ACC412 Nonprofit accounting
Nonprofit organizations are different from commercial (or in other words, business) enterprises. Whereas commercial enterprises enter into market-exchange transactions with profit objectives, nonprofit organizations are not involved in such transactions and per se have no profit objectives. Nevertheless, the accounts prepared by nonprofit organizations are increasingly being influenced by the commercial accounts (with a profit focus) such as they are prepared by commercial enterprises.
The course consists of two parts:
A precise accounting terminology is important for understanding the information in different types of accounts. Therefore, the course will start by presenting a precise hierarchical structure for the two main accounting concepts, that is, the concepts of revenue and expenditure (referred to as the revenue/expenditure concept structure). Thereafter the course - by applying the revenue/expenditure concept structure - will give a basic introduction to two different accounting models: commercial accounting (generally referred to as ´accrual accounting´) and fund accounting. Part 1 will end by studying a textbook case (Johanna Foundation), by referring to the revenue/expenditure concept structure, commercial and fund accounting.
In this part, we will use knowledge acquired in Part 1 when studying the accounts of various non-profit organizations, including Rafto Foundation, Ydalir Foundation, Médecins Sans Frontières (MSF) Norway, Médecins Sans Frontières (MSF) International, Norwegian Red Cross and the International Red Cross. In particular, the revenue/expenditure concept structure will be applied, combined with the basic knowledge about commercial and fund accounting acquired in Part 1. As a part of these studies, not only the official modified commercial accounts will be studied, but we will also prepare alternative accounts for these organizations in the form of fund accounts with two new financial statements: (1) Overview of revenues and expenditures and (2) Overview of money status. Thereafter, we will discuss whether nonprofit organizations (with no profit objectives) should prepare their accounts in the form of commercial accounting (with a profit focus) or fund accounting (with a money focus).
Topics (Part 1 and Part 2)
• accounting terminology (revenue/expenditure concept structure)
• commercial (´accrual´) accounting
• fund accounting
• different variants of double-entry bookkeeping (used within commercial and fund
• empirical studies of the accounts (financial statements and notes) prepared by various nonprofit organizations
When completing the course, a student shall have the following learning outcome
• have a precise accounting terminology that is applicable to both accounting for
commercial enterprises and nonprofit organizations
• understand similarities and differences between accounting for commercial
enterprises and accounting for nonprofit organizations
• be able to understand the information in the accounts of business enterprises
(using commercial accounting)
• be able to understand the information in the accounts of nonprofit organizations
(using modified variants of commercial accounting)
• be able to prepare the accounts of nonprofit organizations in the form of fund
accounting, which is more relevant, simpler and more understandable than the
current modified commercial accounts being prepared by nonprofit organizations
• can communicate accounting information related to both commercial enterprises and
nonprofit organizations in an understandable way
• can discuss accounting issues related to both commercial enterprises and nonprofit
A very important part of the course will consist of classroom discussions, referring to the accounts of different nonprofit organizations (empirical case studies). Furthermore, there will be one hand-in problem as well as other problems, which also will be discussed in the lectures. It is therefore very important for the course participants to be physically present in the classroom lectures, although this is not part of the compulsory activities (work requirements)
The work requirement consists of one hand-in problem, which must be handed in before attending the first examination.
The examination constitutes of two parts:
The first part is an individual home-exam over 3 days (09:00 at the first day of examination and 14:00 on the third day of examination) that constitutes 25% of the final mark. It will take place when Part 1 of the course is completed and it will be based on the topics in Part 1 (accounting terminology, commercial accounting and fund accounting).
The second part is a term paper over 10 days that constitutes 75% of the final mark. It will take place at the end of the course and can either be solved individually, or in groups of maximum three students. The focus will be on analyzing the financial statements and notes presented in the annual report(s) of one or more nonprofit organization(s). The topics in Part 1 of the course (accounting terminology, commercial accounting and fund accounting) are also relevant for this term paper.
Anthony, R.N, Should business and nonbusiness accounting be different? (Boston, Massachusettes: Harvard Business School Press, 1989).
Monsen, N., Commercial and fund accounting: Introduction and comparison with a view to use by nonprofit organizations (NHH Norwegian School of Economics and UiS Business School, 2022).
Anthony, R N. (1980), Making sense of Nonbusiness Accounting, Harvard Business Review, May-June, pp. 83-93.
Herzlinger, R.E. and Sherman, H.D. (1980), Advantages of Fund Accounting in ´Nonprofits´, Harvard Business Review, May-June, pp. 94-105.
Jones, R.H. (1982), Financial Reporting in Nonbusiness Organizations, Accounting and Business Research, Autumn, pp. 287-295.
Rutherford, B. A. (1983), Fund Accounting, Chapter 4 in «Financial Reporting in the Public Sector» (London: Butterworths).
Further selected articles/papers.
- ECTS Credits
- Teaching language
Autumn. Offered autumn 2022
Norvald Monsen, Professor, RRR, NHH