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Financial and Accounting Guide for Not-For-Profit Organizations Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Malvern J. Gross, Jr., CPA Retired Partner, PricewaterhouseCoopers LLP John H. McCarthy, CPA Partner, PricewaterhouseCoopers LLP Nancy E. Shelmon, CPA Partner, PricewaterhouseCoopers LLP John Wiley & Sons, Inc. Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Financial and Accounting Guide for Not-for-Profit Organizations Seventh Edition Malvern J. Gross, Jr., CPA Retired Partner, PricewaterhouseCoopers LLP John H. McCarthy, CPA Partner, PricewaterhouseCoopers LLP Nancy E. Shelmon, CPA Partner, PricewaterhouseCoopers LLP John Wiley & Sons, Inc. This book is printed on acid-free paper. Copyright © 2005 by PricewaterhouseCoopers. All rights reserved. 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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data: Financial and accounting guide for not-for-profit organizations / Malvern J. Gross, Jr., ... [et al.].— 7th ed. p. cm. Malvern J. Gross’s name appears as main author entry in earlier ed. Includes index. ISBN-13 978-0-471-72445-2 (cloth) ISBN-10 0-471-72445-9 (cloth) 1. Nonprofit organizations—Accounting. I. Gross, Malvern J. HF5686.N56G76 2005 657'.98--dc22 2005000045 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 To the millions of volunteers who make the not-for-profit sector and all of its achievements possible. Update Service BECOME A SUBSCRIBER! 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One Wiley Drive Somerset, NJ 08875 e-mail: [email protected] fax: 1-732-302-2300 online: www.wiley.com For customers outside the United States, please contact the Wiley office nearest you: Professional & Reference Division John Wiley & Sons, Ltd. John Wiley & Sons Canada, Ltd. The Atrium 22 Worcester Road Southern Gate, Chichester Etobicoke, Ontario M9W 1L1 West Sussex PO 19 8SQ CANADA ENGLAND Phone: 416-236-4433 Phone: 44-1243-779777 Phone: 1-800-567-4797 Fax: 44-1243-775878 Fax: 416-236-4447 Email: [email protected] Email: [email protected] John Wiley & Sons Australia, Ltd. John Wiley & Sons (Asia) Pte., Ltd. 33 Park Road 2 Clementi Loop #02-01 P.O. Box 1226 SINGAPORE 129809 Milton, Queensland 4064 Phone: 65-64632400 AUSTRALIA Fax: 65-64634604/5/6 Phone: 61-7-3859-9755 Customer Service: 65-64604280 Fax: 61-7-3859-9715 Email: [email protected] Email: [email protected] About the Authors Malvern J. Gross, Jr. was the author of the first edition of this text and a signifi- cant contributor to many of the subsequent editions. He is a retired partner of Price Waterhouse (a predecessor to PricewaterhouseCoopers LLP) and a nation- ally recognized authority on accounting and financial reporting for not-for-profit organizations. He was chairman of the AICPA Subcommittee on Nonprofit Organizations that wrote the 1978 landmark Statement of Position for Certain Nonprofit Organizations, and of the Accounting Advisory Committee to the Commission on Private Philanthropy and Public Needs. He was a member of the committee that wrote the second edition of Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, and a coauthor of the Museum Accounting Handbook. He served as an advisor to the Financial Account- ing Standards Board in the early phases of its work on setting accounting stan- dards for not-for-profit organizations, and to the New York State Charities Registration Office, as well as an adjunct professor of accounting at Lehigh Uni- versity, his alma mater. After retirement from Price Waterhouse he was president of a not-for-profit organization, the National Aeronautics Association. He now lives in the San Juan Islands off of the state of Washington. John H. McCarthy served as the National Leader of PricewaterhouseCoopers’ Education & Nonprofit Practice before his retirement in 2005. He was a coauthor of the sixth edition of this text. He also is the coauthor of Understanding Financial Statements: A Strategic Guide for Independent College and University Boards, pub- lished by the Association of Governing Boards of Universities and Colleges (1998), as well as several publications by PricewaterhouseCoopers including: The Changing Role of the Audit Committee (2004); Leading Practices for Colleges, Uni- versities and Other Not-for-Profit Educational Institutions (2004); A Foundation for Integrity (a 2004 guide for codes of conduct, conflicts of interest, and executive compensation); Meeting the Challenges of Alternative Investments (2004); Under- standing Underwater Endowment Funds (2003); and Financial Reporting and Contri- butions: A Decision Making Guide to FASB Nos. 116-117 (1996) among others. He is a CPA who, for more than 36 years, served PricewaterhouseCoopers’ education and not-for-profit clients, including many of the most prestigious institutions in the United States. He currently serves on several not-for-profit boards. He is a past president of the Massachusetts Society of CPAs, Inc. (MSCPA) and a two- term member of the Governing Council of the AICPA. He has received numer- ous honors for his involvement in the community. He graduated from Boston College and has an MBA from the University of Michigan Business School. Ⅲ vii Ⅲ ABOUT THE AUTHORS Nancy E. Shelmon is a senior partner of PricewaterhouseCoopers LLP and is the firm’s West Region Leader for the Education and Not-for-Profit Industry within the United States. Nancy is a frequent speaker at AICPA and state CPA confer- ences on financial reporting and accounting issues affecting not-for-profit orga- nizations and is currently a member of the AICPA Not-for-Profit Expert Panel. She is currently Chair of the Planning Committee for the AICPA’s annual Not- for-Profit Conference. She has been serving education and not-for-profit clients for over thirty years and has been involved with some of the most widely respected organizations in North America. Nancy serves on the Board of Direc- tors of the Los Angeles Urban League, the California Journal and Executive Ser- vice Corps of Southern California. In addition to being a CPA, she is also a Certified Fraud Examiner. She holds her accounting degree from the University of Minnesota. Ⅲ viii Ⅲ Contributors We also want to recognize the many past contributions of Richard F. Larkin, who was a coauthor of the fourth, fifth, and sixth editions of Financial and Accounting Guide for Not-for-Profit Organizations. Prior to his retirement from Pricewater- houseCoopers, he served as a technical director for the Education & Nonprofit practice. We are very grateful to Dick for his efforts on prior editions of this Guide. The seventh edition of this Guide represents the collaborative efforts of many PricewaterhouseCoopers professionals who work with our not-for-profit clients throughout the United States. The authors wish to very gratefully acknowledge the contributions of the following PricewaterhouseCoopers partners, directors, and managers to this Guide: Emily Bernhardt; Ted Budge; Amy Cloud; Ralph DeAcetis; Diane Duncan; Kaye Ferriter; Cheryl Fletterick; Kevin Fordyce; Martha Garner; Elaine Garvey; Dorian Gregory; Paul Hanley; Julie Henderson; Sandra Johnson, Elisabeth Lippuner; Riva Mirvis; Layne Pinkernell; Christos Poulios; Robert Spear; Gwen Spencer; Jessica Vronman; and Frederick Wentzel, Jr.
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