Non- Profit Organization

Submitted By:
Diaz, Emilyn
Galvez, Glennizze
Guasch, Tyra
Radomes, Angielou
Rubillar, Patricia Nicole

SAT 12:00 – 3:00 PM

RM. 120

Submitted to:
Prof. Ryan Jay Carasco
What is a Non-profit organization (NPO) ?

A nonprofit organization aids public or mutual benefits and welfares. Being a nonprofit does not
mean that the organization does not generate profit, but simply that it doesn’t generate revenue for the
purpose of harvesting income. And an organization without commercial owners and which addresses the
needs of society. In accounting for non- profit organizations, instead of maintaining a capital, these
organizations maintain Capital Fund or General Fund. They credit this account with the surplus, life
membership fees, donations, legacies, etc.

Nonprofit organizations are also known as not-for-profits, NFP's or simply as nonprofits. And may
apply to be exempt from federal income taxes. Donors' contributions to nonprofit organizations may or may
not be charitable deductions. For more information regarding these issues see Publication 557 at IRS.gov.

Some types of Non-profit organizations are:

1. Foundations

2. Voluntary health and welfare organizations

3. Public Hospitals

4. Public Schools

5. Religious organizations

Some Supporting Schedules and Statements Prepared by NPO’s include the following:

1. Bank Reconciliation Statement wherein all cash in bank balances are reconciled with the bank records
monthly or as the need arises.

2. Daily Cash Position Report which is prepared for cash in bank, cash on hand and petty cash/revolving
funds at the end of the day to provide information on receipts and payments as well the amount of cash
still available for use the following day.

3. Various Assets and Liabilities Schedules, or listings, to support the balances reflected in the financial
statements.

4. Ageing of Receivables and Payables

5. Schedule of Grants Received

Objectives of Financial reporting to Non-Profit Organization

It provides a report for the amount of revenue to cover the costs of fulfilling their mission now
and in the future. They often rely on grants and donations in addition to fees for service income. So they
prepare a statement of activities, which lists all revenue less expenses, and classifies the impact on each
net asset class.

The Financial statements of the Foundation compromise for the as of June 30, 2017-2016 :

- The statement of assets, liablities and fund balances

- The statement of Support and donations and Expense

- The statement of changes in fund balances

- The statement of total comprehensive income

- The statement of cash flows

Purpose of Financial Statements

The primary purpose of financial statements is to provide relevant information to meet the common interests
of donors, members, creditors and others who provide resources to not-for-profit organizations. Those external users
of financial statements have common interests in assessing
a. The services an organization provides and its ability to continue to provide those services and

b. How managers discharge their stewardship responsibilities and other aspects of their performance.

More specifically, the purpose of financial statements, including accompanying notes, is to

provide information about:
a. The amount and nature of an organization’s assets, liabilities and net assets
b. The effects of transactions and other events and circumstances that change the amount and nature of
net assets
c. The amount and kinds of inflows and outflows of economic resources during a period and the relation
between inflow and outflow
d. How an organization obtains and spends cash, its borrowing and repayment of borrowing and other
factors that may affects its liquidity
e. The service efforts of an organization
 FINANCIAL REPORTS

Statement of Assets, Liabilities and Fund Balances

Assets are in cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability
for at least 12 months after reporting date. And are expected to be realized in, or is held for sale or
consumption in, the entity’s normal operating cycle and primarily held for trading. Assets are also expected
to be realized within 12 months after reporting date.

liabilities are the entity that doesn’t have an unconditional right to defer settlement of the liability annually
after the reporting date. It is expected to be settled in the entity’s normal operating cycle and usually held
for trading. The liabilities are due to be settled annually after the reporting date.

Within governmental funds, equity is reported as fund balance; proprietary and fiduciary fund equity is
reported as net assets. Fund balance and net assets are the difference between fund assets and liabilities
reflected on the balance sheet or statement of net assets. Because of the current financial resource’s
measurement focus of governmental funds, fund balance is often considered a measure of available
expendable financial resources. This is a particularly important measure in the general fund because it
reflects the primary functions of the government and includes both state aid and local tax revenues. The
relative amount of unreserved fund balance reflected in the general fund is used by rating agencies as a
measure of the financial strength of the government. Declines in the amount of unreserved fund balance
may signal deterioration in the financial condition of the entity.

Fianancial statement of Support and donations and Expense

The Support and donations either monetary or in kind are initially recognized at the fair
value of the consideration received in the ordinary course of the foundation activities and also
determinable as to the extent that it will be probable through the economic benefits flow to the
foundation and the amount of support and revenue that can be measured reliably.

The Support and Donations provided for the recognition of the period received and
reported as revenues of the fund for which they are intended to designated for the fulfillment of
the donor proposed conditions that attached to the expenses that are incurred. However, as if the
conditions have not been met it is recognized deferred in deferred grant account. As for the
General or undesignated support and donations to be recognized upon the receipt of the support.
 Interest income on bank deposits, net of withholding taxes is acclaimed on a time
proportion basis, taking into account on the outstanding principal amount and the effective rate
over the period to maturity when it is determined that such income will accrue to the foundation.
On the other hand, the program expenses are recognized when incurred based on liquidation and
completion reports for specifies projects. And as for the General and administrative and other
expenses are recognized the period in which they are incurred. And covered the Property and
equipment that are carried at historical cost less accumulated depreciation and amortization and
impairment loss. All other repairs and maintenance are charged to general and administrative
expenses in these statement within expenses during the financial period in which they are incurred.

Statements of Changes in Fund Balances

In government accounting, equity is reported as fund balances. Therefore it is the difference

between assets and liabilities considered on the balance sheet. When reported it is commonly referred to
as current financial resources on a modified accrual basis. Wherein the accrual contains all inflows and
outflows of economic resources, current assets, and current and non current liabilities. Funds are generally
expected to be used within the year and liabilities are expected to be repaid.

On the statement of changes in Fund Balances shown the designated fund (special fund) and general
fund are separated. The net change in fund balance is computed as revenues minus expenditures plus or
minus total other financing sources plus or minus general and special items. Under comprehensive loss,
deficiency of support and donations over expenses for the year and other comprehensive loss is recognized.
The foundation provides for normal retirement benefits above minimum required by Republic Act 7641,
Retirement Pay Law. Retirement benefit obligation and expenses are recognized within staff cost,
respectively as at and for the years ended June 30. The total amount of fund balances is added to the fund
balances as of the beginning of the fiscal year (generally the same amount reported as the ending fund
balance for the previous year) these matched the total fund balances reported in the balance sheet.

Fianancial statement of Total Comprehensive Income

Total Comprehensive Income provided the five(5) required in a complete set of financial
statements. And represents the financial performance of an entity during accounting period. Components
of Profit and Loss and other items of comprehensive income.

The purpose of the statement of comprehensive income is to provide information to users on the
financial performance of business over the reporting period. Comprehensive income is also known as the
change in equity of organization/business during the reporting period

Other comprehensive income (OCI) is defined as comprising ‘items of income and expense (including
reclassification adjustments) that are not recognized in profit or loss as required or permitted by other
International Financial Reporting Standards (IFRS®). Total comprehensive income is defined as ‘the change
in equity during a period resulting from transactions and other events, other than those changes resulting
from transactions with owners in their capacity as owners’.

Other comprehensive income is designed to give the reader of a company's financial statements a more
comprehensive view of the financial status of the entity, though in practice it is possible that it introduces
too much complexity to the income statement.

Common items included in the account include:

1. Gains or losses on investments available for sale

2. Gains or losses on derivatives held as cash flow hedges
3. Foreign currency exchange gains or losses
4. Pension plan gains or losses

Statement of Cash Flows

On this statement provided the available cash and its use during the accounting period. It also
shows theinformation about methods of financing activities and use and investment of resources during
the period.

Operating Activities

The Operating Activities reflect all cash transactions that are not classified as either investing or
financing activities.

Cash inflows from operating activities include:

• Grants

• Contributions (other than long-term restricted contributions)

• Receipts from the sales of goods or services

Cash outflows for investing activities include:

• Purchase of property, plant, and equipment

• Disbursements of loans
Financing activities

By borrowing money and repaying amounts borrowed, and obtaining and paying for other resources
obtained from creditors using longterm credit. This category would also include cash received for
contributions from donors that is restricted for long-term purposes for which the restrictions have yet been
satisfied and the cash is still being held.

Cash inflows from financing activities include:

• Receipts of contributions from donors that are restricted for long-term purposes

• Interest and dividends restricted for long-term use

• Short-and long-term borrowings

Cash outflows for financing activities include:

• Repayment of short-and long-term debt

• Repayment of capital leases

Investing Activities

Investing activities include acquiring and disposing of debt and equity investments, making and collecting
loans, and acquiring and disposing of property, plant, and equipment.

Cash inflows from investing activities include:

• Sales of property, plant, and equipment

• Collections on loans

Cash outflows for investing activities include:

• Purchase of property, plant, and equipment

• Disbursements of loans
 Gawad Kalinga Community Development Foundation, Inc.
(A non-stock, non-profit organization)

Statement of Assets, Liabilities and Fund Balances

June 30, 2017 and 2016
(All amounts in Philippine Peso)

Notes 2017 (₱) 2018 (₱)

ASSET
Current Assets S

Cash and cash equivalents 2 316,248,668 317,793,758

Advances to GK programs 3 281,533,439 379,930,777
Advances to related parties 8 958,958 2,533,993
Other current assets 4 88,660,949 94,846,937

Total Assets 687,402,014 795,105,465

328, 442,810
Non- current Assets 5 309,179,497
Property and equipment
Intangible assets 6 2,107,248 4,199,380
Prepaid rent 14 4,420,000 3,960,000

Total non- current assets 334,970,058 317,338,877

Total Assets 1,022,372,072 1,112,444,342

LIABILITIES AND FUND BALANCES

Current Liabilities
Accrued expenses and other current liabilities 7 2,442,753 9,086,106
Due to related parties 8 - 1,575,035

Total current liabilities

10,661,141
Non-Current liability 2,442,753
Retirement benefit obligation 11 8,846,473 8,080,592

Total Liabilities 11,289,226 18,741,733

Fund Balances
1,003,406,568 1,084,636,698
Designated fund
General fund 7,676,278 9,065,911
Total fund balances 1,011,082,846 1,093,702,609
Total liabilities and fund
1,022,372,072 1,112,444,342
balances
 Gawad Kalinga Community Development Foundations, Inc.
( A non-stock,non-profit organization )

Statement of Support and Donations, and Expenses

For the years ended June 30, 2017 and 2016
( All amounts in Philippines Peso )

Notes 2017 2016

Designated Fund
Program support and donations 9 PhP 291,220,762.00 PhP 292,721,777.00
Program expenses 10 (PhP 372,450,892.00) (PhP 430,952,065.00)

Deficiency of program support and donation over program expenses (PhP 81,230,130.00) (PhP 138,230,288.00)
General Fund
Support and donations
Donation to administration 9 PhP 43,258,815.00 PhP 45,849,150.00
General and administrative expenses
Staff costs 12 (PhP 30,123,305.00) (PhP 33,253,913.00)
Travel and Transportation (PhP 3,583,642.00) (PhP 3,535,611.00)
Communication, light nad water (PhP 2,533,210.00) (PhP 2,894,342.00)
Professional fees (PhP 2,149,968.00) (PhP 4,553,484.00)
Amortization of intangible assets 6 (PhP 2,092,132.00) (PhP 11,692,145.00)
Rent 14 (PhP 1,092,000.00) (PhP 1,092,000.00)
Meetings, planning, and trainings (PhP 911,150.00) (PhP 1,076,391.00)
Local area administrative costs (PhP 900,000.00) (PhP 273,000.00)
Depreciation and amortization 5 (PhP 831,114.00) (PhP 1,327,256.00)
Printing and supplies (PhP 750,535.00) (PhP 737,773.00)
Repairs and maintenance 14 (PhP 188,364.00) (PhP 95,568.00)
Taxes and licenses (PhP 120,984.00) (PhP 22,199.00)
Marketing and promotion - (PhP 21,110.00)
Others (PhP 1,507,010.00) (PhP 3,595,478.00)
Total general and administrative expenses (PhP 46,783,414.00) (PhP 64,170,270.00)
Other income, net
Write-off of long outstanding liabilites 7 PhP 617,842.00 PhP 2,215,161.00
Interest income 2,4 PhP 1,813,902.00 PhP 1,120,548.00
Foreign exchange gain 15 PhP 282,081.00 PhP 468,155.00
Write-off of long outstanding receivable 4 - (PhP 320,000.00)
Total other income PhP 2,713,825.00 PhP 3,483,864.00
Deficiency of general fund over expenses (PhP 810,774.00) (PhP 14,837,256.00)
Total deficiency of support and donations over expenses (PhP 82,040,904.00) (PhP 153,067,544.00)
 Gawad Kalinga Community Development Foundation Inc.
(A non-stock, non-profit organization)

Statements of Changes in Fund Balances

For the years ended June 30, 2017 and 2016
(All amounts in Philippine Peso)

Designated General Total fund

fund fund balances
Balances at July 1, 2015 PhP 1,222,866,986.00 PhP 24,909,174.00 PhP 1,247,776,160.00
Comprehensive loss
Deficiency of support ands donations over expenses
for the year PhP (138,230,288.00) PhP (14,837,256.00) PhP (153,067,544.00)
Other comprehensive loss
Remeasurement loss on retirement benefit
obligation (Note 11) - PhP (1,006,007.00) PhP (1,006,007.00)
Total comprehensive loss for the year PhP (138,230,288.00) PhP (15,843,263.00) PhP (154,073,551.00)
Balances at June 30, 2016 PhP 1,084,636,698.00 PhP 9,065,911.00 PhP 1,093,702,609.00
Comprehensive loss
Deficiency of support ands donations over expenses
for the year PhP (81,230,130.00) PhP (810,774.00) PhP (82,040,904.00)
Other comprehensive loss
Remeasurement loss on retirement benefit
obligation (Note 11) - PhP (578,859.00) PhP (578,859.00)
Total comprehensive loss for the year PhP (81,230,130.00) PhP (1,389,633.00) PhP (82,619,763.00)
Balances at June 30, 2017 PhP 1,003,406,568.00 PhP 7,676,278.00 PhP 1,011,082,846.00

Gawad Kalinga Community Development Foundations, Inc.

( A non-stock,non-profit organization )

Statement of Support and Donations, and Expenses

Fort the years ended June 30, 2017 and 2016
( All amounts in Philippines Peso )

Note
s 2017 2016
Deficiency of support and donations over expenses (PhP 82,040,904.00) (PhP 153,067,544.00)
Other comprehensive loss
item that will not be reclassified to excess of
support and donations over expenses
Deficiency of program support and donation
over program expenses
Remeasurement loss on retirement benefit
obligation 11 (PhP 578,859.00) (PhP 1,006,007.00)
Total comprehensive loss of the year (PhP 82,619,763.00) (PhP 154,073,551.00)
 Gawad Kalinga Community Development Foundation, Inc.
(A non-stock, non-profit organization)

Statement of Cash Flows

For the years ended June 30, 2017 and 2016
(All amounts in Philippine Peso)

Note
2017 (₱) 2018 (₱)
s
Cash flows from operating activities

Deficiency of support and donations over expenses (82,040,904.00) (153,067,544.00)

Adjustments for:
Depreciation and amortization 5,6 7,737,392.00 20,204,639.00
11 1,326,597.00
Retirement benefit expense 1,022,654.00
Write-off of long outstanding receivables 4 - 320,000.00
15
Unrealized foreign exchange gain (234,084.00) (462,557.00)
7
Write-off of long outstanding liabilities (617,842.00) (2,215,161.00)
2,4
Interest Income (2,043,253.00) (1,120,548.00)
135,318,517.00
Operating loss before changes in working capital (75,872,094.00)
Changes in:
Advances to GK programs 98,397,338.00 112,648,164.00
5,725,988.00
Other current assets (34,754,804.00)
-
Deferred grant (2,960,000.00)

Accrued expenses and other current liabilities (6,025,511.00) (8,894,345.00)

Net cash generated from (absorbed by)
22,225,721.00
operations (69,279,502.00)
2,4 2,043,253.00
Interest received 1,120,548.00
11
Retirement benefits paid (1,139,575.00)
Net cash provided by (used in) operating
23,129,399.00
activities (68,158,954.00)
Cash flows from investing activities
5
Additions to property and equipment (24,908,573.00) (424,500.00)
6 -
Additions to intangible assets (160,000.00)
 Cash used in investing activities (24,908,573.00) (584,500.00)

Net decrease in cash and cash equivalents (1,779,174.00) (68,743,454.00)

Cash and cash equivalents at July 1 317,793,758.00 386,074,655.00
Effects of exchange rate changes in cash and cash equivalents 15 234,084.00 462,557.00
Cash and cash equivalents at June 30 2 316,248,668.00 317,793,758.00

Summary of Significant Accounting Policies

 Non-profit organization
Chart of Accounts

Number Account Type Balance Type

(under normal
circumstances)
Balance Sheet:

Assets:
1000 Checking Cash Debit
1010 Savings Cash Debit
1030 Short-Term Investments Cash Debit

1200 Accounts Receivable Accounts Receivable Debit

1201 Allowance for Doubtful Accounts Accounts Receivable Debit

1250 Employee Loans Other Current Assets Debit

1300 Prepaid Expenses Other Current Assets Debit

1400 Inventory Inventory Debit

1410 Work-In-Process Inventory Debit

1500 Capitalized Equipment Fixed Assets Debit

1510 Buildings and Real Estate Fixed Assets Debit
1590 Amortized Assets Fixed Assets Debit
1599 Accumulated Depreciation & Amortization Fixed Assets - Contra Account Debit

1900 Other Assets Other Assets Debit

Liabilities:
2000 Accounts Payable Accounts Payable Credit
2090 Credit Cards Payable Accounts Payable Credit

2100 Accrued Expenses Other Current Liabilities Credit

2120 Payroll Taxes Withheld Other Current Liabilities Credit
2160 Health Ins Withhold Liability Other Current Liabilities Credit
2200 Sales Tax Payable Other Current Liabilities Credit
2400 Income Taxes Payable Other Current Liabilities Credit
2490 Short-Term Portion of Notes Payable Other Current Liabilities Credit

2500 Notes Payable Long Term Liabilities Credit

2600 Notes Payable Long Term Liabilities Credit
Long Term Liab. - Contra
2899 Less: Short-Term Portion of N/P Account Credit

2900 Deferred Income Taxes Other Long Term Liabilities Credit

Net Assets:
00-3000 Restricted Funds - Marketing Campaign Net Assets Credit
00-3010 Restricted Funds - Northwest Campaign Net Assets Credit
Restricted Funds - Building and
00-3020 Improvements Net Assets Credit
00-3030 Restricted Funds - Employee Loan Fund Net Assets Credit
Restricted Funds - Offset (Contra
00-3099 Account) Net Assets Credit

00-3500 Retained Earnings Net Assets Credit

Income Statement:

Income:
00-4000 Income Income (Sales) Credit
00-4010 Income Income (Sales) Credit
00-4020 Income Income (Sales) Credit
00-4030 Income Income (Sales) Credit
00-4100 Reimbursible Expenses Income (Sales) Credit

Income (Sales) - Contra

00-4900 Reimbursible Expenses Account Credit
Income (Sales) - Contra
00-4901 Reimb. Exp. - Meals and Entertainment Account Credit

Cost of Goods Sold:

00-5000 Materials Cost of Goods sold Debit
00-5010 Materials Cost of Goods sold Debit
00-5020 Materials Cost of Goods sold Debit

00-5100 Direct Labor Cost of Goods sold Debit

00-5110 Direct Labor Cost of Goods sold Debit
00-5120 Direct Labor Cost of Goods sold Debit

Operating Expenses:
00-6000 Accounting Expenses Debit
00-6020 Advertising and Marketing Expenses Debit
00-6040 Bank Service Charges Expenses Debit
00-6060 Books & Reference Items Expenses Debit
00-6080 Charitable Contributions Expenses Debit
00-6100 Continuing Education Expenses Debit
00-6120 Hardware / Software Purchases Expenses Debit
00-6121 Capitalized Purchases Expenses - Contra Account Debit
00-6140 Insurance - Liability Expenses Debit
00-6160 Insurance - Health Expenses Debit
 00-6180 Licenses, Dues & Subscriptions Expenses Debit
00-6190 Legal Fees Expenses Debit
00-6200 Office Expenses Expenses Debit
00-6300 Payroll Processing Fees Expenses Debit
00-6310 Payroll Taxes Expenses Debit
00-6400 Postage and Delivery Expenses Debit
00-6450 Professional Fees Expenses Debit
00-6500 Rent Expenses Debit
00-6550 Repairs and Maintenance Expenses Debit
00-6600 Salaries and Wages Expenses Debit
00-6650 Staff Meetings & Kitchen Supplies Expenses Debit
00-6670 Supplies Expenses Debit
00-6680 Supplies - Printing & Repro. Expenses Debit
00-6900 Telephone Expenses Debit
00-6950 Travel Expenses Debit
00-6951 Travel - Meals & Entertainment Expenses Debit
00-6990 Utilities Expenses Debit

Other Income:
00-7010 Interest Income Income Credit
00-7030 Other Income Income Credit

Other Expenses
00-8100 Depreciation Expense Expenses Debit
00-8200 Interest Expense Expenses Debit

Income Tax Expenses:

00-9000 Income Taxes - Federal Expenses Debit
00-9010 Income Taxes - State & Local Expenses Debit
 ACCOUNT TITLE AND DESCRIPTION
ASSETS

Cash and Cash Equivalents

Cash comprises cash on hand, petty cash funds as well as local or foreign currency deposits in banks that
are immediately available for use in the current operations.

Cash On Hand

This account represents undeposited cash and check collections. It is good practice to deposit
collections/amounts received intact the following day. The deposit of the cash and check collections could
be done simultaneously with other banking transactions.

Petty Cash Fund

This account represents cash set aside for paying incidental expenses. The size of the fund should be
sufficient for at least two weeks’ requirements. The fund shall be initially set at a fixed amount and
subsequently increased or decreased depending on the need of organization.

This account is debited for the amount set up when the fund is established and for any subsequent
increase in the size of the fund. A credit to this account is made when the amount of fund is decreased.
The maximum amount that can be paid out of the fund is set. Disbursements exceeding the set limit
should be made through checks. Replenishments of the fund are madethrough checks and should be
made weekly or as soon as the actual balance becomes low.
Cash in Bank

This account is credited for all collections/amounts deposited and other transactions credited by the bank.
It is debited for all check disbursements or withdrawals and debit memos from the bank. A separate bank
account should be set up for each program as required by donors.

At the end of each month, cash in bank balance per general ledger is reconsidered with the balance shown
in the bank statements or savings account passbooks.

Cash equivalents

This account represents funds available for current operational requirements, which are temporarily
invested with financing institutions on a short-term arrangement. These short-term highly liquid
investments are readily convertible to cash with maturities of three months or less.

RECEIVABLES

Receivables are generally defined as claims held against others for future receipt of money, goods or
services. Receivables arise when adopting the accrual method of accounting. This is significant to NPOs
because the collection from these transactions provides funding for programs and services.
There are two basic considerations in recognizing receivables of this nature:

- a receivable (and the related revenue) should be recognized when the NPO actually earns the
revenue and the right to receive the money;
- that the receivables are ultimately collectible, i.e., enforceable on the part of the NPO.

Receivables are valued at the outstanding balance at which they are to be collected. The amount is
reduced by an estimated allowance for doubtful accounts determined basedon net realizable value of the
receivables. Other receivables include cash advances for operating expenses, salary loans, and other
advances to officers and staff. This category also includes advances to individuals or organizations that are
not intended for the normal operations of the NPO. Because these receivables come from the operational
fund of the NPO, intended for the delivery of programs and services, these are expected to be collected or
can be an offset to other activity costs. No allowance for doubtful accounts is recognized for this type of
receivables.

Advances to Officers and Employees

The Advances to Officers and Employees account represents cash and other forms of advances
(like telephone bills etc.) to the officers and employees, subject to liquidation or payroll deductions.

- Accounts Receivable-Others

This represents claims arising out of advances by the program to other programs for which it
expects reimbursement.

- Receivable-Term Loan

These are loans made to borrowers beyond one year but not exceeding 3 years, inclusive of the 6
month grace period on principal payment. Payments (Principal and Interest) of these loans are amortized
on a monthly, quarterly or semi-annual basis. Interest is computed based on the diminishing balance.

- Allowance for Doubtful Accounts

To cover possible losses due to default in payment of loans, a portion of the outstanding balance
shall be provided with allowance for doubtful accounts at year-end. The allowance provision shall be based
on the age of the amount that remains unpaid. Allowance for doubtful accounts shall be provided in an
amount equal to the total receivables reasonably estimated to be doubtful of collection. The amount of
allowance should be based on past experiences and on continuing review of receivable aging reports and
other relevant factors.

- INVENTORY

Inventory comprises materials or supplies to be consumed in the process of rendering services.

These may be manufactured or donated goods for distribution to beneficiaries. Inventories will be
recognized as assets if the future economic benefits associated with the inventory will flow to the
organization and the cost can be reliably measured. Inventories held for distribution are to be valued based
on historical cost; while inventories held for production, should stated based on fair value.
 - PREPAID EXPENSES

Prepaid Expenses account represents expenditures, often recurring, paid in advance for benefits yet
to be received such as insurance, rent, interest and others. The accountis debited for the portion of expenses
paid in the current month but which applies to the succeeding months. Credit to this account is made for
the portion of the expenses that has expired.

- INVESTMENTS

Investments are assets not directly identified with the operating activities of the NPO. Investments
are expected to provide the revenues needed for operations over the long term. Investments may be
classified either as temporary investments or long-term investments. Short-term investments imply that the
investments may be converted to cash within a relatively short period and that they are funds available for
current operations. Long-term investments are acquired in accordance with financial policies looking to the
accumulation of funds.

- PROPERTY AND EQUIPMENT

Property and Equipment are tangible assets with an estimated useful life beyond one year, used in
the conduct of the business and not intended for sale in the ordinary course of business.

Assets of this nature include:

a. property not ordinarily subject to depreciation such as land used for office sites;

b. property subject to depreciation or amortization such as buildings, office and transportation

equipment, furniture and fixtures, and improvement to leased facilities. Each class of assets is debited for
additional acquisitions made and credited for disposals, retirements or write-offs. Acquisition of property
and equipment is recorded using the asset method. Property and equipment may be acquired through
purchase, construction, grant or donation. Property and equipment acquired from a restricted grant or
donation will be recognized as an asset at its net book value, when ownership is passed on with a
corresponding credit to Property and Equipment Fund. In case the ownership of the property remains with
the donor until the fulfillment of certain requirements, a disclosure in the financial statements of these
possessed but not owned assets should be made in the financial statements.

- ACCUMULATED DEPRECIATION

Depreciation is the cost of using up the future economic benefit or service potential of fixed assets.
Except for non-exhaustible assets such as land and art collections, all fixed assets are depreciated on a
rational and systematic basis over the life of the asset. Depreciation allowance is credited to the related
accumulated depreciation of the capital assets. This account is debited for amounts previously provided for
on assets sold, disposed, retired or written-off.
 LIABILITES

Current liability is used principally to designate obligations whose liquidation is reasonably expected to
require the use of existing resources properly classified as current assets or the creation of another current
liability. Long-term liability represents the portion of any long-term obligation maturing

Accounts Payable-Trade

The Accounts Payable-Trade account represents the total of unpaid bills due to suppliers and others at the
end of each month for support, services and/or materials received but not yet paid for.

Accrued Expenses

The Accrued Expenses account represents estimated amounts due for services and/or supplies/materials
already received but which remain unpaid for at the end of the month or at year end, such as salaries and
wages, rent and interest, which are credited to this account. Subsequent payments or reversal of previous
liability set up in the preceding month are debited to this account.

Advances from Officers/Employees

The Advances from Officers account represents cash or other forms of advances made by the
officers/employees. This account is credited for the amount advanced by the officers/employees and
debited for any payment made to them.

Other Current Liabilities

Other payables include other liabilities incurred which amount are readily determined from available
documents, i.e., billings, amounts withheld from employees, or otherparties for taxes and for contributions
to pension funds. It also includes other liabilities that cannot be properly classified under other specific
current liabilities account groupings in the chart of accounts.

Deferred Revenue/Support

This account is credited when cash is received prior to either having earned the revenue or the right to keep
the revenue. It is debited when earned and the corresponding credit to revenue or support is made
 NET ASSETS

Unrestricted Funds or General Funds

This is used to record activities that are supported by resources over which the NPO has discretionary
control and the principal sources of which are donations from donors, membership dues, and unrestricted
investment/interest, income. Its use is not restricted even though their use may be limited in other respects,
such as by contract or by board designation. Any excess of revenues over expenditures forms part of the
Unrestricted Net Asset.

REVENUES

Revenues represent actual or expected cash inflows (or the equivalent) that have occurred or will
materialize as a result of the entity’s ongoing central or major operations during the period.Each source of
revenue generally refers to an inflow that is distinct from all others.

Grants

This refers to funds (or equivalent) given by donors for a specific program/project with certain conditions
relating to the operating activities of the NPO. Grants, including non-monetary grants, valued at fair value,
should not be recognized until there is reasonable assurance that:

a. the NPO will comply with the conditions attaching to them; and

b. the grants will be received. Mere receipt of the grant is not conclusive evidence that the conditions
attached to the grant have been or will be fulfilled.

Grants should be recognized as revenue or support over the periods necessary to match them with the
related costs or expenses incurred for the purpose for which they are intended.

Donations

This refers to unrestricted contributions in cash or in kind or services from donors to be used in
accomplishing the purposes for which the NPO has been created or organized and over which the Board has
discretionary control.
Non-Cash Donations/Contributions

Contributed services should be recognized in the financial statements if the services received meet these
criteria:

• Create or enhance the value of an activity

• Required specialized skills are provided by individuals or organizations possessing those skills and would
typically be purchased if not provided by way of donation.Non-cash assets received by NPOs should be
recorded as contributions at their fair market value, at the time the service or asset is received, in the
same way that cash contributions are recorded.

Other Income

This account represents income earned from sources other than from operations. Examples include
interest from savings accounts and other money market placements or investments, gain on sale of fixed
assets and foreign exchange gain or losses and other miscellaneous items.

EXPENSES

A. Functional reporting, as its name implies, describes the activity for which the NPO incurs an expense.
Expenses may be classified per function, as follows:

1. Program/Project Expense

2. Administrative Expenses, further classified as:

a. General expenses

b. Human resource development

3. Fund raising expenses

Program/Project Expenses

This refers to all program implementation costs or those expenses relating to program/ project service
activities that result in services (or goods) being given to beneficiaries or members that fulfill the basic
mission of the NPO. There can be more than one category of program services.

Program/Project Support Activities Expenses

This pertains to expenses incurred for activities necessary to support or assist program implementation
which include capability building, information management, policy advocacy, networking of project
proponents, partnership building, investment promotion, project development, assessment, approval,
monitoring, and evaluation; and provision of technical assistance for NPO’s/PO’s, among others.
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 trustees, management, and staff such as those
expenses incurred for staff training and development.

Method Used
- Straight line Method
Straight line depreciation is the default method used to recognize the carrying amount of a fixed
asset evenly over its useful life. It is employed when there is no particular pattern to the manner in which
an asset is to be utilized over time. Use of the straight-line method is highly recommended, since it is the
easiest depreciation method to calculate, and so results in few calculation errors.

The straight-line calculation steps are:

- Determine the initial cost of the asset that has been recognized as a fixed asset.
- Subtract the estimated salvage value of the asset from the amount at which it is recorded on
the books.
- Determine the estimated useful life of the asset. It is easiest to use a standard useful life for
each class of assets.
- Divide the estimated useful life (in years) into 1 to arrive at the straight-line depreciation rate.
- Then multiply the depreciation rate by the asset cost (less salvage value).

Journal Entry:
depreciation expense xx
accumulated depreciation xx
 Accounting Basis of NPO
Cash Basis

If a nonprofit organization uses the cash method of preparing its accounting records and statements, it
recognizes income and expenses when they occur. In other words, the nonprofit would record income
when it received the funds and not when it is actually earned. It would also record expenses at the time it
paid the bill rather than when it incurred the expense.

Example

This is a common approach for smaller nonprofits, as it mirrors a personal “checkbook accounting,”
entering debits or credits as they are completed. For example, under a cash basis, if you receive a Php
5,000 pledge today, you do not record the Php5,000 until the money is in the bank.

Pros and cons of the cash basis are as follows:

Pro: Easier to use on a day-to-day basis as it only requires one entry per transaction.

Pro: Due to its straightforward nature, cash basis requires less work and less stress when working
with slow-paying funding sources (as opposed to accrual accounting, where money would be booked but
the bank accounts could be barren)

Con: Must put a disclaimer on year-end reports that you use a cash basis.

Con: Presents challenges in visibility, especially for larger nonprofits.

Accrual Basis

Using the accrual method of accounting, a nonprofit recognizes income when they earn it, rather than
when they receive it. It would also recognize expenses when they were incurred instead of when the
organization paid the bill. For example, using the accrual method a nonprofit would recognize a pledge as
income. That would hold true even if it had not yet received all the money, or even any amount of the
donation pledged.

Example
Under the accrual method, nonprofits would record revenue and expenses when the transaction
takes place, regardless of whether the cash has changed hands.

example, a Php15,000 pledge would be recorded immediately and would create a receivables
account for outstanding cash.

Pros and Cons

Pro: Offers a more complete view for monthly and quarterly financial statements, allowing you to
get a more complete picture of your organization’s financial condition.
 Con: More work—two entries per transaction and necessary cash flow statements.

Con: Requires more time and effort to keep books on a pure accrual basis.

Fund Accounting

Funds accounting is a form of accrual accounting that is specific to nonprofits. As a nonprofit grows,
its funding sources can become more diversified. It may receive multiple grants, a government contract,
personal donations of cash and goods and donations of time. With the funds basis of accrual accounting,
each income stream is given its own accounting code. For example, your Department of Education grant
would have its own code. Beyond that, you would be able to assign codes within a category so that you
could break up DOE funds between general revenue, service revenue and administrative.

Modified Cash Basis

Modified cash basis statements combine elements of cash basis and accrual accounting. Certain
transactions are reported on an accrual basis and others on a cash basis (for example, liabilities may be
presented, but fixed assets may not).

The modified cash basis establishes a position part way between the cash and accrual methods. The
modified basis has the following features:

Records short-term items when cash levels change (the cash basis). This means that nearly all elements of
the income statement are recorded using the cash basis, and that accounts receivable and inventory are not
recorded in the balance sheet.

Records longer-term balance sheet items with accruals (the accrual basis). This means that fixed assets and
long-term debt are recorded on the balance sheet, and depreciation and amortization in the income
statement.

Pros and Cons

Pro: Makes accounting for small transactions easier while allowing for a more accurate position
when looking at fixed assets or large transactions.

Pro: Does not need disclaimer on year-end forms.

Pro/Con: Very conservative method of recording income and expenses. In this method, you only
report cash which has been received, but include expenses whether or not they have been paid.

Tax Basis

While rare in the nonprofit world, there may be some cases for a tax basis for accounting. The tax
method of accounting would ensure the financial statements match the organization’s Form 990.
 Factors to Consider When Deciding on an Accounting Basis
Simplicity. The cash method may be the easiest to maintain and understand. Either the money came in or
it went out. There are no accruals or allocations to compute. Cash basis financial statements are most
common with very small not-for-profits.

Savings. Cash basis financial statements may provide administrative savings. With no accruals or
allocations to consider, less time is required for accounting. In addition, if the organization has a financial
statement audit, there are fewer statements for an auditor to test and issue an opinion on. This would
generally reduce the cost of an audit.

Organizational Documents. Like regulatory requirements, a not-for-profit’s by-laws may specify the basis
of accounting the organization must use. Consider reviewing your organization’s by-laws before
undergoing extensive research to make sure you have the flexibility to choose a basis of accounting.
Reference :

http://www.projectedfinancialstatements.com/pages/npchartofaccounts.asp

https://fa-cpa.com/financial-reporting-goals-profit-vs-not-profit/

https://rinehimerbaker.com/blog/choose-right-basis-accounting-nonprofits/