Lesson 74 - Advanced Accounting Course

Lesson 74: Endowment Accounting for Universities and Nonprofits

💡 What Is an Endowment?

An endowment is a donation of money or property to a nonprofit or university that is invested to generate income forever. The principal (original amount) is usually kept intact, and only the investment income is used for specific purposes.

🧠 Think of it as a permanent gift that keeps growing and supporting the mission 🎓💖

🏛️ Who Uses Endowment Accounting?

• 🎓 Universities
  
  

• 🏥 Hospitals
  
  

• 🕊️ Religious institutions
  
  

• 🧑‍🏫 Foundations & nonprofits
  
  

These organizations use fund accounting to track the restrictions and performance of endowment funds.

🧾 Types of Endowments

🧠 Why Is Endowment Accounting Important?

• Ensures compliance with donor wishes
  
  

• Separates restricted and unrestricted funds
  
  

• Helps maintain financial health and planning
  
  

• Increases transparency and trust with donors
  
  

📊 Endowment Accounting Basics

🧾 Net Asset Categories (under U.S. GAAP for nonprofits)

📈 Sample Journal Entries

🎁 Receiving a Permanent Endowment:

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Dr. Cash                           $1,000,000  

   Cr. Net Assets – With Donor Restriction     $1,000,000  

💹 Investment Income Earned:

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Dr. Investments – Income Receivable   $50,000  

   Cr. Investment Income              $50,000  

🎓 Spending Investment Income for Scholarships:

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Dr. Scholarship Expense          $30,000  

   Cr. Cash                      $30,000 

🔍 Reporting Requirements

• Must report total endowment value, income, and usage
  
  

• Clearly distinguish between restricted and unrestricted portions
  
  

• Show investment performance and spending policy (often 4–5% annually)

✅ Summary

• Endowment accounting helps universities and nonprofits manage long-term gifts effectively
  
  

• It requires careful tracking of:
  
  

  • 🔐 Restrictions
    
    

  • 📈 Investments
    
    

  • 💸 Income and spending
    
    

• Proper accounting ensures compliance, transparency, and trust with donors