ACCOUNTING FOR

NON-PROFIT
ORGANIZATION
BADVAC3X
Introduction
◦ A nonprofit corporation that is organized for the benefit of the public as a whole, rather
than for the benefit of an individual proprietor or a group of partners or stockholders.
Nonprofit organization obtains revenues sufficient to cover its expenses.
◦ Examples are civic organizations, colleges and universities, cultural institutions, hospitals,
labor unions, private foundations, professional organizations, religious organizations,
cooperatives and social and country clubs.
◦ They do not include government units.
Characteristics of Nonprofit
Organizations
◦ Public service
◦ No profit motives
◦ Finance by the citizenry
◦ Stewardship of resources
Features of Nonprofit Organization
that are similar to those of business
enterprise
◦ Governance of board of directors
◦ Use of accrual basis of accounting
PFRS Principles applicable to
Nonprofit Organizations
◦ Recognition criteria for assets and liabilities:
◦ a. Meets the definition of an asset (or liability);
◦ b. Probable inflow (or outflow) of resources; and
◦ c. Reliable measurement of cost or other value.
◦ Measurement of Asset or Liability:
◦ a. Initial measurement at cost except when a relevant PFRS requires measurement at fair value
or some other value.
◦ b. Subsequent measurement at amortized cost, under the cost model, or some other
measurement model required by a relevant PFRS
PFRS Principles applicable to
Nonprofit Organizations
◦ Derecognition of Asset or Liability:
◦ An asset (or liability) is derecognized when it ceases to provide inflow (or require outflow) of
resources embodying economic benefits.
◦ General features in the Presentation of FS:
◦ a. Fair presentation and compliance with PFRSs,
◦ b. Going concern,
◦ c. Accrual basis,
◦ d. Materiality and aggregation,
◦ e. Offsetting,
◦ f. Frequency of reporting,
◦ g. Comparative information, and
◦ h. Consistency of presentation
Accounting for Non-Profit Entities
◦ Nonprofit organizations use Fund Accounting.
◦ Fund is a sum of money or other resources set aside for the purpose of carrying out
specific activities or attaining certain objectives in accordance with special
regulations, restrictions, or limitations.
◦ Separate funds are necessary to separate assets to be used as authorized by the
board of directors and assets that are restricted by donors.
UNRESTRICTED FUND
◦ This includes all the assets of a nonprofit organization that are available for use as
authorized by the board of directors and not restricted for specific purposes. Revenues
and gains of unrestricted fund are derived from a number of sources.
◦ Hospital derives unrestricted fund revenues from patient services, unrestricted
donations, and unrestricted income from endowment funds.
◦ College and university’s sources of unrestricted fund revenues include student tuition
fees; government grants; donations and private grants; and unrestricted income from
endowment fund.
Revenues from Services
◦ A nonprofit organization’s total revenues are reported in the period in which services
are rendered, even though part or all of the revenue is to be waived or reduced.
◦ The contractual adjustments is a unique feature of nonprofit hospitals. For hospitals,
accounts receivable are collectible from a third-party payor, rather than from the
patient.
◦ For colleges and universities, the comparable tuition adjustments is debited to
Expenditures – Student Aid account.
◦ In the statement of activities, the balances of the Contractual Adjustments account
(for hospital) and the Expenditures-Student Aid account (for colleges and universities)
are to be deducted from the total service revenues to compute the net service
revenue for the month.
Contributed Materials, Services and
Facilities
◦ Contributed material is recorded in the Inventories account at its current fair value, with
a corresponding credit to a revenue account in an unrestricted fund, as shown in the
following proforma entry:
◦ DR Inventories xx
◦ CR Contributions Revenue xx
◦ To record contributed materials at current fair value
Other Operating Revenues
◦ These represent income derived from other related activities, other than service
revenues of nonprofit organizations.
◦ These are recorded to unrestricted fund by the following entry:
◦ DR Cash (or account receivable) xx
◦ CR Other Operating Revenue xx
◦ To record other operating revenue
Pledges
◦ A commitment by a prospective donor to contribute a specific amount of cash or
property to a nonprofit organization on a future date or in installments.
◦ Under the accrual basis of accounting, unconditional pledges are recorded as
receivables and revenues in the unrestricted fund, with appropriate provision for
doubtful pledges.
◦ Pledges due in future accounting periods or having restrictions as to their use are
accounted for in a restricted fund.
Expenses of Unrestricted Fund
◦ Classification of expenses
◦ Program services
◦ Organization’s activities that result in the distribution of goods and services to fulfill the purposes of the
organization.
◦ Supporting services
◦ All activities of the organization other than program services, such as administrative expenses and fund
raising costs.

◦ Depreciation Expense
Assets and Liabilities of Unrestricted
Fund
◦ Most of the assets and liabilities of nonprofit organization’s unrestricted fund are similar
to the current assets and liabilities of a business enterprise.
◦ Nonprofit organizations that use fund accounting generally account for fixed assets in a
property and equipment fund.
◦ The liabilities of an unrestricted fund include payables, accrued expenses, and
deferred revenues similar to those of a business enterprise.
RESTRICTED FUND
◦ Assets are available for current use but expendable only as authorized by the donor of
the assets.
◦ Sources of restricted funds
◦ Restricted gifts or grants from individuals or governmental entities,
◦ Revenues from restricted fund investments
◦ Realized and unrealized gains or investments of the restricted funds
◦ Restricted income from endowment funds
◦ Classifications of restricted funds
◦ Temporarily restricted
◦ Permanently restricted
OTHER FUNDS OF NONPROFIT
ORGANIZATIONS
◦ Endowment Fund
◦ A permanent endowment is one in which the principal must be maintained indefinitely in
revenue-producing investments. The revenues derived from the endowment funds are
accounted for in accordance with the instructions of the donor or the board of directors.
◦ Agency Fund
◦ It is used to account for assets held by a nonprofit organization as a custodian. These assets are
distributed only as instructed by their owner.
◦ Plant Fund
◦ Plant fund is composed of the following
◦ Unexpended funds to be used in the acquisition of physical properties
◦ Renewal and replacement funds
◦ Retirement of indebtedness funds
◦ Funds previously expended to acquire properties
REVENUES AND GAINS FROM
POOLED INSVESTMENTS
◦ To provide efficient management of investment programs, investments of a nonprofit
organization is pooled to a single portfolio management.
◦ The pooling technique facilitate proper allocation of investment revenues and realized
and unrealized gains and losses to each participating fund
FINANCIAL STATEMENTS OF
NONPROFIT ORGANIZATIONS
◦ Provisions in FASB Statement No. 117, “Financial Statements of Not-for-Profit
Organizations”, are as follows:
◦ Financial statements of nonprofit organizations shall be a statement of financial position, a
statement of activities, statement of cash flows and notes to the financial statement
◦ Statement of financial position shall report the following
◦ Amounts of the organization’s total assets, total liabilities, and total net assets
◦ Statement of activities shall report the following:
◦ Amount of the change in the organization’s net assets for the period with a caption such as changes in
net assets or change in equity
◦ Gross amounts of revenues and expenses of the organization, except that investment revenues may be
reported net of expenses and gains or losses on disposal of plant assets
ACCOUNTING FOR HEALTH
CARE ORGANIZATIONS AND
PRIVATE, NONPROFIT
COLLEGES AND UNIVERSITIES
BADVAC3X
Introduction
◦ Health Care Organization (HCO) is defined as a purposefully designed, structured
social system developed for the delivery of health care services by specialized
workforces to defined communities, populations, or markets.
◦ In accordance with the “AICPA Audit and Accounting Guide, Health Care
Organizations” the following are the accounting requirements unique to health care
organizations.
◦ Components of a complete set of financial statements
◦ Presentation of revenues in the statement of operations
◦ Presentation of contributions in the statements of operations
◦ Disclosure of performance indicator
Financial statements of a health care
organization
◦ According to the “AICPA Audit and Accounting Guide, Health Care Organizations”
health care organizations shall prepare the following statements:
◦ 1. Statement of financial position
◦ 2. Statement of operations (in lieu of a statement of activities)
◦ 3. Statement of changes in net assets
◦ 4. Statement of cash flows
◦ 5. Notes to the financial statements
Presentation of Revenues in the
Statement of Operations
◦ Revenues in the statement of operations are classified into the following:
◦ a. Net patient revenue:
◦ Gross patient service revenue xx
◦ Less: Contractual adjustments (xx)
◦ Employee discounts (xx)
◦ Billed charity care (xx)
◦ Net patient revenue xx
◦ a. Premium revenue – results from capitation agreements
◦ b. Other revenues
Presentation of Revenues in the
Statement of Operations
◦ A contractual adjustment is a portion of a hospital’s revenues which is collectible from third-
party payors, such as the Philippine Health Insurance Corporation and other health
insurance providers. 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.
◦ Employee discounts are special discounts available only to the NPO’s employees (and their
immediate family members).
◦ Charity care pertains to free services rendered to patients.
◦ Capitation 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 consist of revenues other than patient service revenues and premium
revenues.
Presentation of Contributions in the
Statement of Operations
◦ Health Care Organizations present revenues from restricted contributions separately at
the bottom part of the statement of operations, after unrestricted revenues and
expenses.
Disclosure of Performance Indicator
◦ 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, Nonprofit Colleges and
Universities
◦ The accounting procedure that is unique to private, nonprofit colleges and universities
is the accounting for scholarships and fellowships.
◦ a. Scholarships and fellowships granted freely are treated as direct reduction of revenues from
tuition and fees
◦ b. Scholarships and fellowships granted as compensation for services rendered by the grantee
are treated as expenses,
◦ 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 nonprofit entities that derive
their revenues primarily from donations from the general public to be used for purposes
connected with health, welfare, or community services.
◦ The distinction between VHWO providing health care services from a Health Care
Organization is the source of revenue rather than the type of services provided.
◦ The accounting requirement unique to VHWOs is the provision of a statement of
functional expenses that reports expenses by both functional and natural
classifications.
PROBLEMS

BADVAC3X
Voluntary Health and Welfare
Organizations
◦ The following events occurred to the Cancer Research Foundation during the fiscal
year-ended June 30, 2013:
◦ PROVIDE THE JOURNAL ENTRIES
◦ 1. Unrestricted pledges for P300,000 were received. It is estimated that 10% will not be
collectible.
Pledges Receivable 300,000.00
Allowance for uncollectible pledges 30,000.00
Contribution revenue 270,000.00
Voluntary Health and Welfare
Organizations
◦ 2. P260,000 was collected from pledges. It is estimated that another P10,000 will be
collected next year.

Cash 260,000.00
Pledges Receivable 260,000.00
Voluntary Health and Welfare
Organizations
◦ 3. The Foundation received P40,000 from Manila Bulletin. The amount was net of P5,000
for fund-raising expenses.

Cash 40,000.00
Fund Raising Expenses 5,000.00
Fund Raising
Revenues 45,000.00
Voluntary Health and Welfare
Organizations
◦ 4. The Foundation invested P35,000 in certificates of deposit. During the year, it
collected P2,000 in interest; at year-end accrued interest amounted to P1,000.
Investment 35,000.00
Cash 35,000.00

Cash 2,000.00
Interest Income 2,000.00

Accrued Interest Income 1,000.00

Interest Income 1,000.00
Voluntary Health and Welfare
Organizations
◦ 5. The Foundation collected P5,000 in cash from sales of its booklet "How to Cope with
Cancer?".

Cash 5,000.00
Sales 5,000.00
Voluntary Health and Welfare
Organizations
◦ 6. Expenses paid in cash during the year were as follows:
Salaries 90,000.00
Employee Fringe Benefits 15,000.00
Payroll Taxes 16,000.00
Supplies 7,000.00
Telephone 1,500.00
Utilities 6,000.00
Rent 10,000.00
Conferences, Conventions and Meetings 5,000.00
Cost of Booklet "How to Cope with
Cancer?" 1,000.00
Miscellaneous 3,000.00

Various Expenses 154,500.00

Cash 154,500.00
Voluntary Health and Welfare
Organizations
◦ 7. Accrued expenses at year-end amount to P1,000 for utilities and P5,000 for salaries

Utilities Expense 1,000.00

Salaries Expense 5,000.00
Accrued Utilities/Salaries Expense 6,000.00
Voluntary Health and Welfare
Organizations
◦ 8. The Board of Directors specified that P10,000 be used to purchase a new computer
for research purposes.

Fund Balance - Unrestricted 10,000.00

Fund Balance - Restricted to purchase of new equipment 10,000.00
Healthcare Organization
◦ Among the transactions and events of the General Fund of Santa Maria Hospital, a
nonprofit organization for the month of October 2013 were the following:
◦ PROVIDE THE JOURNAL ENTRIES
◦ (1) Gross patient service revenues of P80,000 were billed to patients, Indigent patient
charity care amounted to P4,000, of which amount P2,500 was receivable from Social
Medicare of P6,000, and doubtful accounts of P8,000.
Accounts receivable 80,000.00
Patient service revenue 80,000.00

Accounts receivable 2,500.00

Patient service revenue 2,500.00

Contractual adjustment 6,000.00

Accounts receivable 6,000.00

Bad Debts Expense 8,000.00

Allowance for Bad Debts 8,000.00
Healthcare Organization
◦ (2) Contributed services approximating P10,000 at going salary rates were received
from volunteer nurses. Meals costing P200 were served to the volunteer nurses at no
charge by Santa Maria Hospital cafeteria.

Salaries expense 9,800.00

Contribution revenue 9,800.00
Healthcare Organization
◦ (3) New unrestricted pledges, due in three months, totaling P5,000 were received from
various donors. Collections on pledges amounted to P3,500, and the provision for
doubtful pledges for October 2013 was P800.

Pledges Receivable 5,000.00

Contribution revenues 5,000.00

Cash 3,500.00
Pledges Receivable 3,500.00

Provision for doubtful pledges 800.00

Allowance for doubtful pledges 800.00
Healthcare Organization
◦ (4) The amount of P3,000, received from the Restricted Fund, was expended for new
surgical equipment, as authorized by the donor.
Fund Balance - Restricted 3,000.00
Fund Balance - Unrestricted 3,000.00

Plant
assets 3,000.00
Cash 3,000.00
Colleges and Universities
◦ Among the transactions and events of Cross School, a non-profit, private secondary
school, for the year ended June 30, 2013 were following:

PROVIDE JOURNAL ENTRIES

◦ (1) Paid P50,000 from the Unrestricted Fund for classroom computers, to be carried in
the Plant Fund.
Plant Fund Ledger
Equipment 50,000.00
Fund Balance - Unrestricted 50,000.00

Unrestricted Fund Ledger

Fund Balance - Unrestricted 50,000.00
Cash 50,000.00
Colleges and Universities
◦ (2) Received an unrestricted cash gift of P2,000,000.

Unrestricted Fund Ledger

Cash 2,000,000.00
Contribution revenues 2,000,000.00
Colleges and Universities
◦ (3) Disposed of for P110,000 common stocks that had been carried in the Quasi-
Endowment Fund at P100,000. There were no restrictions on use of the proceeds
attributable to the gain.

Quasi-Endowment Fund Ledger

Cash 110,000.00
Investment 100,000.00
Payable to Unrestricted fund 10,000.00

Unrestricted Fund Ledger

Receivable from quasi-endowment fund 10,000.00
Invesment income 10,000.00
Colleges and Universities
◦ (4) Constructed a new school building at a total cost of P2 million. Payment was by
P250,000 cash from the Plant Fund and P1,750,000 obtained on a 5% mortgage note
payable.
Plant Fund Ledger

Building 2,000,000.00

Cash 250,000.00

Mortgage Payable 1,750,000.00