Financial and Accounting Guide for Not-for-Profit ...

1 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.

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4 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.

5 Gross, Malvern J. 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! Did you purchase this product from a bookstore? If you did, it's important for you to become a subscriber. John Wiley & Sons, Inc. may publish, on a periodic basis, supplements and new editions to reflect the latest changes in the subject matter that you need to know in order to stay competitive in this ever- changing industry. By contacting the Wiley office nearest you, you'll receive any current update at no additional charge. In addition, you'll receive future updates and revised or related volumes on a 30-day examination review.

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7 Phone: 1-800-567-4797 Fax: 44-1243-775878. Fax: 416-236-4447 Email: Email: John Wiley & Sons Australia, Ltd. John Wiley & Sons (Asia) Pte., Ltd. 33 Park Road 2 Clementi Loop #02-01. 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: 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.

8 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'.

9 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).

10 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. vii . 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.