Government Accounting (BADVAC3X) according to the following classes of net

assets:
a. Restricted
TOPICS:
b. Unrestricted
Non-Profit Organizations
● Recognition of donations and
contributions as revenue
NON-PROFIT ORGANIZATIONS

FINANCIAL STATEMENTS OF
Nature of Non-Profit Accounting
NOT-FOR-PROFIT ORGANIZATION
An entity that possesses the following
1. Statement of Financial Position (Balance
characteristics that distinguish it from a
Sheet)
business enterprise:
2. Statement of Activities (Profit or Loss)
1. Contributions of significant amounts of
3. Statement of Activities
resources from resource providers who
4. Statement of Cash Flows
do not expect commensurate or
5. Notes to the Financial Statements
proportionate pecuniary return,
6. Statement of Functional Expenses
2. Operating purposes other than to
provide goods or services at a profit,
STATEMENT OF FINANCIAL POSITION
and
(Balance Sheet of Non-Profit Entities)
3. Absence of ownership interests like
those of business enterprises.
• Contains assets, liabilities and net assets. Net
assets are sub-classified into restricted and
Not-for-profit organizations have those
unrestricted. Long-term assets and short-term
characteristics to varying degrees.
assets are separated.
Organizations that clearly fall outside this
• Comparative financial statements are not
definition include all investor-owned
required.
enterprises and entities that provide dividends,
lower costs, or other economic benefits directly
STATEMENT OF ACTIVITIES (Income
and proportionately to their owners, members,
Statement of Non-Profit Entities)
or participants, such as mutual insurance
companies, credit unions, farm and rural
• Uses accrual basis of accounting. Shows the
electric cooperatives, and employee benefit
changes in the net asset categories
plans.
• Focuses on the organization as a whole and
NPO is subdivided as follows:
not on the reporting of funds held by the
1. Voluntary health and welfare
non-profit entity.
organizations (VHWO)
• Depreciation on long-lived assets is
2. Hospitals and other health care
recognized even if they arise from gift,
organizations
except "collections" such as:
3. Colleges and universities
a. Work of art
4. Other not-for-profit organizations
b. Historical treasures
such as churches, museums, fraternity
• Revenues and expenses are reported at gross
associations, etc.
amounts, except:
a. Gains or losses from peripheral or
Note: only those non-profit organizations -
incidental transactions or events
private institutions - are accounted for by
beyond the control of the organization
NPOs. If it's government institutions under
b. Investment income - reported net of
GAMs.
related expenses
c. Further classifications such as operating
Peculiarity of Accounting:
and non- operating, recurring or
● Not-for-profit organization classify net
non-recurring, etc. are optional.
assets, revenues, gains, and losses

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• Expenses are reported only in the unrestricted
classification whereas revenues, gains and
losses can be presented in any of the two
classifications of net assets.
• Expenses are classified by functional
classification in the statement or in the notes:
a. Program services activities involved in
distribution of goods or services that
fulfill the purpose or mission of the
organization to beneficiaries.
b. Supporting services - catchall category
for all expenses not classifiable as
program services.
1. Management and general -
oversight, business
management, record keeping,
financing and related
administrative activities.
2. Fund-raising - fund-raising
campaigns, events, fund-raising
manual distribution and other
activities to solicit contributions.
3. Membership-development
activities - soliciting
prospective members
membership dues
membership relations.
STATEMENT OF FUNCTIONAL EXPENSES
Voluntary, Health and Welfare Organization
reports expenses classified by both:
a. Functions and
b. Nature
This is provided in either matrix format or as a
separate statement.
STATEMENT OF CASH FLOWS
1. Operating Activities
● Includes unrestricted cash
contributions, unrestricted
investment earnings, revenue
restricted for operating
purposes (Program Restrictions),
revenue from exchange
transactions, and operating
expenditures (salaries, supplies,
interest expense).
● It does not include contributions
restricted to capital purposes.
● Presented using direct method.
2. Financing Activities
● Includes contributions and
investment revenues restricted
for long-term purposes (e.g.,
restrictions for acquisition of
capital assets, endowments)
Includes debt-related activities
(debt proceeds, repayments,
lease payments, etc.). Presented
using a direct method.
3. Investing Activities
● Includes inflows and outflows
from the sale and purchase of
capital assets and investment
assets.
● It does not include contributions
restricted to capital purposes.
● Presented using a direct method.
● Cash restricted for long-term
purposes must be separated
from cash and cash equivalent.
for ● There must be a reconciliation of
and the change in net assets in the
or statement of activities to net
cash flows from operating
activities.
CONTRIBUTION
An unconditional transfer of cash or other
assets to an entity or a settlement or
cancellation of its liabilities in a voluntary,
nonreciprocal transfer by another entity acting
other than as owner.
Promise to give is a written or oral agreement
to contribute cash or other assets to an entity.
● Recognized as contributions if verifiable
and substantiated by evidence such as
pledge cards or tape recording of oral
promises.
Types of promises:
1. Conditional promise to give
a. Depends on the occurrence of a
specified future and uncertain events to
bind the promisor.
b. Initially recognized as liabilities
(conditional grants)
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 c. Recognized as contribution revenue
and receivable when the conditions are
substantially met or when the promise
becomes unconditional.
2. Unconditional promise to give
a. Promises are unconditional if the
possibility that a condition will not be
met is remote.
(Remote - aren't likely to occur and
aren't reasonably possible ; or 10%
chance to occur)
b. Depends only on the passage of time or
demand by the promise for
performance.
c. Recognized as contribution revenue
and receivable in the period received.
d. Reported as restricted support
(temporary due to natural restriction),
even if the resource is not restricted by
the donor for specific purposes
e. When the donor explicitly stipulates that
the unconditionally promised
contribution is intended to support
current-period activities, it is reported
as unrestricted support.
SPECIAL DISCLOSURES REQUIRED FOR
UNCONDITIONAL PROMISES
Unconditional promises to give should be
disclosed as amounts of promises receivable in:
● Less than a year
● 1 to 5 years
● More than 5 years
Classifications of Contributions
Contributions are separated into the three
classes of net assets. Those that increases:
1. Unrestricted net assets
2. Restricted net assets - Temporarily and
Permanently
RECOGNITION AND MEASUREMENT OF
CONTRIBUTIONS
Contributions of Services
Contributed services are recognized as revenue
only when they:
1. Create or enhance nonfinancial asset of
the organization or
2. Require specialized skills, are provided
by those individuals possessing those
skills, and would typically be purchased
if not provided by donation
Contributed Collection Items
An entity need not recognize contributions of
works of art, historical treasures, and similar
assets if the donated items are added to
collections that meet all of the following
conditions:
1. Are held for public exhibition, education,
or research in furtherance of public
service rather than financial gain;
2. Are protected, kept unencumbered,
cared for, and preserved;
3. Are subject to an organizational policy
that requires the proceeds from sales of
collection items to be used to acquire
other items for collections.
Contributions of Long-Lived Assets
1. With Restrictions - The asset is
recognized in the restricted net assets.
Depreciation is provided as an expense
in the unrestricted category.
2. Without Restrictions - The entity either
classify, by accounting policy, the
long-lived assets as:
a. Restricted net assets with time
restriction over the life of the
asset. (Note: This accounting
policy assumes that the
long-lived asset has time
restriction.)
b. Unrestricted support upon
receipt.
Contribution with Donors' restrictions and
conditions
Donor imposed conditions - provides that the
donor's money be returned, or the donor be
released from the promise to give if the
condition is not met.
Donor imposed restrictions - limits the use of
contributed assets. They expire upon
satisfaction of all restrictions.
If it is unclear whether donor's
stipulations are conditions or
restrictions, the organization should
presume that the promise is
conditional.
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 CONTRIBUTIONS RECOGNITION
Types of Restrictions (Measured:
GR: @Fair Value)
1. Donor-imposed restrictions:
a. Time restriction General Rule: when the promise is
b. Purpose restriction received
2. Internal restriction or Quasi-endowment Contribution in kind no value;
- restriction either as to time or purpose but when it sold -
that the NPO's trustee has designated SALES REVENUE (@
for the use of a resource. Such internal selling price)
restriction is ignored and should be
Multi-Year promises as REVENUE
reported as unrestricted.
(@PV of the future
collections net of
Fulfillment of restrictions during the year of estimated
receipt of contributions uncollectibles)
Entities may report the restricted
contribution received as unrestricted if: Contribution of as REVENUE
Services
(restricted to unrestricted)
1. Such accounting policy is Works of art and GR: not recognized
adequately disclosed and is similar items
consistently applied
2. Same accounting policy is Contribution of
employed with investment long-lived assets
● W/ Restrictions - in Restricted Net
income whose restrictions are
Assets (temporarily)
met in the same period as the
income is recognized. ● No Restrictions - either:
•Restricted net
Effects of Non-Fulfillment or Restrictions assets with time
● Conditional gift of cash or other assets restriction; or
that may have to be returned to the •unrestricted net
donor if the condition is not met is asset
treated as a liability (refundable With Donors' - restriction expires
advance). restrictions when
● Contributions with restrictions that do time-restriction
not lapse are called permanently mets or
restricted. These include pure purpose-restriction
endowments wherein both principal and is satisfied
(restricted to
income are non-expendable by the
unrestricted)
entity.
With Donors' - conditions is done
Investments and Investment Income. conditions when promises is
NPOs organizations initially record purchased met
investments at their cost and contribute
investments at fair value in the appropriate OTHER THAN CONTRIBUTIONS
net asset classification. They recognize 1. Exchange Transactions
investment income as earned and report the - involves bilateral or reciprocal
income as an increase in unrestricted, transfer in which both parties
temporarily restricted, or permanently give commensurate or equal
restricted net assets, depending on value such as sales and barter.
donor-imposed restrictions on the use of the
investment income.

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 - treated as revenue as they are
earned and are classified as
unrestricted revenues.
- Receipt of any resources from
members or donors must be
carefully analyzed if they
contain exchange elements. The
contribution element is
recognized as a contribution
when received.
2. Agency Transactions
- Assets received from such
transfers are recognized as a
liability and not as contributions
3. Non-cash Contributions
a. With little or no discretion as to
use - account as if agency
transactions
b. With discretion as to use -
recognized as contributions
Major Classifications of NPO And Special
Considerations
A. Voluntary Health and Welfare
Organization (VWHO)
VHWO classifies their expenses by
functional classification such as:
1. Management and general
Recreational programs
2. Community service Fund-raising
3. Recreational programs
4. Fundraising
B. Hospitals and Health Care Organizations
Patient Service Revenue - revenues of hospitals
and health care organizations from:
1. Rooms and boards
2. Nursing Services
3. Other professional Services
Revenues of Hospitals and Health Care
Organizations:
1. Direct deductions to Patient Service
Revenue
a. Courtesy discounts - discounts
for employees doctors.
b. Contractual adjustments - 3. Student Financial Aid
discounts arranged from third
party payors such as Red Cross
and PhilHealth).
2. Charity Services - an exclusion from
patient service revenue, meaning, they
do not form part of both gross and net
patient service revenue.
3. Premium fees - (also known as
subscribers' fees or - capitation fees)
These are charges under agreement
wherein the hospital provides necessary
patient services for a specific fee. (add'l
to revenues)
4. Other Operating Revenues - includes
revenues from sales or services
provided to:
a. Patients other than for health
care and
b. Non-patients.
5. Non-Operating Revenues - this includes
any revenues not related to operations
of the non-profit hospital such as:
a. Gifts and bequests
b. Investment income (dividends
and interests)
Functional Expense Category of Non-Profit
Hospital and Health Care Organizations:
1. Nursing services- medical and surgical,
intensive care, nurseries and operating
rooms.
2. Other professional services - laboratory,
radiology, anesthesiology and
pharmacy
3. General services - housekeeping,
maintenance and laundry
4. Fiscal services - accounting, cashier,
credit and collections and interest
5. Administrative services - personnel,
purchasing, insurance, governing
boards, data processing and
depreciation provisions
C. Non-Profit Colleges and Universities
Revenues of Non-Profit Colleges and
Universities:
1. Tuition and Fees
2. Appropriation from the Government
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 4. Sales and Services of Auxiliary gift belongs to the non- profit
Enterprises institution.
5. Contributions 4. Agency funds - assets held by the
6. Sales and Services of Educational institution for individual student and
Activities faculty members and for their
7. Endowments organizations (student body funds).

Functional Expenses of Non-Profit Colleges D. Other Non-Profit Entities

and Universities: 1. Cemetery associations Libraries
2. Civic organizations Museum
1. Instruction - expenses incurred in 3. Libraries
instruction program 4. Museum
2. Research - expense to product research 5. Religious organization
outcome 6. Political organization
3. Public service - expenses to provide
non-instructional services to external
groups
4. Academic support - expenses provide
for instruction, registrar and publication
5. Student services - amounts expended
for admission and registrar, and
amounts expended for student's
emotional, social and physical
well-being
6. Institutional support - administration
and long-range planning of the
university
7. Operation and maintenance of plant -
expenses for current operating funds for
operating and maintaining the physical
plant
8. Student aid - expenses from restricted
or unrestricted funds in the form of
grants, scholarships, or fellowship to
students

Funds held by Non-Profit Educational

Institutions:

1. Loan funds - group of resources which

under agreement is to be used to
provide loans to students, faculty or
staff.
2. Endowment funds - consist of gifts with
specifications as to the manner in which
the cash or donated item should be
maintained and distributed.
3. Annuity and life income funds - special
types of endowment funds whereby the
donor or an identified beneficiary
receives a return from the gift for a
specified period of time after which the
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