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Financial and AccountingGuide for Not-for-ProfitOrganizationsSeventh EditionMalvern J. Gross, Jr., CPARetired Partner, PricewaterhouseCoopers LLPJohn H. McCarthy, CPAPartner, PricewaterhouseCoopers LLPNancy E. Shelmon, CPAPartner, PricewaterhouseCoopers LLPJohn Wiley & Sons, Inc.

Financial and AccountingGuide for Not-for-ProfitOrganizationsSeventh Edition

Financial and AccountingGuide for Not-for-ProfitOrganizationsSeventh EditionMalvern J. Gross, Jr., CPARetired Partner, PricewaterhouseCoopers LLPJohn H. McCarthy, CPAPartner, PricewaterhouseCoopers LLPNancy E. Shelmon, CPAPartner, PricewaterhouseCoopers LLPJohn Wiley & Sons, Inc.

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About the AuthorsMalvern J. Gross, Jr. was the author of the first edition of this text and a significant contributor to many of the subsequent editions. He is a retired partner ofPrice Waterhouse (a predecessor to PricewaterhouseCoopers LLP) and a nationally recognized authority on accounting and financial reporting for not-for-profitorganizations. He was chairman of the AICPA Subcommittee on NonprofitOrganizations that wrote the 1978 landmark Statement of Position for CertainNonprofit Organizations, and of the Accounting Advisory Committee to theCommission on Private Philanthropy and Public Needs. He was a member of thecommittee that wrote the second edition of Standards of Accounting and FinancialReporting for Voluntary Health and Welfare Organizations, and a coauthor of theMuseum Accounting Handbook. He served as an advisor to the Financial Accounting Standards Board in the early phases of its work on setting accounting standards for not-for-profit organizations, and to the New York State CharitiesRegistration Office, as well as an adjunct professor of accounting at Lehigh University, his alma mater. After retirement from Price Waterhouse he was presidentof a not-for-profit organization, the National Aeronautics Association. He nowlives 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 coauthorof the sixth edition of this text. He also is the coauthor of Understanding FinancialStatements: A Strategic Guide for Independent College and University Boards, published 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, Universities and Other Not-for-Profit Educational Institutions (2004); A Foundation forIntegrity (a 2004 guide for codes of conduct, conflicts of interest, and executivecompensation); Meeting the Challenges of Alternative Investments (2004); Understanding Underwater Endowment Funds (2003); and Financial Reporting and Contributions: A Decision Making Guide to FASB Nos. 116-117 (1996) among others. He isa CPA who, for more than 36 years, served PricewaterhouseCoopers’ educationand not-for-profit clients, including many of the most prestigious institutions inthe United States. He currently serves on several not-for-profit boards. He is apast president of the Massachusetts Society of CPAs, Inc. (MSCPA) and a twoterm member of the Governing Council of the AICPA. He has received numerous honors for his involvement in the community. He graduated from BostonCollege and has an MBA from the University of Michigan Business School.䡲vii䡲

ABOUT THE AUTHORSNancy E. Shelmon is a senior partner of PricewaterhouseCoopers LLP and is thefirm’s West Region Leader for the Education and Not-for-Profit Industry withinthe United States. Nancy is a frequent speaker at AICPA and state CPA conferences on financial reporting and accounting issues affecting not-for-profit organizations 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 Notfor-Profit Conference. She has been serving education and not-for-profit clientsfor over thirty years and has been involved with some of the most widelyrespected organizations in North America. Nancy serves on the Board of Directors of the Los Angeles Urban League, the California Journal and Executive Service Corps of Southern California. In addition to being a CPA, she is also aCertified Fraud Examiner. She holds her accounting degree from the Universityof Minnesota.䡲viii䡲

ContributorsWe also want to recognize the many past contributions of Richard F. Larkin, whowas a coauthor of the fourth, fifth, and sixth editions of Financial and AccountingGuide for Not-for-Profit Organizations. Prior to his retirement from PricewaterhouseCoopers, he served as a technical director for the Education & Nonprofitpractice. We are very grateful to Dick for his efforts on prior editions of thisGuide.The seventh edition of this Guide represents the collaborative efforts of manyPricewaterhouseCoopers professionals who work with our not-for-profit clientsthroughout the United States. The authors wish to very gratefully acknowledgethe contributions of the following PricewaterhouseCoopers partners, directors,and managers to this Guide: Emily Bernhardt; Ted Budge; Amy Cloud; RalphDeAcetis; Diane Duncan; Kaye Ferriter; Cheryl Fletterick; Kevin Fordyce; MarthaGarner; Elaine Garvey; Dorian Gregory; Paul Hanley; Julie Henderson; SandraJohnson, Elisabeth Lippuner; Riva Mirvis; Layne Pinkernell; Christos Poulios;Robert Spear; Gwen Spencer; Jessica Vronman; and Frederick Wentzel, Jr. Theirassistance has been invaluable.䡲ix䡲