Accounting for
Colleges & Universities
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
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
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
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
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
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
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
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
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
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 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
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
Tuition and Fee Revenues:
Timing Issues
Special case when revenue spans two
fiscal years – often involves Summer session
Current guidance is to recognize it
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
Revenue & Expense Classifications
Revenues reported by source Expenses may be reported as
• Object (or natural) classification • Function
NACUBO recommends natural
Statement of Cash Flows
State appropriations not for capital
purposes are reported as noncapital financing activity
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
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]
#1 Tuition, Fees, & Appropriations
[Page 693]
Cash
Accounts Receivable
Revenues – Tuition & Fees
Revenues – State Appropriations
2,538 62
#2 Scholarships & Waivers
[Page 694]Revenue Deductions – Scholarship Allowances
Expenses – Education & General Accounts Receivable
12 2
14
#3 Other Revenues
[Page 694]Cash
Revenues – Auxiliary Enterprise Sales
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
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]
#9 Student Aid Cash Grants
[Page 694]Expenses – Educational & General Cash
8
#15 Mortgage & Interest Payments
[Page 695]
Mortgage Payable
Expenses – Education & General (Interest) Cash
20 5
#16 Operating Debt Interest
Accrual
[Page 695, not thousands]
Expenses – Educational & General Accrued Interest Payable
100
#17 Cash Receipts
[Page 695]Cash – Restricted for Specific Programs
Deferred Revenues – Federally Sponsored Research
Revenues – Private Gifts
300
#18 Expenses Paid by Restricted Assets
[Pages 695 – 696]
Expenses – Education & General Expenses – Auxiliary Enterprises
Accounts Payable
Cash – Restricted for Specific Programs
#19 Stock Donation
[Page 696]Investments – Plant Expansion
Revenues – Capital Contributions
20
20
#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
#21 Mortgage Payment Made
[Page 696]
Mortgage Payable
Expenses – Educational & General (Interest) Cash
10 5
Donation Received and Invested
[Page 296]
#22 Donation received
Cash – Debt Service
Revenues – Private Gifts
#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
#25 Uninsured Loss
[Page 697]Loss from Fire Equipment
1
#26 Depreciation
[Page 697]Expenses – Education & General Expenses – Auxiliary Enterprises
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
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,
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
50
100
#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
#4 Interest received
[Page 698, not in thousands]
Cash – Restricted for Loans
Accrued Interest Receivable – Restricted for Loans
Revenues – Investment Income
500
#5 Write-off an Account
[Page 698, not in thousands]
Loss on Uncollectible Loans Loans Receivable
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
3
rd
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
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
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
#2 Investments made
[Page 700] Investments in Preferred Stock – Endowments Investments in Common Stock – Endowments Investments in Bonds – Endowments#3 Cash received on investments
[Page 700]
Cash – Endowments
Revenues – Investment Income Accrued Interest Receivable –
Endowments
88,700
#4 Earnings available for specified purpose
[Page 700]
Cash – Restricted for Specific Programs Cash – Endowments
87,700
#5 Increase in fair value of investments
[Page 701]
Investments – Endowments
Revenues – Investment Income
1,500
#6 Sale of investment
[Page 701]Cash – Endowments
Investments in Common Stock Revenues – Gain on Sale of
Investments
10,500
#7 Additional Donations
[Page 701]Investments in Common Stock – Endowments
Investments in Bonds – Endowments Revenues – Endowment Gifts
75,000 850,000
#8 Third Party Trust
[Page 701]No entry required (may make
A Government University
Statement of Net Assets [Page 704]
Statement of Revenues, Expenses, and
Changes in Net Assets [Page 705]
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
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
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
(a) Receipt of gift
[Page 707]Cash
Investments
Annuities Payable
Revenues – Private Gifts – Annuities
20,000 180,000
(b) Annual Payment
[Page 707]Annuities Payable Cash
25,000
(d) Year-end Adjustment
[Page 707]Revenue Deductions – Change in Value of Annuity Agreement Annuities Payable
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
C&U Engaged in Both
Governmental and
Business-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
Private Not-for-Profit
University Reporting
Follows FASB pronouncements for
not-for-profit accounting
Key reporting differences
• Net assets classified per FASB #117
• Report changes in categories of net assets • Report reimbursement-type grants as
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
Private Not-for-Profit
University Reporting
Financial Statements
Balance Sheet [Page 709]
Statement of Activities [Page 710]
Statement of Cash Flows (direct method
