MODULE - NOT-FOR PROFIT ORGANIZATIONS

Overview:
A non-profit organization is a group or institution organized for purposes other than generating
profit. Non-profit organization (NPO) is also called Non- Government Organizations (NGO) or
Nor-for-Profit Organizations (NFPO). A non-governmental organization (NGO) is a non-for-
profit, voluntary citizens’ group, which is organized on a local, national or international level to
address issues in support of the public good. (UNDP definition) Nonprofit organizations exist to
pursue missions that address the needs of society. These institutions depend on funds from
contributions, membership dues, program revenues, fundraising events, public and private
grants. The contributions or investments are not income and do not have commercial owners.

NPO’s can take the form of a corporation, an individual enterprise (for example, individual
charitable contributions), unincorporated association, partnership, foundation (distinguished by
its endowment by a founder, it takes the form of a trusteeship), or condominium (joint ownership
of common areas by owners of adjacent individual units incorporated under state condominium
acts).

Non-profit organizations must be designated as nonprofit when created and may only pursue
purposes permitted by statutes for non-profit organizations. Non-profit organizations include
churches, public schools, public charities, public clinics and hospitals, political organizations,
legal aid societies, volunteer services organizations, labor unions, professional associations,
research institutes, museums, and some governmental agencies.

In the Philippines, not-for-profit organizations (NPOs) are typically organized as "non-stock

corporations" registered under the Corporation Code. This non-stock corporations are in the
form of charitable, religious, educational, professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, such as trade, industry, agricultural and similar
chambers, or any combination thereof
Securities and Exchange Commission (SEC) of the Philippines is the government regulatory
body for this organizations which serves as the registration authority. Other non-stock
corporations register as foundations. (Revised Corporation Code Section 87).

The basic concepts to nonprofit organizations for accounting and reporting are required by the
Financial Accounting Standards Board (FASB).

Businesses are organized to generate profits; nonprofit entities are organized to address the
needs of the society. With this, nonprofit organization prepares and issues a Statement of
Activities instead of the income statement normally prepared by for-profit businesses.
Since nonprofits do not have owners, there is no owner's equity or stockholders' equity and
there cannot be distributions to owners.

The World Bank also describes non-government organizations (NPOs) as:

“…include many groups and institutions that are entirely or largely independent of government
and that have primarily humanitarian or cooperative rather than commercial objectives. They are
private agencies in industrial countries that support international development; indigenous
groups organized regionally or nationally; and member-groups in villages. NPOs include
charitable and religious associations that mobilize private funds for development, distribute food
and family planning services and promote community organization. They also include
independent cooperatives, community associations, water-user societies, women’s groups and
pastoral associations. Citizen groups that raise awareness and influence policy are also NPOs”

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Module Objectives:

After thorough discussion of the topics, the learner will be able to:
 Define and cite the characteristics of a not-for-profit organization
 Compare government agencies with not-for-profit organizations
 Define the different classification of funds.
 Identify the accounts used in an NPO
 Identify the different classification of net assets
 Journalize typical transactions of an NPO
 Prepare financial statements for not-for profit organizations
 Present actual financial statements and compare with the concepts learned during the
classroom discussion

Course Materials:

There are five structural-operational features that defined organizations within the NPO sector
as follows:
• Organized - they have some structure and regularity to their operations, whether or not they
are formally constituted or legally registered. More than legal or formal recognition, this
qualification stresses organizational permanence and regularity, reflected in regular meetings, a
membership, and legitimate decision-making structures and procedures.
• Private, - they are not part of the apparatus of the state, even though they may receive support
from governmental sources.
• Not profit-distributing - they are not primarily commercial in purpose and do not distribute
profits to a set of directors, stockholders, or managers. While NPOs may generate a surplus
from time to time, they must reinvest these resources back into the objectives of their respective
organizations.
• Self-governing - they have their own mechanisms for internal governance, are able to cease
operations on their own authority, and are fundamentally in control of their own affairs.
• Voluntary - membership or participation in them is not legally required or otherwise
compulsory.
The structural-operational features that defined the NPO
This fivefold definition encompasses organizations both formal and informal, religious and
secular, those with paid staff and those staffed entirely by volunteers and organizations
performing expressive functions (i.e., advocacy, cultural expression, community organizing,
environmental protection, human rights, religion, representation of interests, and political
expression) as well as those performing service functions (i.e., provision of health, education
and welfare services). This description does not take into account individual forms of citizen
action such as voting or writing to legislators, but it embraces most organized forms, including
social movements and community-based cooperatives serving solidarity objectives.
Government agencies, private businesses, commercial cooperatives and mutual have been
deliberately excluded.

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NPOs as a Sector

The UNDP2 describes NPOs as the “third sector”, the first and second being the government
and private sectors. This is in recognition of the distinct characteristics of NPOs from other
forms of organization especially from the commercial ones. Several studies reveal that NPOs
contribute significantly to the development of society and the economy.

In many countries, accounting pronouncements cater to the needs of commercial organizations.

Although fundamental accounting principles apply to any type of organization, appropriate
standards and guidelines for NPOs are needed to fit the specifications and peculiarities of these
organizations. Basic differences between commercial organizations and NPOs include the
following:

1) NPOs do not operate primarily for profit but for specific needs of a community, group,
organization or its membership.
2) Most of NPOs revenues come from funds contributed, donated, granted or given as
other forms of support. Revenues from income generating activities, if any, are
eventually plowed back to program operations.

Unlike in the business community where an exchange transaction occurs, in nonprofit

organizations, resource providers do not expect to receive either repayment or economic
benefits proportionate to the resources provided. There is no defined ownership interest that
can be sold, transformed or redeemed or that convey entitlements to a share to a residual
distribution of resources in the event that the organization is dissolved.

3) NPOs have the responsibility to account for these funds designated for a specific
purpose for a specified period of time. The nature of the revenues received requires
ensuring that separate types of funds are properly tracked and reported.

NPO Governance and Accountability

For NPOs to fulfill their goals and objectives as well as to realize stakeholders’ expectations
efficiently and effectively, they must be governed by the principles of Fairness, Accountability,
and Transparency. Fairness - rights of stakeholders should be observed and respected;
Accountability - Board and management should be answerable on their performance to
stakeholders; Transparency - timely, accurate and sufficient information must be disclosed.

The foremost responsibility for NPOs is to be accountable to the needs and aspirations of the
community it is working with since serving community interests is the stated primary goal of
most NPOs. In practice, these communities lack mechanisms for holding NPOs accountable.
Unlike donors, communities cannot withdraw their funding; unlike governments, they cannot
impose conditionalities.

NPOs are also accountable to its donors, who may be both external (for example, governments,
foundations, or other NPOs) and internal (members who contribute smaller amounts). The
simplest level of responsibility is that of spending money for the purpose to which it has been
designated.

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Lastly, NPOs are also accountable to its organization. They are responsible to their stated
mission, governing board, management and staff, partners, and to the NPO community as a
whole.
Financial accounting in NPOs, the topic of this guide, hopes to contribute significantly to helping
NPOs increase their capacity to express accountability to their different stakeholders.

Basic differences between commercial organizations and NPOs include the following:
1) NPOs do not operate primarily for profit but for specific needs of a community, group,
organization or its membership.

2) Most of NPOs revenues come from funds contributed, donated, granted or given as
other forms of support. Revenues from income generating activities, if any, are
eventually plowed back to program operations.

3) NPOs have the responsibility to account for these funds designated for a specific
purpose for a specified period of time. The nature of the revenues received requires
ensuring that separate types of funds are properly tracked and reported.

Unlike in the business community where an exchange transaction occurs, in nonprofit

organizations, resource providers do not expect to receive either repayment or economic
benefits proportionate to the resources provided. There is no defined ownership interest that
can be sold, transformed or redeemed or that convey entitlements to a share to a residual
distribution of resources in the event that the organization is dissolved.

Figure 1 Table compares the main financial statements of a nonprofit organization (NPO) with
those of a for-profit corporation

NON PROFIT ORGANIZATION FOR PROFIT CORPORATIONS

Statement of Financial Position Statement of Financial Position /Balance
Sheet
Statement of Activities Income Statement
Statement of Functional Expenses (by
Function and Nature)
Statement of Cash Flow Statement of Cash Flow
Notes to Financial Notes to Financial
Statements Statements

Statement of Financial Position

A nonprofit's statement of financial position is similar to a balance sheet that reports the
organization's assets and liabilities, but since this is a nonprofit organization there is no owner's
equity or stockholders' equity but as Net Assets.

The primary purpose of NPO is to provide programs that meet certain needs of society thru its
various activities, thus it issues Statement of Activities. The statement of activities reports
revenue and expense that is presented in accordance with the two classifications of net assets
 With Donors Restrictions
 Without Donor Restrictions

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 The net assets section of a nonprofit's statement of financial position requires at a minimum the
following:
Net assets
Without donor restrictions  xxx
With donor restrictions xxx
Total net assets xxx

These classifications are based on the restrictions made by the donors at the time of their
contributions.

1. Net assets without donor restrictions

If a donor does not specify a restriction on his or her contribution, the amount received by the
nonprofit is recorded as an asset and as contribution revenues. Unrestricted contribution
revenues (reported on the statement of activities) also cause the amount of net assets without
donor restrictions to increase.

When the board of directors designates some of the nonprofit's unrestricted assets for a specific
purpose, those assets must continue to be reported as net assets without donor restrictions.

2. Net assets with donor restriction

When a nonprofit organization receives contribution that have donor-imposed restrictions, the
amount is normally recorded as an asset and as donor restricted contribution revenues. Donor-
restricted contribution revenues are reported on the statement of activities.

Statement of Activities
The statement of activities reports revenue and expense amounts in accordance with to the two
classifications of net assets illustrated in the Net asset. Below is an outline of the statement

Components of Statement of Activities:

 Contributions
 Membership dues
 Program fees
 Fundraising events
 Grants
 Investment income
 Gain on sale of investments
 Reclassifications when net assets are released from restrictions (a negative amount in
the With Donor Restrictions column and a positive amount in the Without Donor
Restrictions column)
Under the accrual method of accounting, revenues are reported in the accounting period in
which they are earned. In other words, revenues might be earned in an accounting period that is
different from the period in which the cash is received.

Reported Expenses and Losses

Expenses are reported according to

1. Program functions
2. Support functions

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1. Program functions
Program expenses (or program services expenses) are the amounts directly incurred by the
nonprofit in carrying out its programs. For instance, if a nonprofit has three main programs, then
each of the three programs will be listed along with each program's expenses.

2. Supporting functions
Support expenses are reported in two subgroups:

 Management and general

 Fundraising and development
In order to accurately report the amount in each of these subgroups, it may be necessary to
allocate some management and general salaries to fundraising based on the time spent by
employees performing fundraising activities.

A nonprofit's transactions are recorded in accounts in the general ledger. A listing of the titles of
the general ledger accounts is also known as the chart of accounts.
The accounts in the general ledger and in the chart of accounts are organized as follows:

 statement of financial position accounts

o asset accounts
o liability accounts
o net asset accounts
 statement of activities accounts
o revenues and gains
o expenses and losses
The number of accounts in a nonprofit's general ledger accounts depends on the number of
programs that the nonprofit has, the types of revenues it earns, and the level of detail required
for planning and control of the organization.

The Statement of Functional Expenses

The statement of functional expenses is reported in a matrix form to report expenses by their
function such as programs, management and general, fundraising and by the nature or type of
expense such as salaries, rent etc..
The FASB now requires every nonprofit to present expenses by function and nature in one
place (statement or notes).

The Statement of Cash Flows

The statement of cash flows of a nonprofit organization is similar a for-profit business. This
reports the change in the cash and cash equivalent during the accounting period.

The statement of cash flows consists of three sections:

1. net cash from operating activities

2. net cash from investing activities
3. net cash from financing activities
The operating section reports the changes in cash other than those reported in the investing
and financing sections.

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The investing section of the statement of cash flows reports the amounts spent to purchase
long-term assets such as equipment, vehicles and long-term investments. The investing section
also reports the amount received from the sale of long-term assets.
The financing section of the statement of cash flows reports the amounts received from
borrowings and also any repayments.
While the statement of cash flows, or cash flow statement, may be a bit difficult to prepare, it is
an important financial statement to be read.

The Notes to the Financial Statements

The notes to the financial statements are an integral part of all the statements prepared by an
NPO - the statement of financial position, the statement of activities, and the statement of cash
flows. The Accounting Standards Update No. 2016-14 requires important additional disclosures
regarding liquidity, restrictions, for creditors, donors, and among others.
Users and their Information Needs as applied to NPOs
EXTERNAL USERS
a. Donors/Grantors/Funding Agencies
- Degree of attainment of development objectives as indicated in financial statements and
reports.
- Degree of compliance with agreed amount and manner of using funds.
- Degree of compliance with prescribed financial accounting and reporting system and
procedures

b. Creditors (Banks/Financing Institutions)

- Information on ability to pay as indicated by ratios of solvency, liquidity, and stability as well as
status of their security.

c. Government Agencies
- Compliance with laws, government rules and regulations, payment of taxes (if any) and
reportorial requirements
d. General Public
- Effect of the activities of NPOs to the community and society in general

INTERNAL USERS
a. Members
- Information on how fees, donations, grants, and proceeds from fundraising activities were
used.
- Other information needs such as managerial remuneration, use of assets, management
efficiency, etc.

b. Management Team
- Board of directors/trustees for policy-making, strategic decision-making, and fulfilling its
trusteeship/stewardship role.
Objectives of Financial Reporting
The primary objective of financial reporting by NPOs is to provide information about the financial
position, performance, and cash flows of the organization that is useful, and indeed, necessary,
for a wide range of users to engage in informed decision making.

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Financial reporting prepared for this purpose meets the common needs of most users. However,
financial reporting does not provide all the information that users may need to make decisions
since they mostly portray the financial effects of past events.

Financial reporting also shows the results of the stewardship of management for the resources
entrusted to it. Those users who wish to assess the stewardship or accountability of
management do so in order that they may make sound decisions.
The financial reports of NPOs should complement other non-financial, performance reports.

The financial reporting is the means by which the information gathered and presented in
financial accounting is regularly communicated to those who use it.

Basis of Accounting
The basis of accounting affects the timing of recognition of income and expenses.
When a cash basis of accounting is used, income is recognized once it is received while
expense is recognized once it is paid. On the other hand, using an accrual basis means that
income is recognized when it is earned, even when it has not yet been received, and expenses
are recognized when they are incurred even when they have not yet actually been paid.
The basis of accounting used, as discussed and summarized above, affects the presentation of
the financial statements of the organization. In cash basis, a transaction is recorded only when
actual cash has been received or spent. Basically, only the movement of cash can constitute a
transaction. Under this basis of accounting, funds are recognized as receipts for the period if
these are actually.
Exemption
In some countries, cash basis of accounting is allowed or required by local laws for NPOs. In
such cases, NPOs may use the cash basis.

Assumption of Going-Concern
The financial statements are normally prepared on the assumption that an NPO is a going
concern, and will continue to be in operation for the foreseeable future. It is thus assumed that
the NPO has neither the intention nor the need to liquidate or scale back its operations; if such
an intention or need exists, the financial statements may have to be prepared using a different
basis, in which case, this basis should be disclosed.
There are instances where an NPO is established ad hoc or its existence is limited to a specific
period. In this case, the management of an ad hoc NPO should properly disclose its nature and
terms of existence, as well as the implications of its ad hoc nature on its financial statements.

Qualitative Characteristics of Financial Statements

These are the attributes that make the information in financial statements useful to various NPO
stakeholders, who are the users of the information. An essential quality of the information
provided is its understandability by users.

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 a. Relevance. Information has the quality of relevance when it influences the decisions of
users by helping them evaluate past, present or future events or confirming, or
correcting their past evaluations.

1. Materiality. Information is material if its omission or misstatement could influence the

decision of users taken on the basis of the financial statements.

2. Timeliness. Accounting information must be available on time when needed if it is to

influence decisions. Lack of timeliness reduces relevance.

b. Reliability. Information is reliable when it is free from material error and bias and can be
depended upon by users to embody faithfully the representation contained therein.

1. Faithful Representation. To be reliable, information must represent faithfully the

transactions and other events that it either purports to represent or could reasonably be
expected to represent.

2. Substance over form. Transactions and other events are accounted for and presented
in accordance with their substance and not merely their legal form.

3. Neutrality. Information must be free from bias. Financial statements are not neutral if, by
selection or presentation of information, they influence the making of a decision or judgment in
order to achieve a predetermined result or outcome.

4. Prudence. Some degree of caution in the exercise of the judgments needed in making
the estimates required under conditions of uncertainty, such that assets or revenues are not
overstated and liabilities or expenses are not understated.

5. Completeness. Information must be complete within the bounds of materiality.

Omission may cause information to be false or misleading and thus unreliable and deficient in
terms of its relevance.

c. Comparability. Users must be able to compare the financial statements through time in
order to identify trends in its financial position and d. Understandability. An essential
quality of the information provided in financial statements is that it is readily
understandable by users.

Balance between Qualitative Characteristics

In practice, a balancing, or trade-off, between qualitative characteristics is often necessary.
Generally, the aim is to achieve an appropriate balance among the characteristics in order to
meet the objective of financial statements. The relative importance of the characteristics in
different cases is a matter of professional judgment.
Fair Presentation
Financial statements are frequently described as a fair presentation of an organization’s
financial position, performance, and changes in financial position. Although this framework does
not deal directly with such concepts, the application of the principal qualitative characteristics
and of appropriate accounting standards normally results in financial statements that convey
what is generally understood as presenting fairly such information.

Accounting procedures peculiar to specific types of NPOs

The principles that we have discussed so far apply to all types of NPOs. In this section, we will
discuss accounting procedures unique to specific types of NPOs. For this purpose, we will
subdivide NPOs into the following:

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 1. Health Care Organizations
2. Private, non-profit, Colleges and Universities
3. Voluntary Health and Welfare Organizations
4. Other non-profit organizations

Health Care Organizations

Health Care Organizations include hospitals, clinics, medical group practices, individual practice
associations, individual practitioners, emergency care facilities, laboratories, surgery centers,
other ambulatory care organizations, continuing care retirement communities, health
maintenance organizations, home health agencies, nursing homes, and rehabilitation centers.

In accordance with the “AICPA Audit and Accounting Guide, Health Care Organizations,” the
following are the accounting requirements unique to health care organizations:
1. Components of a complete set of financial statements
2. Presentation of revenues in the statement of operations
3. Presentation of contributions in the statement of operations
4. Disclosure of performance indicator

Financial statements of a health care organizations

According to the “AICPA Audit and Accounting Guide, Health Care Organizations,” health care
organizations shall prepare the following statements:
a. Statement of financial position
b. Statement of operations (in lieu of a statement of activities)
c. Statement of changes in net assets
d. Statement of cash flows, and
e. Notes to the financial statements.

Presentation of revenues in the statement of operation

Revenues in the statement of operations are classifies into the following:

a. Net patient revenue – gross patient service revenue less contractual adjustments,
employee discounts and billed charity care.
b. Premium revenue – results from capitation agreements
c. Other revenues – all other revenues not classifiable as net patient revenue or premium
revenue.

Contractual adjustments

A portion of a hospital’s revenue is collectible from third-party payors, such as the Philippine
Health Insurance Corporation (PhilHealth) and other health insurance providers. In this regard,
a contractual adjustment may arise from the reimbursement agreement.

A contractual adjustment is the difference between what the hospital considers a fair price for
a service rendered versus an agreed upon amount for the service with the insurance company.

For example, the hospital may consider P60,000 a pair price for a service but agrees with
PhilHealth to accept only P58,000. The difference of P2,000 represents the contractual
adjustment which is written off as a direct reduction to patient service revenue.

Employee discounts

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These are special discounts available only to the NPO’s employees (and their immediate family
members) in the form of reduction in the price of patient services. Employee discounts are
accounted for as direct reduction to patient service revenue.

Charity care

Charity care pertains to free services rendered to patients. Charity care is not recognized but
rather disclosed only in the notes.

Capitations agreements

Capitations Agreements are agreements with third parties based on the number of employees
instead of services rendered. SFAS No. 117 requires revenues from capitation agreements to
be shown separately on the statement of operations under the caption “Premium revenue,”
which is a line item below net patient revenue.

Other revenues

Other revenues consist of revenues other than patient service revenues and premium revenues.
Examples are the revenues from the hospital’s pharmacy, parking deck, flower and gift shop,
educational programs, donated materials and services.

Presentation of contributions in the statement of operations

Unlike for other NPOs, health care organizations do not present restricted contributions on
the statement of operations as part of revenues. The revenues discussed above (i.e., net patient
service revenues, premium revenues, and other revenues) pertain only to unrestricted
revenues and may include revenues from unrestricted contributions. Revenues from
unrestricted contributions may be separately indicated as such or included in the other
revenues classifications.

Revenues from restricted contributions are presented separately at the bottom part of the
statement of operations, after unrestricted revenues and expenses.

Disclosure of performance indicator

According to the AICPA Guide, the statement of operations shall provide a performance
indicator, such as operating income, revenue over expenses, etc. The policy used in
determining the performance indicator shall be disclosed in the notes.

Unrealized gains and losses on investments in securities are not a part of the performance
indicator, but shall be reported on the statement of operations after the performance indicator.

Private, non-profit, Colleges, and Universities

The accounting procedure that is unique to private, non-profit, colleges and universities is the
accounting for scholarships and fellowships. The concepts are provided below:
a. Scholarships and fellowships granted freely are treated as direct reduction of
revenues from tuition and fees, e.g., academic scholarship.
b. Scholarships and fellowships granted as compensation for services rendered by the
grantee are treated as expenses , e.g., academic scholarships provided to student
assistants and faculty members or their dependents,
c. Refunds of tuition fees from class cancellations and other withdrawal of enrolment are
treated as direct reduction of revenues from tuition and fees.

Voluntary Health and Welfare Organizations

Voluntary Health and Welfare Organizations (VHWO) are non-profit entities that derive their
revenues primarily from donations from the general public to be used for purposes connected

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with health, welfare, or community services. Examples include: women and children’s health
and welfare societies, human rights advocates, environmental protection organizations, religious
organizations, museums and other cultural and arts societies, libraries, research and scientific
foundations, professional associations, private elementary schools, social clubs, and fraternal
organizations.

Other non-profit organizations

Other general accounting requirements for NPOs apply to other non-profit organizations. Thus,
there are actually no accounting requirements peculiar to these organizations.

Sample Financial Statements

To present examples of the statement of financial position and the statement of activities we
will follow the activities of Almost Family a nonprofit organization called a daytime shelter for
adults.

Let's assume that Almost Family a Not for Profit Organization was incorporated in January
2019 and its accounting years end on each December 31. The following transactions occurred
during a three-month period.

Transaction 1. On January 31, a donor contributes P100,000, without restriction, for the
operation of Almost Family. This transaction affects the general ledger accounts as follows:

January 31, Cash – general 100,000

Revenues: Contributions General 100,000

Transaction 2. On February 1, rents office space and paid with A check for P2,000. This covers
a one-time security deposit of P1,000 plus the February office rent of P1,000.
February 1, Security Deposit 1,000
Rents Expense 1,000
Cash General 2,000.

Transaction 3. On February 2, a P400 check is written to the utility as a one-time security

deposit for electricity and heat service.
February 2 Security Deposit 400
Cash General 400.

Transaction 4. On February 19, Almost Family receives a contribution of P8,000 that the donor
specifies must be used for the purchase of furniture. The contribution is deposited into a money
market account. This transaction affects the general ledger accounts as follows:
February 19
Money Market Account- Donor Restricted 8,000
Revenues: Contributions with Donor Restrictions 8,000

Transaction 5. The electricity and heating invoice has not arrived. It is estimated that the
amount for February's usage was P350, so the following accrual adjusting entry is recorded on
February 28:
February 28
Electricity and Water expenses 350

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 Accrued Expenses 350

Almost Family
Statement of Financial Position
February 28, 2019

Cash and Cash 15,600.0

equivalents P 0 Accrued Expenses P 350.00

Security Deposits 1,400.00 Net Assets

- Without Donors
Furniture Restrictions 8,650.00

With Donors Restrictions 8,000.00

16,650.0
Total Net Assets 0

17,000.0 Total Liabilities and Net 17,000.0

Total Assets P 0 Assets P 0

Almost Family
Statement of Financial Position
For two months ended February 28, 2019

Without Donors With Donors Total

Restrictions Restrictions

Revenue: P 10,000.00 8,000.00 18,000.00

Contributions
Expenses:
Program Expenses -
Gen. Admin. Expenses 1,350.00 1,350.00
Fund Raising Expenses

Change in Net Assets - 1,350.00 8,000.00 16,650.00

Net Asset- beginning

Net Asset -ending 8,650.00 8,000.00 16,650.00

Note that the ending net assets amount must be the same amount on the net assets reported in the Statement of
financial position on the same period

During March, Almost Family paid the March rent of P1,000. Almost Family also paid the
February utilities which were equal to the estimated amount of P350. Almost Family estimates
that March's utilities will be P300.

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On March 31, Almost Family paid P8,300 to purchase furniture (using the donor-restricted
donation of P8,000). The statement of financial position dated March 31 will report the following
amounts:

Almost Family
Statement of Financial Position
March 31, 2019

Cash and Cash

equivalents 5,950.00 Accrued Expenses 300.00

Security Deposits 1,400.00 Net Assets

- Without Donors 15,350.0

Furniture 8,300.00 Restrictions 0
Total Net Assets

15,650.0 15,650.0
Total Assets 0 Total Liabilities and Net Assets 0

Almost Family
Statement of Activities
March 31, 2019

Without Donors With Donors Total

Restrictions Restrictions
Revenue: P
Contributions 8,000.00 - 8,000.00 -
Net asset released fr Restriction 8,000.00 - 8,000.00 -
Expenses:
Program Expenses -
Gen. Admin. Expenses 1,300.00 1,300.00
Fund Raising Expenses
Total Expense 1,300.00 1,300.00
Change in Net Assets 6,700.00 - 8,000.00 - 1,300.00
Net Asset- beginning 8,650.00 8,000.00 16,650.00
Net Asset -ending 15,350.00 - 15,350.00

Note that the ending net assets amount must be the same amount on the net assets reported in the Statement of
financial position on the same period

Definition of Terms

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Unrestricted – available for immediate use and for any purpose.
Temporarily restricted – restricted by the donor in such a way that the availability of the
contribution for the NPO’s use is dependent
Organized, i.e., they have some structure and regularity to their operations, whether or not they
are formally constituted or legally registered. More than legal or formal recognition, this
qualification stresses organizational permanence and regularity, reflected in regular meetings, a
membership, and legitimate decision-making structures and procedures.
Private, i.e., they are not part of the apparatus of the state, even though they may receive
support from governmental sources.
Not profit-distributing, i.e., they are not primarily commercial in purpose and do not distribute
profits to a set of directors, stockholders, or managers. While NPOs may generate a surplus
from time to time, they must reinvest these resources back into the objectives of their respective
organizations.
Self-governing, i.e., they have their own mechanisms for internal governance, are able to cease
operations on their own authority, and are fundamentally in control of their own affairs.
Voluntary, i.e., membership or participation in them is not legally required or otherwise
compulsory.

NPO – include many groups and institutions that are entirely or largely independent of
government and that have primarily humanitarian or cooperative rather than commercial
objectives.
Program services – are the activities that result in goods and services being distributed to
beneficiaries, customers, or members that fulfill the purposes or mission for which the
organization exists. Those services are the major purpose for and the major output of the
organization and often relate to several major programs.

Supporting activities – are all activities other than program services. Generally, these include
management and general, fund-raising, and membership-development activities.

ACTIVITIES / ASSESSMENT

Explain the applicability of the PFRSs to NPOs.

1. Account for the assets, liabilities, equity, revenues and expenses of NPOs.
2. Enumerate and describe the financial statements of NPOs.
3. State the accounting procedures peculiar to specific types of NPOs.

Read:
IFRS 15
Republic Act 11232, or the Act Providing for the Revised Corporation Code of the Philippines,
FASB issued Accounting Standards Update (ASU) No. 2016-14 for Not-for-Profit
NGOs Act RA 10693
Tax Code Section 30(e), (g), and (h)).
Revenue Memorandum Order 20-2013 Section 5(b))

EXERCISES

1. A nongovernment organization receives P 40,000 of unconditional promise to give with no

donor-imposed restrictions. Of this amount P28,000 is due during the current period and
P12,000 is due in the next period. The organization estimates that 3% of the pledged will
be uncollectible.

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 Required: Prepare journal entries to record the pledges and indicate the effect that the
pledges will have on the net assets classifications.

2. In January 2022 Mr. X donated a van to Bantay Bata Foundation. The van has a fair value
of P250,000 and a remaining life of 8 years, with no salvage value. No restrictions are
imposed on the use of the van, either by Mr. X or the Bantay Bata Foundation. Also in
2022, a church donated P20,000 to the Bantay Bata foundation that is restricted for the
purchase of equipment. The money was invested that earned a 5% interest. Accrued
interest on the investment totaled P1,500 on December 31,2022. The income from
investment is also restricted for the purchase of equipment.

Required: Prepare journal entries for these transaction in 2022. Discuss the effect on net
the asset classifications and the financial statements.

3. At the beginning of 2022 the residents of Barangay Pag-asa organized a voluntary health
and welfare organization called May Bukas Pa (MBP). MBP receives cash donation, and
nonperishable groceries, and household items from contributors. The groceries and
household items are distributed free of charge to families on the basis of need. MBP
allocates expenses 80% to community services and 20% to management and general
services, unless otherwise noted.

MBP has paid one administrator with a yearly salary of P 36,000. An accountant donates
his accounting services with a fair value of P15,000 and are allocated to management and
general. Work is also done by regular volunteers whose services cannot be measured. A
local resident has provided free warehouse space for the operation of MBP. Fair value of
rent for the space is P36,000 a year. Utilities of P 72,000 are paid in 2022.

During the year MBP purchased supplies for P3,000. At December 31, 2022, the supplies
inventory was insignificant. Expenses incurred in determining which families were eligible
for MBP,s services and other accounting and reporting expenses totaled P18,000.
Donated assets for 2022 included nonperishable groceries with a fair value of P120,000
and household items with a fair value of P80,000. During the year, three fourth of the
groceries and half of the household items was distributed. No portion of these distributions
was allocated to management and general services.

In addition to the donated assets, MBP received cash donations of P 60,000 and pledges of
P120,000. MBP estimated that 10% of the pledges would be uncollectible. At year
end
P 45,000 of the pledges had been collected. MBP estimates that only P 3,000 of the
remaining pledges will be uncollectible. Town council of the Barangay PAG-ASA made a
P50,000 grant to MBP that will be paid in January 2023.

Required: Prepare a summary entries for MBP for the year 2022.

4. The following information was taken from the accounts and records of ABC Foundation, a
Private, not- for -profit organization. All balances are as of December 31, 2022 ,unless
otherwise noted.
Unrestricted Support- Membership dues P 300,000
Unrestricted Support- Contributions 2,500,000
Unrestricted Revenues- Investment Income 48,000
Temporarily restricted gain on sale of investments 4,500
Expenses-Fund raising 350,000
Expenses-Research 1,600,000
Expenses- Management and General 150,000
Temporarily Restricted Support-Contribution 300,000
Temporarily Restricted Revenues-Investment Income 25,000
Permanently Restricted Support-Contributions 30,000
Unrestricted Net Assets, January 1,2022 250,000
Temporarily Restricted Net Assets, January 1, 2022 3,000,000
Permanently Restricted Net Assets, January 1, 2022 50,000

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The unrestricted support from contributions was received in cash during the year. The expenses
included P 650,000 payable from donor temporarily restricted resources.

Required: Prepare ABC’s statement of activities for the year ended December 31,2022. (Combine
temporarily and permanently restricted net assets.)

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