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Accounting For Non-Profit Organization: Dr. Bobby Dg. Gonzales, CPA Ph.D. 1
Accounting For Non-Profit Organization: Dr. Bobby Dg. Gonzales, CPA Ph.D. 1
Profit Organization
civil society
third sector
NGO sector
social economy
voluntary sector
social sector
o legal status
o purposes.
2. Private
they are not part of the apparatus of the state, even though they
may receive support from governmental sources.
3. Not profit-distributing
they are not primarily commercial in purpose and do not
distribute profits to a set of directors, stockholders, or
managers.
5. Voluntary
membership or participation in them is not legally required or
otherwise compulsory.
3. NPOs have the responsibility to account for these funds designated for a
specific purpose for a specified period of time.
d. General Public
▪ Effect of the activities of NPOs to the community and society in
general
b. Management Team
▪ Board of directors/trustees for policy-making, strategic decision-
making, and fulfilling its trusteeship/stewardship role.
▪ Executive Director for operational decision-making
▪ Program/project managers for project/program-related decision
making
o Thus, the financial reports are still presented in accrual form. The
accounting standards setting body of each country has to define
the qualifications of small NPOs.
Exemption
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.
a. Relevance.
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.
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
Dr. Bobby dG. Gonzales, CPA Ph.D.
Qualitative Characteristics of Financial
Statements
c. Comparability.
a. Asset
is a resource controlled by the organization as a
result of past transactions or events and from
which future economic benefits or service potential
are expected to flow to the organization.
▪ Many NPOs prefer to use the term “fund balance” to describe the
balance of a fund, defined as a sum set aside for specific purpose,
as of any given date.
❖ IPSAS
International Public Sector
Accounting Standards
a. Revenue
is the total inflow of economic benefits or service
potential during the reporting period when those
inflows result in an increase in Net Assets.
b. Expenses
are decreases in economic benefits or service
potential during the reporting period in the form of
outflows or consumptions of assets or incurrence
of liabilities that result in decreases in Net Assets.
Dr. Bobby dG. Gonzales, CPA Ph.D.
Recognition and Measurement
Recognition is the process of incorporating
in the financial statements an item that
meets the definition of an element.
a. Historical cost.
Pertains the original cost of an asset to an entity.
b. Fair value.
The amount for which an asset may be exchanged or
a liability settled, between knowledgeable, willing
parties in an arm’s length transaction.
c. Replacement cost.
The amount it will cost to replace an asset at current
prices.
Dr. Bobby dG. Gonzales, CPA Ph.D.
Recognition and Measurement
Basis of Measurement
e. Value-in-use.
Represents the market value of an asset that reflects
a value to a particular user, recognizing the extent to
which the property contributes to that entity.
ASSETS = SOURCES
▪ An asset is anything owned by the organization that has value.
▪ Sources may be categorized according to whether these were
derived from external or internal sources, i.e., liabilities or
equity.
▪ In NPOs, there is no equity in the real sense since there are no
specific owners.
▪ The residual amount is then called Net Assets.
A = L + NA
AA = L + NA
DEBIT CREDIT
=
[- L] + [-NA] [-A]
DEBIT CREDIT
LIABILITIES
Debit Credit
- +
NET ASSETS
Debit Credit
- +
EXPENSES INCOME
Important Note
It is emphasized that the objective of accounting:
1. Source Documents
2. Journalizing
3. Posting
4. Trial Balance
5. Financial Statements
TRANSACTIONS DOCUMENTS
Cash received OFFICIAL RECEIPT (accompanied by
validated deposit slip)
Journalizing
- the process of recording .
DOCUMENT JOURNAL
Official Receipt Cash Receipts Books
Cash Voucher Cash Disbursement
Journal
Journal Voucher General Journal
Important Note:
As part of the accounting system, transactions to be
accrued at the end of the reporting period should
be documented in the NPO’s accounting manual.
• Accrued Revenues/Income
• Provisions
a. Depreciation, impairment and amortization
b. Provision for doubtful accounts
c. Unrealized gains or losses such as foreign
exchange gain or loss as a result of changes in the
foreign currency balances as of balance sheet
date
(this entry assumes that grant received was originally credited to Deferred Grant
(a liability account) because the amount was intended for several periods.