ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Module 4 NON-PROFIT ORGANIZATIONS Overview ‘Annon-profit organization is @ 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. This institutions depends on funds from Contributions, membership dues, program revenues, fundraising events, public and private grants. The contributions or investments does not earn 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 ns. 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, nonprofits are organized to address the needs of the society. With this, nonprofit organization prepares and issue a Statements 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS The World Bank also describes non-government organizations (NGOs) 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 indude 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’ Module Objectives: After thorough discussion of the topics, the leamer 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 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 intemal governance, are able to cease operations on their own authority, and are fundamentally in control of their own affairs.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS + 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 (.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.., 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. 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 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS. 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 Faimess, Accountability and Transparency. Faimess - rights of stakeholders should be observed and respecte 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 which it has been designated. 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Unlike in the business community where ai n 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 stat those of a for-profit corporation tements of a nonprofit organization (NPO) with [NON PROFIT ORGANIZATION _} Statement of Financial Position | FOR PROFIT CORPORATIONS _] ‘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 Statements Notes to Financial Statements ‘Statement of Financial Position sonprofit's statement of financial position i organization's assets and liabilities, but since owner's equily or stockholders’ equity but as. N The primary purpose of NPO is to provide prog) various activities, thus it issues Statement of revenue and expense that is presented in accor With Donors Restrictions Without Donor Restrictions The net assets section of a nonprofi’s statement of financial po: the following Net assets ‘Without donor restrictions A xxx With donor restrictions xxx Total net assets 2K is similar to a balance sheet that reports (he _—_i this is a nonprofit organization there is no let Assets, rams that meet certain needs of society thru its f Activities. The statement of activities reports dance with the two classifications of net assets jon requires at 2 minimum 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§3 SCRIBD ( Search Q ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS revenues (reported on the statement of activities) also cause the amount of net assets without donorrestrictions 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 ME a ersborship aves — + Program fees + Funcraising 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 4. Program functions 2. Support functionsACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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 nonprofi’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 © asset accounts © liability accounts | 2ss0l accounts ‘+ statement of activities accounts © revenues and gains © 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 e tc. 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS The statement of cash flows consists of three sections: 1, net cash from operating activities 2. net cash from investing activi 3. net cash from financing activities The operating section reports the changes in cash other than those reported in the investing and financing sections. ‘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, itis 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 . 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ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS INTERNAL USERS a. Members - Information on how fees, donations, grants, and proceeds from fundraising activities were used. - © ther information needs such as managerial remuneration, use of assets, management efficiency, etc. b. Management Team - Board of directorsitrustees for policy-making, strategic decision-making, and fuffiling 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. 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 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 recarded only whenACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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 @ 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 cee NPO stakeholders, who are the users of the information. An essential quality of the information provided is its understandability by users. 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 itis to influence decisions. Lack of timeliness reduces relevance. b. Reliability. Information is reliable when itis 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ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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 itis readily understandable by users. Balance between Qualitative Characteristics In practice, a balancing, or trade-off, between qualitative characteristics is often necessary. 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 Health Care Organizations Private, non-profit, Colleges and Universities Voluntary Health and Welfare Organizations Other non-profit organizations PENS Health Care OrganizationsACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Health Care Organizations include hospitals, olinics, 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: Components of a complete set of financial statements Presentation of revenues in the statement of operations Presentation of contributions in the statement of operations, Disclosure of performance indicator BENS 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: Statement of financial position Statement of operations (in lieu of a statement of activities) Statement of changes in net assets Statementof cash flows, and Notes to the financial statements. See ‘operation Revenues in the statement of operations are classifies into the following: eaege a. Net patient revenue — gross patient service revenue less contractual adjustments, employee discounts and billed charity care. b. Premium revenue — results from capitation agreements ¢. 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, @ 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 fair 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ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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 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: rmACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS a. Scholarships and fellowships granted freely are treated as direct reduction of revenues from tuition and fees, ¢.g., academic scholarship. b. Scholarships and fellowships granted as compensation for services rendered by the grantee are treated as expenses , €.g., academic scholarships provided to student assistants and faculty members or their dependents, ¢. 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 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 Sel be 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 4,000 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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. Itis 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 ‘Acerued Expenses 350 Almost Family Cash and Cash 15,600.0 equivalents PO Accrued Expenses P 360.00 Security Deposits 1,400.00 Net Assets = Without Donors Fumiture Restrictions 8,650.00 With Donors Restrictions 8,000.00 16,850.0 Total Net Assets 0 17,000.0 Total Liabiliies and Net 17,000. Total Assets PO Assels P_o Almost Family Statement of Financial Position For two months ended February 28, 2019 Without Donors With Donors Total Restrictions RestrictionsACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 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 16,850.00 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 utilties will be P30, 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: il 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 o Total Net Assets 15,650.0 15,650.0 Total Assets o Total Liabilities and Net Assets _0 Almost Family Statement of Activities March 31, 2019 Without Donors With Donors Total Restrictions Restrictions Revenue: Pp Contributions 8,000.00 ]- 8,000.00 - Net asset released fr Restriction 8,000.00 |-__8,000.00 zACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Expenses: Program Expenses Gen. Admin. Expenses 1,300.00 1,300.00 Fund Raising Expenses Total Expense 1,300.00 4,300.00 Change in Net Assets 6,700.00 |= 8,000.00 _- 1,300.00 Net Asset- beginning 8,650.00 8,000.00 16,850.00 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 penod Definition of Terms Unrestricted — available for immediate use and for any purpose. Temporanily restricted — restricted by the donor in such a way that the availability of the contribution for the NPO’s use is dependent Organized, ie., 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 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.¢., 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 fulfil 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.ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS Supporting activities — are all activities other than program services. Generally, these include management and general, fund-raising, and membership-development activities. 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)) ACTIVITIES / ASSESSMENT 1. Explain the applicability of the PFRSs to NPOs. 2. Account for the assets, liabilities, equity, revenues and expenses of NPOs. 3. Enumerate and describe the financial statements of NPOs. EXERCISES 4. Anongovernment 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. 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 2020 Mr. X donated a van to Bantay Bata Foundation, The van has a fair value of 250,000 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 2020, a church donated 20,000 to the Bantay Bata foundation that is restricted forthe purchase of equipment. The money was invested thal earned a 5% interest. Accrued interest on the investment totaled P1,500 on December 31,2020. The income from investment is also restricted for the purchase of equipment. Required: Prepare journal entries for these transaction in 2020. Discuss the effect on net the asset classifications and the financial statements 3. At the beginning of 2020 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