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Not-for-Profit Accounting & Reporting Made Simple
Knowledge Level
Copyright 2015

Publication Date
August, 2015
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Not-for-Profit Accounting & Reporting Made Simple
Introduction Organization Learning Objectives Author Bios
Title: Not-for-Profit Accounting & Reporting Made Simple
Prerequisite: None
Advance Preparation: None
Knowledge Level: Basic
Subject Matter Area: Specialized Knowledge
Date of Publication: August 2015
Copyright © 2015 Thomson Reuters/Tax & Accounting. Thomson Reuters, Checkpoint Learning and the Kinesis logo are trademarks of Thomson Reuters and its affiliated companies.
Recommended CPE Credits:  
     Online: 7 QAS/Registry (based on 50-minute hour)
Expiration Date: One year from date of receipt to complete program and submit quizzer to obtain credit
Passing Grade for Quizzer: 70 percent or higher

In 1993, FASB issued Statement No. 116, Accounting for Contributions Received and Contributions Made (codified in FASB ASC 605, 720, and 958), and Statement No. 117, Financial Statements of Not-for-Profit Organizations (codified in FASB ASC 958). These statements revolutionized the field of not-for-profit (NPO) accounting, standardizing reporting requirements for various types of NPOs, while allowing a considerable degree of flexibility for financial statement presentation.

Prior to FAS Nos. 116 and 117, various types of NPOs (colleges and universities, voluntary health and welfare organizations, etc.) relied on AICPA industry audit guides as the primary source of guidance. FAS Nos. 116 and 117 reconciled the conflicting guidance in these publications, and led to issuance of a single not-for-profit audit guide by the AICPA. A separate audit guide for not-for-profit, governmental, and for-profit health care institutions is still published by the AICPA. Guidance included in this audit guide for not-for-profit health care institutions conforms with FAS Nos. 116 and 117.

FAS Nos. 116 and 117 converted NPO accounting from fund accounting to the net asset model. The fund accounting model presented the financial structure of the not-for-profit organization as a series of distinct funds. These funds were viewed as separate entities and were defined based on donor restrictions and operational considerations. For example, a fund established to fulfill the requirements of a grant provided to conduct a specific program activity would be based on a donor restriction. On the other hand, a plant fund established to account for all property, plant, and equipment balances and transactions, regardless of the funding sources, would be operational in nature.

Unlike fund accounting, the net asset model views the organization as a whole, rather than a collection of funds. Accordingly, key totals are required in the financial statements. Equity reporting is limited to three categories; unrestricted, temporarily restricted, and permanently restricted, which are based solely on donor restrictions or lack thereof.

Since the issuance of FAS Nos. 116 and 117, the FASB issued several statements specifically for NPOs.

FAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations (codified in FASB ASC 958), was issued in 1995. It distinguishes NPO investment reporting from that of for-profit entities. Investment reporting for for-profit entities is covered in FAS No. 115 (codified in FASB ASC 320), which specifically excludes NPOs. FAS No. 124 covers the reporting of debt securities and marketable equity securities. It also covers a range of issues relating to endowments. Cash and investment reporting is covered in Chapter 1.

FAS No. 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (codified in FASB ASC 958), was issued in 1999. It establishes standards for transactions in which a resource provider makes a contribution or other transfer to a recipient NPO or charitable trust, that accepts the assets and agrees to use those assets on behalf of or transfer the assets, the return on investment of those assets, or both to a beneficiary specified by the donor. It also sets standards for similar transfers that are revocable, repayable, or reciprocal. Transfers, mergers and acquisitions are covered in
Chapter 2.

The AICPA Not-for-Profit Accounting and Audit Guide was first issued in 1996. It clarifies the guidance included in the FASB Codification, expands on this guidance by providing explanations and examples, and provides primary guidance for issues not covered by FASB. Two key areas covered primarily by the Audit Guide are the distinction between contributions and exchange transactions (Chapter 3), and split interests and other planned giving arrangements (Chapter 4).

In 1998, the AICPA issued SOP No. 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising (codified in FASB ASC 958). This pronouncement provides criteria for determining whether to allocate costs to program and other functional expense categories in situations in which an NPO conducts activities that include both fund raising and program (or management and general) components. Joint costs and activities are covered in Chapter 5.

FAS Nos. 116 and 117, and other NPO guidance issued by the FASB and the AICPA, have given rise to an array of reporting options and accounting interpretations. Many NPOs approach these options and interpretations strategically, seeking to address the interests and concerns of resource providers and other financial statement users. These strategic issues are addressed in Chapter 6.

Use of Materials

The user should begin by watching the streamed video segment, if any, or listening to the streamed audio segment, if any, for the chapter before reading the text. The user may wish to make notes of the most important concepts and any terms that are new. Next, the user should review the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. After the user has studied each chapter, s/he should click on the link at the left to complete the interactive study questions. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished watching the streamed video, if any, or listening to the streamed audio, if any, and reading the text and working through the study questions, s/he may wish to review her/his notes and any sections of the text or video/audio, if any, that were difficult. When the user is ready, s/he should click on the link to the left to complete the quizzer. The user's CPE certificate will be provided immediately upon successful completion of the quizzer.

This program is divided into seven (7) chapters.

Chapter 1 discusses cash and investments and the specific not-for-profit guidance provided for each.

Chapter 2 discusses transfers, mergers, and acquisitions.

Chapter 3 reviews contributions and exchange transactions and provides guidance on the reporting requirements for each.

Chapter 4 looks at split interest and other planned giving arrangements.

Chapter 5 discusses accounting for joint activities and joint costs.

Chapter 6 reviews strategic issues of importance for not-for-profit entities.

Chapter 7 contains a glossary that defines frequently used key terms.

Helpful Guidance

Throughout this publication, the user will find explanations and discussions regarding some of the issues that often face practitioners. In order to enhance the user's comprehension of the material and highlight important practical considerations, this publication includes the following designations:

A CPEasy alert is intended to warn the practitioner of a particular situation that may require action or other consideration by the client or the practitioner on behalf of the client.

A CPEasy point presents analysis or commentary that attempts to explain or clarify authoritative guidance.

A CPEasy tip provides practical advice that may be used to help improve client service or service to the practitioner's organization.

Upon successful completion of this program, the user should be able to:

  • Apply valuation guidance for NFO debt and marketable securities, and other investments

  • Discuss respective FASB Codification guidance related to investments and transfers of assets in NFO organizations

  • Discuss how the AICPA Audit and Accounting Guide for not-for-profit organizations provides guidance on both contributions and exchange transactions and split interest and other planned giving arrangements

  • Discuss when an activity is a joint activity and what costs may be allocated

  • Identify areas of strategic concern to not-for-profit organizations

Mark Gorman, CPA, is an author, lecturer, and consultant who works primarily with not-for-profit organizations. He has spent 24 years as an auditor and financial manager of NPOs, including 8 years as the Director of Finance and CFO of the Planned Parenthood Federation of America. He has worked as a volunteer Treasurer and board member for a number of community based organizations. Mr. Gorman was a member of the American Institute of Certified Public Accountants (AICPA) Tax Exempt Organizations Committee and the Not-for-Profit Organizations Committee.

Mr. Gorman was an adjunct professor of Accounting and Economics at the University of Vermont and Vermont State College, and currently teaches Accounting at Sonoma State University. He also teaches seminars for the Foundation for Accounting Education (FAE) and the AICPA, and has made presentations at AICPA national conferences and other professional forums. He has authored articles appearing in the Journal of Accountancy and Philanthropy Monthly, and written CPE courses on not-for-profit accounting for the FAE and the AICPA. (Author)

Jennifer F. Louis, CPA, has more than 20 years of experience in designing and instructing high-quality training programs. In 2003 she joined Emergent Solutions Group, LLC, a consortium of professionals serving organizations on a project- or part-time basis to create a division dedicated to training services.

Most recently, Ms. Louis was executive vice president/director of training services at AuditWatch, Inc., a premier training and consulting firm serving the audit profession. She began her career at AuditWatch as vice president of product development. Before joining AuditWatch, Ms. Louis was the financial/operational audit manager at AARP.

Ms. Louis also was an audit manager for Deloitte & Touche LLP. During her years at Deloitte & Touche's Washington D.C. office, she was a frequent local and national instructor. She also served as an instructor for the firm's national "Train the Trainers" Program.

Ms. Louis graduated summa cum laude from Marymount University with a BBA in accounting. She is a member of the American Institute of CPAs and the American Society for Training & Development, and is licensed to practice in the Commonwealth of Virginia. (Contributing Author/Speaker)

Judith A. Sage, CPA, PhD, received her PhD from Oklahoma State University and is a CPA. She is presently Visiting Professor of Accounting at Boise State University having previously taught at Florida State University, Texas A&M International University, the University of Illinois at Springfield, Colorado State University - Pueblo, the University of Illinois at Chicago, and Michigan State University. Judith was the Editor of Prentice Hall's Federal Tax Course textbook for seven editions. She has published articles in Managerial Finance, The Tax Adviser, Taxes -The Tax Magazine, Successful Estate Planning Ideas, Tax Ideas, Chartered Accountants Journal of New Zealand, International Journal of Public Information Systems, and South Dakota Business Review. She has served on the editorial board of Issues in Accounting Education. She has also served on several committees of the American Taxation Association and the Illinois CPA Society.

Lloyd G. Sage, CPA, PhD, received his PhD from the University of Nebraska and is a CPA. He is presently at Sage & Sage. He has previously taught at Texas A&M International University, the University of Illinois at Springfield, Governors State University, the University of Illinois at Chicago, Purdue University Calumet, and Central Michigan University. Lloyd was a contributing author of Prentice Hall's Federal Tax Course textbook for six editions. He has published articles in Managerial Finance, The Tax Adviser, Healthcare Financial Management, Chartered Accountants Journal of New Zealand, International Journal of Public Information Systems, and South Dakota Business Review. He has served on the Federal Subcommittee of the Governmental Not-For-Profit Accounting and Auditing Standards Committee of the American Accounting Association.

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