript Armanino McKenna

BUILDING FUTURES
Armanino McKenna LLP
Non-profit Accounting Basics
June 2, 2009 Bookkeeping
September 19, 2008
Accounting Solutions
Non-profit Organizations (NPO)
Discussion Topics
I.
NPO Structure – How are they structured?
II.
NPO Chart of Accounts structure – What makes them unique and different?
III.
Revenues, Contributions, and Support – What is this money we received?
IV.
Classification of contributions – Is it unrestricted, temporarily restricted or
permanently restricted?
V.
Expenses – Learn about the unique categories for nonprofits
VI.
Net Asset balance by restriction – Determine net asset roll forward schedule
VII. Accounting for Multi-year Contributions Receivable – Discounting
I. Non-profit Organizations (NPO)
How are they structured?
NPOs
For Profit Businesses
Legal structure
•Corporations (use articles of
incorporation, by-laws, minutes)
Legal structure
•C-Corporations, S-Corporations,
•Partnerships, LLC, LLP,
•Sole proprietor ….
•Apply to the IRS for exemption
•Identify their exemption type
•Once receive IRS exemption then
apply for California exemption
Tax Return Filed
•990 Federal Information Return
and State similar return
Tax Return Filed
•Various Income Tax Returns for
federal and state
I. Non-profit Organizations (NPO)
How are they structured? continued
NPOs
For Profit Businesses
Business Purpose
•_
•_
•_
Business Purpose
•_
•_
•_
I. Non-profit Organizations (NPO)
How are they structured? continued
NPOs
For Profit Businesses
Business Purpose
•Charitable, Religious, Education,
•Homeowners & Tenants’ Assoc.,
•Relief Organizations (Org.),
•Healthcare Org., Veterans’ Org.,
•Social Welfare Org., Political,
•Recreational, Employee Assoc.,
•Police & Firefighters Assoc.,
•Organizations supported by
Government
Business Purpose
•No restrictions as long as
it is legal
I. NPO How are they Structured?
continued
Basis of Accounting
Non-Profit Organization
For Profit Business
Tax Basis
•Cash
•Accrual
•Other (modified cash)
Tax Basis
•Cash
•Accrual
•Other (modified cash)
Financial Statements
•Same as above
•GAAP (Generally Accepted
Accounting Principles)
•FASB (Financial Accounting
Standards Board)
•SFAS (Statement of Financial
Accounting Standards)
Financial Statements
•Same as above
•GAAP (generally accepted
accounting principles)
(Most common reporting basis is GAAP and
Religious ones are modified cash)
I. NPO How are they Structured?
continued
Non-Profit Basis of Accounting
Accounting & Reporting Standards exclusive to Non-Profits
•SFAS 116 (Contributions received and made by NPOs)
•SFAS 117 (Financial Reporting for NPOs)
•SFAS 124 (Accounting for Investments held by NPOs)
•SFAS 136 (NPOs that hold and raise funds for other NPOs)
Governing Agencies
•Attorney General and related legislation like SB 1262 (Senate Bill 1262)
•IRS & FTB (Internal Revenue Service and Franchise Tax Board)
•State Board of Equalization
•Others??
II. NPO Chart of Accounts
Chart of Accounts (COA) need to consider the needs of the
organization and ability or limitations of their accounting
software. Usually the building blocks of financial stmts.
The ability to track the following items is advantageous:
Net assets (equity) by restriction
Multiple cost centers & or programs
Multiple grants/ funding sources
Expenses by functional category (Program,
Mgmt & General, and Fund Raising)
II. NPO Chart of Accounts
continued
Accounts that are unique or that you may think are unusual
Assets
Accounts receivable (AR), trade
Current & Long-term AR
• Grants and contracts receivable
• Contributions (pledges) receivable
• Allowance for doubtful accounts
Other AR accounts
• Discount on long-term receivables
II. NPO Chart of Accounts
continued
Accounts that are unique or that you may think are unusual
Liabilities
• Deferred Income
• Advance Deposits
• Funds held for others (agency
transactions)
Net Assets (Equity)
• Unrestricted
• Temporarily Restricted
• Permanently Restricted
III. Revenues, Contributions, and Support –
What is this money we received?
Revenues, Contributions, Support
• Contributions (what is this?)
• Exchange transactions
• Grants and contracts reimbursements (what are these?)
• Investment Income
• Gifts-In-Kind
• Net Assets released from restrictions
IV. Classification of contributions
NPO’s classify contributions received based on donor restrictions
Contributions received can be:
•Unrestricted (no restriction placed by the donor)
•Undesignated
•Board Designated
•Temporarily restricted (donor imposed restriction)
•(a restriction of time or purpose)
•Permanently restricted (donor imposed restriction)
•(the original gift $ may never be spent)
•Net Assets Released from restriction
•(restrictions as to time or purpose have been met)
V. Expenses – Unique categories for NPOs
NPOs group expenses under 3 groups (possibly 4) and then
by natural account code within those groups
1. Program
2. Management & General
3. Fund Raising
4. Membership (if applicable)
VI. Net Asset Balances by Restriction
NPOs must keep track of their Net Asset Balances (Equity)
by 3 types and it is possible to have multiple groups
within those types
1. Unrestricted
•
•
Undesignated
Board designation
2. Temporarily Restricted
•
•
Schedule by purpose and time restrictions
Schedule by donor if unique
3. Permanently Restricted
•
Schedule by donor & restrictions
VI. Net Assets Continued
Roll-forward Schedules
Sample NPO
Net Asset Roll-forward Schedule
Beg. Bal.
Restriction
Annual Fancy Ball
6/30/2007
-
FYE 6/30/08
Contributions
Income
100,000
400,000
25,000
20,000
End. Bal.
Expenses
Transfers
6/30/2008
(250,000)
(250,000)
-
New Building
500,000
New Computers
100,000
Scholarships
250,000
10,000
10,000
(185,000)
Send Kids to Camp
600,000
100,000
-
(600,000)
250,000
350,000
1,450,000
135,000
30,000
(885,000)
250,000
980,000
Net Balance
-
-
545,000
(100,000)
-
85,000
VII. Accounting for Multi-year
Contributions Receivable – Discounting
If you have a receivable that is expected to be collected after 12
months then you need to determine the Net Present Value (NPV) of
that future payment as of today. A risk free rate of return is assumed
in calculating the discount. US Treasury Note is usually used (3% was
used in this calculation).
Receivable due in 2010
$50,000
Discount
($4,240)
Net Present Value in 2008 $45,760
NOTE: The receivable is recorded at gross value and a discount account is created similar
to an allowance for doubtful accounts account type.
Open Discussion & Questions
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