N.Y. Comp. Codes R. & Regs. tit. 10 § 442.14

Current through Register Vol. 46, No. 53, December 31, 2024

Section 442.14 - Fund accounting

[ 1340 ]

(a)General.

(1) Many hospitals receive, from donors and other third parties, income, gifts, bequests and grants that are restricted as to use. When funds with donor-imposed restrictions are received, they must be reported separately. This would not preclude the pooling of assets for investment purposes.

(2) For balance sheet reporting, donor-restricted funds must be recorded separately in the appropriate restricted fund classifications. For income statement purposes, expenses relating to donor-restricted activities must be recorded in the Unrestricted Fund, and the earned share relative to such current year donor-restricted activities must be recorded as "Other Operating Revenue" unless otherwise restricted by covenant agreement. Hospitals receiving no restricted income, gifts, bequests or grants need not use separate fund accounting.

(3) Restricted funds generally fall into three categories: Plant Replacement and Expansion Fund, Specific Purpose Fund, and Endowment Fund. The accounts within each restricted fund are self-balancing, as each fund constitutes a separate subodinate accounting entity. The following sections outline the conditions and events which require separate accountability and the required accounting treatment for transactions within the established funds.

(b)Unrestricted Fund.

[ 1341 ]

(1) The Unrestricted Fund is used to account for funds derived from the day-to-day activities of the hospital and unrestricted contributions. Funds which originate from unrestricted gifts or previously accumulated income may be designated by the governing board for special uses. If the governing board designates assets in this manner, it should be recognized that the board also has the authority to rescind its action. For this reason, such funds must be accounted for in the Unrestricted Fund as "board-designated assets". All other funds within the Unrestricted Fund must be accounted for as operating funds. A separate structure of accounts in the Unrestricted Fund has been provided for operating funds and board-designated assets.

(2) The term restricted should not be used in connection with board or other internal hospital appropriations or designations of assets.

(c)Plant Replacement and Expansion Fund.

[ 1342 ]

(1) Resources restricted by donors and other third parties for the acquisition or construction of plant assets or the reduction of related debt must be accounted for in the Plant Replacement and Expansion Fund.

(2) When expenditures for plant assets are made by the Unrestricted Fund for the Plant Replacement and Expansion Fund, a transfer must be made from the Plant Replacement and Expansion Fund to match such expenditures if such funds are available. The entries to record such expenditures and the required transfer in both funds are as follows:

(i) Unrestricted Fund

June 30	Account	Dr.	Cr.
Construction in progress	1260	$1,000
Other accounts payable	2029		$1,000
Due from Plant Replacement and Expansion Fund	1073	$1,000
Transfer from restricted funds for capital outlay	2294		$1,000
(ii) Plant Replacement and Expansion Fund
Transfer to Unrestricted Fund for capital outlay	2695	$1,000
Due to Operating Fund	2581		$1,000
To record construction expenses incurred and related interfund transfer entries.

(3) Due to/due from accounts are to be used as an interim measure and should be reduced within a reasonable period of time by a transfer of assets (generally cash or investments) between the respective funds.

(i) Plant Replacement and Expansion Fund
July 3	Account	Dr.	Cr.
Due to Operating Fund	2851	$1,000
Cash	1510		$1,000
(ii) Unrestricted Fund
Cash	1010	$1,000
Due from Plant Replacement and Expansion Fund	1073		$1,000
To record transfer of cash from Plant Replacement and Expansion Fund to the Operating Fund.
(iii) Unrestricted Fund
July 5
Other accounts payable	2029	$1,000
Cash	1010		$1,000
To record payment of the liability.

(4) If cash is disbursed for plant assets directly from the Plant Replacement and Expansion Fund, the plant assets must nonetheless be recorded in the Unrestricted Fund, with the accompanying credit made to Fund Balance. In the Plant Replacement and Expansion Fund, fund balance would be debited, and a cash account credited. No entries would be made to the interfund payable or receivable accounts, nor would any cash be transferred between funds.

(5) The preferred method of accounting for the expenditure of restricted Plant Replacement and Expansion funds is specified above. However, because of restrictions placed on construction funds by certain funding authorities, such expenditures and related liabilities are required to be recorded in the Plant Replacement and Expansion Fund. If expenditures for plant assets are recorded in the Plant Replacement and Expansion Fund, the plant assets must be transferred to the appropriate asset account in the Unrestricted Fund, with the accompanying credit made to the Unrestricted Fund balance. In the Plant Replacement and Expansion Fund, fund balance would be debited, and the temporary accounts(s) credited. No entry would be made to the interfund payable or receivable accounts. (Accounts have not been provided in this manual for recording such expenditures and related liabilities. Hospitals may establish such accounts as necessary.)

(6) Income earned and any net realized gains on investments must be reflected as an addition to the fund balance if so specified by the donor. If available for general operating purposes, they must be included in nonoperating revenue in the Unrestricted Fund.

(d)Specified Purpose Fund.

[ 1343 ]

(1) Funds received which are restricted for a specific operating purpose must be accounted for in the Specific Purpose Fund. These resources must be recorded as other operating revenue in the period in which expenditures are made for the purpose specified by the donor.

(2) Income earned and any net realized gains on investments must be recorded as an addition to fund balance if required to conform to the donor's instructions or as nonoperating revenue of the Unrestricted Fund if such revenue is available for general purposes.

(e)Endowment Fund.

[ 1344 ]

(1) Funds classified as endowment include:

(i) pure endowment (principal is to remain intact in perpetuity);

(ii) term endowments (principal is available for use upon the passage of time or the occurrence of an event).

(2) When term endowments become available to the governing board for unrestricted purposes, they must be recorded as nonoperating revenue; if these funds are restricted, they must be transferred to the appropriate restricted fund.

(3) Income earned on endowment fund investments must be accounted for in accordance with donors' instructions if restricted, or as nonoperating revenue in the Unrestricted Fund if not restricted.

(f)Interfund Transactions.

[ 1345 ]

(1) As is shown in the Chart of Accounts, the only liability accounts included in the restricted funds (i.e., all funds other than the Unrestricted Fund) are liabilities to other funds (with the exception of the Endowment Fund, which allows for the inclusion of certain liabilities on Endowment Fund assets, and the Plant Replacement and Expansion Fund for certain covenant agreements as explained under number 1342).

(2) Thus, virtually all liabilities incurred by the hospital are to be recorded in the Unrestricted Fund. When these liabilities apply to restricted fund activities, a receivable from the applicable restricted fund must be recorded within the Unrestricted Fund. A payable to the Unrestricted Fund (or transfer of funds if paid immediately), as well as a reduction of the restricted fund balance, is recorded within the applicable restricted fund.

(3) Except for expenses incurred in conformity with covenant agreements, all expenses relating to restricted fund activities must be recorded in the Unrestricted Fund in the cost center category to which they apply. This is true whether the actual expenditures of cash are made from the Unrestricted Fund or a restricted fund. Separate cost centers must be established within each of these categories to record restricted activities for which separate accounting is required by the terms of the grant or gift. Sufficient account numbers have been allowed so that specific restricted fund activities may be segregated. Transfers from the restricted funds to match these expenses must be made in one of the following accounts:

(i) transfers from restricted funds for Research Expenses (account 5020);

(ii) transfers from restricted funds for Education Expenses (account 5280); or

(iii) transfers from restricted funds for Other Operating Expenses (account 5880).

(4) Example.

In the following example, assume that $200 of consulting costs were incurred (this consulting was performed by a nonrelated organization) for restricted research activities, recorded as an expense and a liability in the Unrestricted Fund, and subsequently paid.

(i)Unrestricted Fund

June 1	Account	Dr.	Cr.
Research	8010	$200
Accounts payable	2020		$200
Due from Specific Purpose Fund	1074	$200
Transfers from restricted funds for Research Expenses	5020		$200
(ii) Specific Purpose Fund
June 1
Transfers to Operating Fund for Operating Purposes	2797	$200
Due to Operating Fund	2781		$200
To record the expense and related liability for costs incurred in restricted research activities in the Operating Fund and record an interfund liability and reduction in fund balance in the Specific Purpose Fund.
(iii) Unrestricted Fund
June 10
Cash	1010	$200
Due from Specific Purpose Fund	1074		$200
(iv) Specific Purpose Fund
June 10
Due to Operating Fund	2781	$200
Cash	1710		$200
To record the transfer of cash to the Operating Fund.
(v) Unrestricted Fund
June 15
Accounts payable	2020	$200
Cash	1010		$200
To record the payment of the liability.

N.Y. Comp. Codes R. & Regs. Tit. 10 § 442.14