Nonprofit accounting question.


B

BETAC-T

I am neither an accountant nor a bookkeeper. However, I participate in a
tax exempt 501(c)(6) nonprofit organization that is considering changing the
way we enter and present some of our accounting information. We have heard
of another way of doing the bookkeeping than the way we now do it, and I am
trying to get some thoughts and feedback on this. We do have an accountant
and others to check with, but I am hoping to get any additional thoughts and
input anyone can offer here.

One of the things our organization does is set up educational seminars and
group meetings for our members as well as for the general public -- all of
which relate to real estate investing.

Here are two examples of the kinds of program events we conduct:

One example would be a meeting that we set up to be held in a restaurant
regarding a specific topic in real estate investing, and we charge members
$15 each to attend which includes the meal provided by the restaurant. The
restaurant charges us $15 per person so the meal cost is collected by us
then turned over to the restaurant that same night. A few people per
meeting get "comped" meaning the organization pays the meal fee at no cost
to the attendee. Non-members can also attend and pay the same $15 for the
meal plus a $10 admission fee.

A second example would be an all-day seminar that we set up that features an
outside national speaker. We charge $90 per person and we pay for the room
rental and all other expenses. The speaker gets a guaranteed minimum plus a
percentage of the admission fees above the minimum. In addition, if the
national speaker sells any additional educational packages (such as a 3-day
seminar at $500 per person) we split those additional sales receipts with
the speaker.

The way we do the books and accounting now is that we show everything we
receive for each event as income to the organization, then we show payments
to the restaurants plus any fees or sales commissions to the speakers as
expenses. From that, we determine the net gain or loss from each event.

What has been proposed is that, in the first example above, the $15 per
person would not be booked as income to the organization because, even
though we collect it, it goes to the restaurant for the meals. In the
second example, the sales of additional educational packages (i.e. $500 for
a 3-day seminar) would not be reported as income to the organization because
50% of that goes to the national speaker and only 50% goes to the
organization as income.

The concept is supposed to be that, while the numbers all work out the same
in the end, it is more correct to NOT show the meal fees or educational
sales as organizational income (from which the costs and expenses would be
deducted) because they are not really organizational income -- only the net
gain is income.

Is this correct? Do nonprofits typically use either or both of these
approaches?

Thanks.
 
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P

Peter Saxton

I am neither an accountant nor a bookkeeper. However, I participate in a
tax exempt 501(c)(6) nonprofit organization that is considering changing the
way we enter and present some of our accounting information. We have heard
of another way of doing the bookkeeping than the way we now do it, and I am
trying to get some thoughts and feedback on this. We do have an accountant
and others to check with, but I am hoping to get any additional thoughts and
input anyone can offer here.

One of the things our organization does is set up educational seminars and
group meetings for our members as well as for the general public -- all of
which relate to real estate investing.

Here are two examples of the kinds of program events we conduct:

One example would be a meeting that we set up to be held in a restaurant
regarding a specific topic in real estate investing, and we charge members
$15 each to attend which includes the meal provided by the restaurant. The
restaurant charges us $15 per person so the meal cost is collected by us
then turned over to the restaurant that same night. A few people per
meeting get "comped" meaning the organization pays the meal fee at no cost
to the attendee. Non-members can also attend and pay the same $15 for the
meal plus a $10 admission fee.

A second example would be an all-day seminar that we set up that features an
outside national speaker. We charge $90 per person and we pay for the room
rental and all other expenses. The speaker gets a guaranteed minimum plus a
percentage of the admission fees above the minimum. In addition, if the
national speaker sells any additional educational packages (such as a 3-day
seminar at $500 per person) we split those additional sales receipts with
the speaker.

The way we do the books and accounting now is that we show everything we
receive for each event as income to the organization, then we show payments
to the restaurants plus any fees or sales commissions to the speakers as
expenses. From that, we determine the net gain or loss from each event.

What has been proposed is that, in the first example above, the $15 per
person would not be booked as income to the organization because, even
though we collect it, it goes to the restaurant for the meals. In the
second example, the sales of additional educational packages (i.e. $500 for
a 3-day seminar) would not be reported as income to the organization because
50% of that goes to the national speaker and only 50% goes to the
organization as income.

The concept is supposed to be that, while the numbers all work out the same
in the end, it is more correct to NOT show the meal fees or educational
sales as organizational income (from which the costs and expenses would be
deducted) because they are not really organizational income -- only the net
gain is income.

Is this correct? Do nonprofits typically use either or both of these
approaches?

Thanks.
I'm in the UK so I don't know how relevant my opinion is.

One principle is that there should not be "netting off".

Another principle is that the substance of the transaction should be
recorded.

In example 1 would think it is acceptable that the cost of the meal
that is received and then passed over to the restaurant is not
included in the accounts.

In example 2 if the speaker is selling the additional education
packages it would seem correct to record the 50% that goes to the
organisation.
 
B

BETAC-T

Thanks. That makes sense to me and I wouldn't be surprised if the same
approach is used in the U.S.A.

Regarding example 1, I assume that there would need to be a record of the
number of attendees who paid for the meal, as supporting documentation, even
though that would not show up on the financial statements.
 
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Peter Saxton

Thanks. That makes sense to me and I wouldn't be surprised if the same
approach is used in the U.S.A.

Regarding example 1, I assume that there would need to be a record of the
number of attendees who paid for the meal, as supporting documentation, even
though that would not show up on the financial statements.
Yes.
 

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