Nonprofit schools, such as Waldorf schools or Montessori schools, have a unique set of financial reporting needs and complications. In our many years of working with these schools – both from an audit perspective and a day-to-day bookkeeping perspective – we have become quite familiar with some of the most common pitfalls and areas of confusion. Below are a few financial tips that might be helpful if you’re managing a not-for-profit private school:
Many schools have an academic year that runs from fall through spring. For these schools, a traditional fiscal year of January 1 – December 31 does not make much sense. A fiscal year of July 1 – June 30 would allow the organization to capture the entire academic year in their annual financial statements. If your school decides to change your fiscal year, you must file a return with the IRS for a “short tax period” before beginning your new fiscal year. You cannot file a Form 990-N for the short tax period; you must file a Form 990, 990-EZ, or use Form 1128.
Recognizing Tuition Revenue
In 2014, the FASB issued a new accounting standard, ASC 606, which affects revenue recognition standards, especially for organizations with recurring revenue, such as tuition. For example, let’s say Smithvale Waldorf School’s fiscal year is July 1 – June 30, and their school year is August 15 – May 15. 10% of the total annual tuition is pre-paid in March, at the time of the student’s registration. The full tuition for the school year is $15,000, so a student’s family would pay $1500 in March, with $13,500 more paid incrementally over the course of the school year. In this situation, since the registration fee is a considered by Smithvale Waldorf School to be a component of the overall tuition, the $1500 payment would be recorded as deferred revenue when it is received in March. It would then be recognized over the course of the school year (from August - May) along with the rest of the tuition fees.
Alternatively, Smithvale Waldorf School might consider the registration fee to be separate from the tuition itself. In other words, the $1500 fee is specifically for registration – to guarantee the student’s spot – and the remaining $13,500 is for tuition. In this situation, the $1500 would be recognized in March, with the remaining $13,500 recognized over the course of the school year. Since the fiscal year-end is June 30, this would mean that the registration fees are recognized in a different fiscal year than the tuition fees.
While the cash-basis accounting method can make it easier to monitor cash flow, it’s usually best for schools to use the accrual-basis method of accounting. Most year-end audited financial statements use the accrual basis, and the revenue recognition standards discussed above can make it particularly difficult for schools to convert their books from cash to accrual at year-end.
Scholarships and Financial Aid
If your school provides discounted tuition through a scholarship or financial aid program, you would usually want to record those discounts as a contra-revenue account, rather than an expense account. A contra-revenue account holds a debit balance, as opposed to the credit balance of a typical revenue account. In other words, your accounting records would show that your school received $450,000 in tuition fee, less $40,000 in scholarships awarded, for a net revenue of $410,000. There are exceptions to this rule, but generally speaking, discounts are considered to be decreasing your school’s revenue, rather than increasing your expenses.
Some schools have parent associations that collect dues, sponsor fundraisers, and host special events and activities for school staff and students. If the PTA is separately incorporated – with its own federal employer identification number (EIN) – then its financials are not included with those of the school. If the PTA does not have a separate EIN, then its activities are considered to be under the auspices of the school, and must be included with the school’s financials.