Not-for-Profit Organization
Accounting for not-for-profit organizations Example #1:
A non-for-profit organization receives cash Php200,000.0 and
Not-for-Profit Organization - are entities organized not to generate land with a fair value of Php 1,000,000.00 to be used at the
profit for distribution, but to serve social, charitable, religious, entity's discretion.
educational, or professional purposes. Example #2:
Key Features: On February 14, 2026, Entity X, a non-for-profit organization,
1. No capital stocks receives the following donations:
2. No shareholder ❖ Cash Php 2,000,000.00 to be used to acquire a truck.
3. No dividends The truck will be used in Entity X's outreach programs.
Nature and Characteristics of NPO ❖ Investment in equity securities with a fair value of Php
[Link]-Oriented Purpose 500,000 to be held indefinitely. Only the investment
2. Absence of Ownership income shall be used by Entity X in its operations.
3. Resource Dependency ❖ On December 31,2026 Entity X acquires a truck for Php
4. Accountability and Transparency 2,200,000 and receives cash dividends of 60,000 from
Operations of Not-for-Profit Organization equity securities.
1. Program Services
2. Support Services Conditional Contribution- Not recognized as revenue until
3. Financial Management condition is met.
Example: On January 01,2026, Entity X receives a formal
Fund Accounting promise from Donor Y to donate Php 1,000,000.00
- is an accounting system used primarily by not-for-profit The donation on the submission of a detailed formal
organizations (NPOs) and government entities to segregate plan for a proposed project. As of January 1, the plan is not
financial resources into categories (funds) based on purpose, substantially complete.
restrictions, or legal requirements. On February 14, Entity X receives the promised
contribution before the attached condition is substantially
Types of Funds in NPOS met.
SFAS 116 classifies contribution based on donor's restriction:
1. Unrestricted Funds- available for immediate use and for any Unconditional Contribution - Recognize immediately as
purpose. revenue.
2. Restricted Funds- funds limited by donor conditions. Example: On January 01,2026, Entity X receives a formal
promise from Donor Y to donate Php 1,000,000.00.
2 Types of Restricted Funds The donation is unconditional and is to be received
a. Temporarily restricted- availability of the contribution for the on February 14,2026.
NPOs use is dependent upon:
a.1 the performance of a specific task; Other Funds held by NPOs
a.2 the happening of a future event 1. Endowment Fund- The principal (original amount) must
a.3 the passage of time be maintained intact, and only the income earned from
b. Permanently restricted-restricted by the donor in such a way investing the principal may be used for specified purposes.
that the organization will never be able to use the contribution Classified into the following:
itself a. Term Endowment Fund
b. Regular Endowment Fund
Recognition and measurement
Contributions are measured at fair value at the date of Term endowment fund - The principal must be maintained
contribution; intact for a specified period of time or until a specified
a. Unrestricted support- Revenue from unrestricted contributions; event occurs, after which the principal may be spent.
or Regular endowment fund - under the donor's restrictions, the
b. Restricted support- Revenue from temporarily restricted or NPO cannot spend any of the principal.
permanently restricted contributions. - Income from either fund is used according to the donor's
instructions.
Not-for-Profit Organization
c. Conducted a CPD seminar
Agency Fund- is a fiduciary fund used to account for resources c.1 registration fees collected amounting to Php
that an organization holds temporarily as a custodian or agent for 300,000
others. c.2 Php 120,000.00 seminar expenses paid
d. Received Php 500,000.00 donation for scholarship
Plant Fund - consists of the following: e. Board designates Php 1,000,000.00 as quasi endowment
a. unexpected funds for the acquisition of plant assets; fund.
b. Funds for the renewal and replacements of plant assets;
c. Funds for retirement of indebtedness Preparation of Financial Statements
d. Investment in plant assets a. Statement of Financial Position- SFAS 17 requires repo
Board-designated Fund- is a fund set aside by the governing Preparation of Financial Statements
board of a not-for-profit organization to function like an a. Statement of Financial Position - SFAS 17 requires
endowment, but without an external donor restriction. reporting of net assets according to the following
Example: classifications:
• A professional organization receives P5,000,000 in 1. Unrestricted net assets
unrestricted donations. 2. Temporarily restricted net assets
The Board passes a resolution: 3. Permanently restricted net assets
"P3,000,000 shall be invested permanently to generate annual
scholarship income." b. Statement of Activities - shows information on
This P3,000,000 becomes a quasi-endowment fund. revenues, expenses and changes in net assets for a period.
If later the organization faces financial difficulty, the board
may vote to liquidate it. Accounting procedures peculiar to specific NPOs.
1. Voluntary Health and Welfare Organizations
Professional Organization 2. Hospitals and other Health Care Organizationsp
is a not-for-profit entity formed by members of a particular 3. Colleges and Universities
profession to promote standards, ethics, education, and the 4. Other Not-for-Profit Organization
welfare of its members and the public
Objectives: Health care organizations - include hospitals, clinics, medical
1. Promote professional standards group practices, individual practice associations, emergency
2. Provide continuing professional development (CPD) care facilities, laboratories, surgery centers, nursing homes
3. Enforce code of ethics and rehabilitation centers.
Some professional organizations maintain:
1. Scholarship funds In accordance with the AICPA Audit and Accounting Guide,
2. Quasi endowment fund Health Care Organizations, the following are the accounting
3. Building/plant fund requirements unique to health care organizations:
1. Components of a complete set of financial
Journalizing Typical Transactions (Professional Organization) statements
Assumptions: 2. Presentation of revenues in the statement of
Annual membership dues: P2,000 per member operations
1,000 members 3. Presentation of contributions in the statement of
Organization conducts seminars and receives donations operations
Uses fund accounting (net assets with and without donor 4. Disclosure of performance indicator
restrictions)
Required: Journalize the following entry:
a. Collected in cash (800 members paid)
b. Unpaid dues of 200 members
Not-for-Profit Organization
Financial Statements of a health care organization
1. Statement of financial position
2. Statement of operations (in lieu of statement of activities)
3. Statement of changes in net assets
4. Statement of Cash flows
5. Notes to the financial statement
Presentation of revenues in the statement of operations
a. Net Patient revenue- gross patient revenue less contractual
adjustments, employee discounts, and billed charity.
b. Premium revenue- results from capitation agreements
c. Other revenue- all other revenues not classifiable as net
patient revenue or premium revenue
Example:
ABC Hospital, an NPO, bills Php 600,000.00 for services
rendered to patients, Php 500,000.00 of which is charged to
PhilHealth. It is estimated that only Php 530,000.00 will be
collected. Of the Php 70,000.00 difference, Php 35,000.00
represents contractual adjustments with PhilHealth, Php
5,000.00 for employee discounts, Php 20,000.00 charity care,
and Php 10,000.00 for uncollectible accounts.
Requirement: How much is the net patient service revenue?
Prepare Journal entries.
Not-for-Profit Organization
Capitation Agreements- are agreements with 3rd parties Student scholarships granted to academic scholars 50,000
based on number of employees instead of services rendered. Student scholarships granted to student assistants 120,000
Example: Refund for class cancellations 20,000
ABC Hospital, an NPO agreed to provide medical services to Estimated uncollectible accounts 80,000
DEF's 100 employees for Php 500 per month, per employee. In
2025, only 20 employees availed of the medical services. How much is the net revenues from tuition and fees?
Provide the necessary entry to accrue billing.
Solution:
Accounts Receivable 50,000 Total assessment and tuition fees 1,000,000
Premium Service Revenue 50,000 Student scholarships granted to
academic scholars (50,000)
Other Revenues – consists of hospital's pharmacy, parking Refund for class cancellations (20,000)
deck, flower and gift shop, educational programs, donated Total 930,000
materials and services.
Voluntary Health and Welfare Organization - are non-profit
Example: entities that derive their revenues primarily from donations from
ABC Hospital, an NPO, had the following transactions during general public to be used for purposes connected with health,
the period: welfare, or community services.
1. Sales of Php 120,000 from gift shop and cafeteria
2. Received Php 20,000 dividends from donated shares. The Example: human right advocates, religious organizations,
use of dividends is unrestricted. museums, professional association, and fraternal organizations.
3. A computer consultant upgraded ABC's information system
for free. ABC would have paid Php 50,000 for those services if Accounting requirement unique to VWHO is the provision of a
they had not been donated. statement of functional expenses that report expenses by both
4. Received donation of medicines worth Php 10,000 from a functional (program and supporting) and natural classifications
pharmaceutical company. (salaries expense and depreciation expense).
Compute for the total other revenue. BANKS: GAAP VS REGULATORY ACCOUNTING PRINCIPLES
Colleges and Universities GAAP
The accounting procedure that is unique unique to colleges Each country sets its own standards for financial reporting. In the
and universities is the accounting for scholarships and United States, accountants follow the generally accepted
fellowships. accounting principles (GAAP) when they compile financial
statements. Outside the U.S., many countries follow International
Concepts Financial Reporting Standards (IFRS), which aim to establish a
a. Scholarships and fellowships granted freely are treated as a common global language for company accounting.
direct reduction of revenues from tuition and fees e.g
academic scholarship Philippine Financial Reporting Standards
b. Scholarships and fellowships granted as compensation for Importance of PFRSs in Banking
services rendered by grantee are treated as expense 1. Loans are measured under PFRS 9 using Expected Credit Loss
c. Refunds of tuition fees from class cancellations and other (ECL).
withdrawal of enrolment are treated as a direct reduction of 2. Financial instruments are classified and measured properly.
revenues from tuition and fees 3. Disclosures on risk management are extensive.
However, regulatory reporting may differ under BSP rules (RAP).
Example:
For the current semester, SMD University, assessed its Regulatory Accounting Principles (RAP) – are accounting rules
students Php 1,000,000 for tuition and fees. Additional prescribed by regulatory authorities for supervisory and prudential
information follows: purposes.
Not-for-Profit Organization
Focus:
[Link] and soundness
[Link] adequacy
[Link] control
[Link] of depositors
Why is RAP important?
Banks handle public deposit. Because of systemic risk:
regulators require stricter measurement in some areas,
regulatory capital rules may override accounting presentation,
early intervention is possible if capital falls below required
levels.
Scenario
LandBank grants a P100,000,000 agricultural loan to a farming
cooperative. Due to typhoon damage, the borrower begins to
struggle in repayment.
Under GAAP-PFRS 9
The bank estimates expected credit loss (ECL).
It considers forward-looking data (weather risk, crop recovery
projections, government support, etc.).
Assume: Estimated Expected Loss of Php 8,000,000
What's the entry to recognize the allowance for credit loss?
Scenario
LandBank grants a P100,000,000 agricultural loan to a farming
cooperative. Due to typhoon damage, the borrower begins to
struggle in repayment.
Under RAP (BSP Prudential Rules)
The Bangko Sentral ng Pilipinas (BSP) reviews the loan and
classifies it as "Doubtful."
Under BSP rules, doubtful loans may require 50% provisioning.
Required Provision:
50% × 100,000,000 = P50,000,000
But GAAP provision is only P8,000,000.
So for regulatory reporting, LandBank must recognize an additional
P42,000,000 for prudential purposes (affecting regulatory capital).