Accounting for Non-Profit Organization

Non-Profit Organization
- It is a not profit organization
- It can generate income but not its primary objective
- Help the public as a whole
- It is built by a private entity
- Non-government units
- It obtain revenue to cover the expenses

Example of NPO’s
● Civic Organization
● Colleges and Universities except (State university colleges part of government)
● Hospitals (except government hospital)
● Labor Unions
● Private Foundations
● Professional Organization - example: PICPA
● Religious Organization
● Cooperatives - helps out the cooperatives within the company
● Social and Country clubs

Their main purpose is not for profit but to help the public that is limited in certain groups.

Characteristics of NPOs
1. Public service
2. No profit motives
3. Finance by Citizenry (Donations)
4. Stewardship of Resources
5. Governance by board of directors/trustees - but they commonly used trustees
6. Used for accrual basis of Accounting

Financial Statements of NPOs

1. Statement of Financial Position
2. Statement of Cash Flows
3. Statement of Activities - this is the movement of the net assets (Profit and loss)
4. Statement of Net Assets - it is the statement of changes in shareholders equity
5. Notes of Financial Statements

Statement of Activities
● It is the nature of net assets
● The increase of unrestricted net assets as revenues
● The decrease of unrestricted net assets as expenses
● Change of amount in the net assets
● Temporarily restricted and Permanently restricted net assets consist of donor it is the
limitations
 ● It reports the revenues and expenses at gross amounts
Statement of Functional Expenses
● It is used by voluntary health and welfare organization eg. Red Cross
● Not commonly used
● Not required to others non-profit organization

Investment and Investments Income

● It is initially recorded as cost
● If earned it is considered as an investment income
● Contributed securities are to be recognized in their fair market value

Fund Accounting by Non-Profit Organizations

● Fund has two separate funds these are:
● This funds are presented as one or a whole within the financial statement
a. Restricted Funds
- Temporarily Restricted
- Permanently Restricted
b. Unrestricted Funds

Types of Contributions as to Donor’s Restrictions

● Unrestricted Fund
- it has no limitations and no conditions
- It can be immediate used at any purpose
- Include all assets that are available for use
- Residual in nature (sonra sa fund)
- The board of directors can’t change it to restricted fund if its already under
unrestricted
● Restricted Fund
- It has limitations
- The donor’s give the limitations and conditions
- May be available for use but it must be authorized by donors
- Not derived from operations
- Indefinitely word
● Permanently Restriction
- Unending restriction or limitations
● Temporarily Restriction
- For a specific purpose
- There is still a condition and limitation are temporary
- For future event
- Time restricted funds

Restricted Fund may be obtained

● Gifts or grants from Individuals
● Government
 ● Revenue from restricted fund
● Realized and unrealized gains or investments
● Restricted income from endowment funds
Note: These assets are transferred to unrestricted when the time of expenditures. Restricted
to unrestricted only happened to temporary restricted funds.

Other Considerations for Contributions

● Contribution revenue it is from the sale of goods less the fair value of these items will be
recognize eg. (donation of car to be sell by the NPOs)
● If they receive a donation as an agent it will not be recognized as a contribution revenue.

Funds in Non-Profit Organization

Endowment Fund
Permanent Endowment Fund
- The fund must be maintained
- Revenues may be expended by the organization
- No entry must be recorded because no revenue shall be recognize until the fund has
earned and investment income
Term Endowment
- Temporary fund
- For a specific period of time
- For a passage period of time
Quasi-Endowment Fund
- Somewhat (parang)
- Unrestricted
- The board of directors has control of it
-

Agency Fund
- Assets held by non-profit organization
- Distributed only as instructed by the owner (pinahawak lang sayo yung fund mima)

Plant Fund
- Used for acquisition of assets

Loan fund
- Loan given by the NPO
- It raises interest
- Loan receivable are carried in the net realizable value provision for doubtful account

For Computations Needed to be consider

Regular Endowment Funds
- Permanent restricted fund
- Nonexpendable
Operating Activities
- Unrestricted fund
- Can be Donation (basta NPO)
Temporarily Restricted Revenues
- Temporary restricted
Fund Accounting
- May journal entry to te
- Temporarily Restricted
- Unrestricted
- Permanently Restricted

Example of Fund Accounting

Revenues and Gains from Unrestricted Fund
Derived from number of resources:
- Services
- Educational programs
- Gifts or donation
- Endowment fund (without limitations or conditions)
- Government grants
- Private grants
- Other activities/Auxiliary
- Student tuition fees
Contributed Materials, Services and Facilities
- This are considered as revenues
- The contributed material will be recognized as inventory credit account is revenue
- Recorded at their current value
Services are recognized if:
- Enhances nonfinancial assets for long time or short time period
- Services as revenue are specialized skills
- Lawyers, cpas, craftsmen, teachers, other professionals, etc.

Pledges (it is a Receivable)

- Promises (be pinangako sayo)
- Commitment by a prospective donor (naol commit)
- Cash or non-cash asset
- Written and signed
- These are not enforceable contract
2 Types of Pledges
1. Unconditional Pledge
- No conditions but temporary restricted
- It will be given in the future
- Provisions for doubtful account
2. Conditional Pledge
- Promise to give in the future
- With conditions
- It will given in the exchange of condition
- Recognize if substantially met 75% if no condition by donor
- Can be unconditional pledge if malakas loob mo mamemeet ng NPO ang
condition (beh pagod na ko mag english tagalog ng tagalog sir)
- Transfer of an asset (refundable advance) it recognize it as (liability) until the
conditions as substantially met
Expenses and Losses
- Can be recognize unrestricted fund (madalas)
Program Services
- Primary purpose
- Distribution of goods and services to beneficiaries customers
- Fulfill the purpose or mission
- Purpose of organization
Supporting Services
- Liquidation of expenses
Depreciation Expenses
- Continuous
● If the NPO is a museum
- Work of art will not recognize in depreciation
- Treasures and historicals not to be consider in depreciation
 If donated are to collections that meet all the following conditions:
- Held for public conditions, school, exhibition, research rather than financial gain
- Protected, unencumbered, cared for and preserved
- From sales of collection are to be used to acquire items for collection
● Reasons for non-recognition as asset or revenue
- If when all the conditions are met
- It is hard to recognize
- Difficult to measure
- Tax exempt
- Subject to income tax for unrelated business income

Accounting for Specific Types of NPOs

Health Care Organization
- A statement of operations
- These are hospitals, clinics, medical group practices, laboratories, etc.

Revenue Classification
Net Patient Service Revenue
- Gross patient revenue less direct revenues
Direct revenues are:
- Contractual adjustments - collectible to third party eg. Philhealth
- difference between fair price upon the amount received in insuring party
- Employee Discounts - reduction to employees
- Charity care
Premium Revenue
- Healthcare plan
- HMOs
- Same as insurance
- Is paid in a set amount regardless of how many patients
Other Revenues

Private and Non-Profit, College and Universities

- A direct reduction of revenues
- Free
- Scholarship and Fellowship are granted
- Refund of tuition fees due to cancellation and withdrawal are direct reduction of
revenues from tuition and fees
Voluntary Health and Welfare Organizations
- Statement of functional Expenses
- Reports expenses both function (program, supporting) and nature (salaries,
depreciation, etc.)
Joint Arrangements (PFRS 11)

What needed to improve in PAS 31

This may result in:
- Entitles the parties to similar rights
and obligations are accounted for differently
- Entitles the parties to different rights
obligations are accounted for similarly

The Principle in PFRS 1

● Establishes a principle-based approach for the accounting for joint arrangements
- Joint arrangement recognize their rights and obligations arising from the
arrangement
PFRS 12

Nature, extent and financial effects

of interests in joint arrangements,
including:
- List of nature interest
individually in joint arrangements
- Detailed quantitative
summarized financial information
of JVs
- Unrecognized share or loss
of JVs
- Fair value of investments
- Significant restrictions
Nature of, and changes in, the
risks associated with the
involvement

PFRS 12: Summarised financial information for material joint ventures

Dividends received from the joint venture summarised financial information including but not
limited to: underline indicated new disclosure
- Cash and cash equivalents included in current assets;
- Current Assets
- Non-current assets
- Current liabilitie;
- Current financial liabilities included in current liabilities
- Non-current liabilities
- Non-current financial liabilities included in non-current liab;
- Revenue
- Depreciation and amortisation
- Interest income
- Interest expense
- Profit or loss from continuing operations
- Income tax expense or income
- Post tax profit or loss from discounted operation
- Other comprehensive income; and
- Total comprehensive income

PFRS 11: Improvements

Enhance verifiability and understandability
- The accounting reflects more faithfully and economic phenomena that it purpose to
represent
Improved Consistency
- It provides the same accounting outcome for each type of joint arrangement
More Comparability among financial statements
- It will enable users to identify and understand similarities in, and differences between,
different arrangements