NONPROFIT

ORGANIZATIONS

Nonprofit Organization
- a non-stock corporation organized for the benefit of the
public as a whole.
- derives revenues to cover its expenses
Examples:
1. Civic Organizations

2. Colleges and Universities

3. Cultural Organizations

4. Religious Organizations

5. Cooperatives

6. Social and Country Clubs

Characteristics of NPO
similar to Governmental Entities
1. Public Service render services to society as a whole
2. No profit motives objective is not to earn profit.
3. Finance by citizenry depends on voluntary
contributions of the citizenry
4. Stewardship of resources must account for the
resources on a stewardship basis

Characteristics of NPO
similar to Business Entities
1. Governance of Board of Directors (BOD) governed by
elected or appointed directors
2. Use of Accrual Basis revenues and expenses are
recorded as earned and incurred

Accounting Standards for

Nonprofit Organizations
Fund Accounting
Fund accounting unit for nonprofit organizations
Separate funds to separate assets to be used and
assets restricted by donors
Unrestricted Fund General Fund/Unrestricted
Current Fund
Restricted Fund Restricted Current Fund

Revenues and Gains from

Unrestricted Fund
Unrestricted Fund
- All assets of a nonprofit organization available for use as
authorized by the BOD
- Not restricted for specific purposes
1. Revenues from Services
2. Contributions
3. Other Operating Revenues
4. Pledges

Revenues and Gains from

Unrestricted Fund
Revenues from Services
- recorded when services are rendered even part or all
of the revenues is to be waived or reduced

Revenues from Services Hospital

Gross Patient Service (before any charity care or
contractual adjustments)

P 250,000

Charity care for poor and indigent persons patients

50,000

Contractual adjustment allowed to Medicare patients

25,000

Provision for Doubtful Accounts

15,000

Accounts Receivable
Service Revenue

200,000
200,000

Contractual Adjustments
Accounts Receivable

25,000
25,000

Doubtful Accounts
Allowance for Doubtful Accounts

15,000
15,000

Revenues from Services

Colleges and Universities
Tuition Fees (Gross)

P 750,000

Tuition waivers under scholarship program

120,000

Provision for Doubtful Accounts

Accounts Receivable
Service Revenue Tuition Fees
Expenditures for Student Scholarships
Accounts Receivable
Doubtful Accounts
Allowance for Doubtful Accounts

80,000
750,000
750,000
120,000
120,000
80,000
80,000

Revenues and Gains from

Unrestricted Fund
Contributed Materials, Services and Facilities
Materials
Inventories
xx
Contributions Revenue

xx

Services and Facilities

Salary Expense/Rent Expense
Contributions Revenue

xx
xx

Revenues and Gains from

Unrestricted Fund
Other Operating Revenue
- Income derived from other related activities, other
than revenues of nonprofit organizations.
- Proceeds from Gift shops, Cafeterias, Snack Bars,
Newsstands, Parking Lots
Cash or Accounts Receivable
Other Operating Revenue

xx
xx

Revenues and Gains from

Unrestricted Fund
Pledges
Pledge a promise to give; 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.
Unconditional pledge is recorded as receivables and
revenues in the unrestricted fund with appropriate
provision for doubtful pledges.
Conditional pledges are accounted for in a restricted fund.

Revenues from Pledges

Pledge Receivable

P 500,000

10% Doubtful of collection

Pledge Receivable
Contributions Revenue
Doubtful Pledges Expenses
Allowance for Doubtful Expenses

500,000
500,000
50,000
50,000

Expenses & Losses

A nonprofit organization typically recognizes all
expenses in its unrestricted fund. The losses may be
recognized in other funds as well as in the unrestricted
fund.
Expenses are classified as:
1. Program Services
2. Supporting Services

Program Services
Program Services are the organizations activities that
result in the distribution of goods and services to
beneficiaries, customers, or members that fulfill the
purpose or mission of organization.
Expenses are those amounts specifically expended in
support of activities that directly advance the
organizations nonprofit mission

Supporting services
Supporting Services are all activities of the organization
other than program services.
Examples:
1. Fund raising costs
2. Membership development services

Fund Raising Expense

Although fund-raising costs may benefit future
accounting periods of a nonprofit organization, just as
advertising costs of a business enterprise may benefit
future periods, fund-raising costs are recognized as an
expense when incurred.

Administrative expenses
General Expenses
- relate to activities such as oversight management,
general record keeping, office maintenance, and
similar expenses.
Human Resource Development
- pertains to expenses incurred for the purpose of
developing and consolidating the NPOs board of
trustee, management and staff.

Conditional Pledges
Some nonprofit organizations promise to make grants
to individuals or to other organizations. Generally,
grants are recognized as expense when the governing
board unconditionally approves them

Assets and Liabilities

Most assets and liabilities of a nonprofit organizations
unrestricted fund are similar to the current assets and
liabilities of a business enterprise.
Cash, investments, inventories, accounts receivables,
receivables from other funds, short term prepayments
are typical assets of unrestricted fund.

Fund balance
Because most nonprofit organizations do not have
owners, the net assets of the organizations
unrestricted funds are represented by a fund balance.
The board of directors may designate a portion of an
unrestricted funds net assets for a specific purpose.

Restricted Fund
Nonprofit organizations establish restricted funds to
account for assets available for current use but
expendable only as authorized by the donor of the
assets.
The restricted fund resemble the special revenue fund
of a governmental entity.
Assets are not derived from operations of the nonprofit
organization.

Temporarily Restricted
The assets are obtained from restricted gifts or grants
from individuals or governmental entities, revenues
from restricted fund investments, realized and
unrealized gains or investments of the restricted funds,
and restricted income from endowment funds.
These assets are transferred to the unrestricted fund at
the time the designated expenditure is made.

Permanently Restricted
A permanent endowment fund
- one for which the principal must be maintained
indefinitely in revenue producing investments.
Only the revenues from a permanent endowment funds
investments may be expended by the nonprofit
organization

Other Funds of
Nonprofit
Organizations

Agency Fund
An agency fund is used to account for assets held by a
nonprofit organization as custodian.
The assets are distributed only as instructed by their
owner.
The undistributed assets is reported as liability of the
fund rather than fund balance.

Annuity Fund
Assets may be contributed to a nonprofit organization
with the stipulation that the organization pay specified
fixed amounts periodically to designated recipients, for
a specified time period.
An annuity fund is established by the organization to
account for such arrangement.

Life Income Fund

A life income fund is used to account for stipulated
payments to a named beneficiary/ies during the
beneficiarys lifetime.
Only the income is paid to the beneficiary.
Payments to beneficiary vary from one accounting
period to the next, but payments from an annuity fund
are fixed in amount.

Plant Fund
The components of plant funds vary among nonprofit
organizations.
In addition to assets, plant funds may include cash and
investments earmarked for additions to plant assets
and mortgage notes payable and other liabilities
collateralized by the plant assets.
Sinking fund assets set aside for retirement of debt
incurred to acquire plant assets.

Financial Statements
of Nonprofit
Organizations

Financial Statements of
Nonprofit Organizations
For uniformity in financial reporting, the Financial
Accounting Standards Board of the AICPA issued FASB
Statement No. 117, Financial Statements of Not-forProfit Organizations

FASB Statement No. 117

Provisions
Financial statements shall include:
1.
2.
3.
4.

Statement of Financial Position

Statement of Activities
Statement of Cash Flows
Notes to the Financial Statements

. The Statement of Financial Position shall report:

Amounts of total assets, total liabilities and total net
assets
Amounts of each of the three classes of net assets:
1. Permanently Restricted
2. Temporarily Restricted
3. Unrestricted

FASB Statement No. 117

Provisions
The statement of activities shall report:
Amount of change in net assets for the period with a
caption such as changes in net assets or change in
equity
Amount of changes in each of the three classes of net
assets
Gross amounts or revenues and expenses, except that
investment revenues may be reported net of expenses
and gains and losses on disposal of plant assets
Expenses by functional classifications such as program
services and supporting services

FASB Statement No. 117

Provisions
The statement of cash flows shall be similar in formatdirect method or indirect method, the one used by the
business enterprise.