ACC412 Nonprofit Accounting
Autumn 2023Spring 2023
Nonprofit organizations are different from commercial (business) enterprises (or in other words, profit organizations): Business enterprises enter into market-exchange transactions (e.g., buying raw materials for producing and selling goods) with profit objectives. Nonprofit oganizations, however, per se have no profit objectives. On the other hand, they are primarily involved in one-way money transactions (e.g., receiving money donations from various donors and using the money to finance food and medical help to people in need). Nevertheless, the accounts of nonprofit organizations are increasingly being influenced by the profit accounts prepared by business enterprises, although it is questionable if it is meaningful to prepare profit accounts for one-way money transactions, instead of preparing money accounts for these transactions.
The course consists of two parts:
The course will start by referring the Anglo-Saxon approach to nonprofit accounting. Afterwards, and Alternative approach will be presented and compared with the Anglo-Saxon approach, motivating the need for the former approach if we want to understand and improve the accounts of nonprofit organizations.
A key element in the Alternative approach is the use of a precise accounting terminology, in the form of a hierarchical structure for the concepts of revenue and expenditure, which are the two main accounting concepts. Furthermore, this concept structure will first be applied, in Part 1, when presenting and comparing various accounting models: cash accounting, commercial accounting and fund accounting. Thereafter, this concept structure will be applied in Part 2 when studying the accounts (with the attached financial statements) of selected nonprofit organizations.
In this part we will use our knowledge from Part 1 with regard to a precise accounting terminology as well as our basic knowledge about various accounting models (cash, commercial and fund accounting), when studying, analyzing and improving the accounts (with the attached financial statements), of selected nonprofit organizations: YDALIR FOUNDATION (Stiftelsen Ydalir), MÉDECINS SANS FRONTIÈRES NORWAY (Leger Uten Grenser Norge), NORWEGIAN RED CROSS and DANISH RED CROSS.
In particular, we will use our knowledge from Part 1 about COMMERCIAL ACCOUNTING with its profit focus, when studying the accounts (with the attached financial statements) of these organizations and we will use our knowledge from Part 1 about FUND ACCOUNTING to prepare alternative and more informative money accounts (with attached financial statements).
Topics (Part 1 and Part 2)
• accounting terminology (revenue/expenditure concept structure)
• cash accounting
• commercial accounting (often referred to as ´accrual accounting´)
• fund accounting
• empirical studies of the accounts (with the attached financial statements) prepared by selected 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 nonprofit organizations
• be able to understand the information in the accounts of business enterprises
(using commercial accounting with a profit focus)
• be able to understand the information in the accounts of nonprofit organizations
(using modified variants of commercial accounting with a profit focus)
• be able to prepare alternative accounts for nonprofit organizations (using fund
accounting with a money focus)
• 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
Classroom lectures, classroom problems and hand-in problems.
There are two hand-in problems in Part 1, of which one of the problems must be handed in before attending the first examination.
The examination constitutes of two parts:
The first examination is an individual written digital home exam over 3 days and constitutes 25% of the final mark, it will take place at the end of Part 1 and it will be based on the topics in Part 1 (i.e., the Anglo-Saxon approach, the alternative approach, accounting terminology, cash accounting, commercial accounting and fund accounting).
The second examination is a written digital individual or group examination (maximum 3 students per group) over 10 days and constitutes 75% of the final mark. It will take place after the last lecture in the course. This examination will consist of a case study of the annual accounts of a specific nonprofit organization, in form of the financial statements and notes extracted from the annual report of this organization. The topics in Part 1 of the course are also relevant for the second examination.
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, 3rd edition, August 2023) (Course report).
Anthony, R N., Making sense of Nonbusiness Accounting, Harvard Business Review (1980), May-June, pp. 83-93.
Anthony, R N., Commentary: The Nonprofit Accounting Mess, Accounting Horizons (1995), Vol 9, No 2, June, pp. 44-53.
Herzlinger, R.E. and Sherman, H.D., Advantages of Fund Accounting in ´Nonprofits´, Harvard Business Review (1980), May-June, pp. 94-105.
Jones, R.H. (1982), Financial Reporting in Nonbusiness Organizations, Accounting and Business Research (1982), Autumn, pp. 287-295.
Ydalir-paper: Monsen, N., Accounting for foundations: A study of Stiftelsen Ydalir with suggestions for further development of foundation accounts (Working paper, July 2022).
MSF Norway-paper: Monsen, N., Accounting for nonprofit organizations: A discussion referring to the accounts of Médecins Sans Frontiers Norway (Working paper, July 2022).
NRC-paper: Monsen, N. (2022), Developing nonprofit accounting: A study of the accounts of Norwegian Red Cross with International Implications (Working paper, March 2022).
Monsen, N., Accounting for nonbusiness organizations: An empirical study of Raftostiftelsen (Working paper, 2018).
Rutherford, B. A., Fund Accounting, Chapter 4 in «Financial Reporting in the Public Sector» (London: Butterworths, 1983).
- ECTS Credits
- Teaching language
Autumn. Offered autumn 2023.
Norvald Monsen, Professor, RRR, NHH