NOT-FOR-PROFIT

ENTITIES
(SCOPE AND NATURE)
VOLUTARY HEALTH AND WELFARE ORGANIZATIONS
NPE HAVE DIFFERENT GOALS AND PURPOSES TO PROFIT MAKING ENTITIES AND ARE RESPONSIBLE TO
DIFFERENT STAKEHOLDERS. HOWEVER, THEY ARE DEALING IN VERY LARGE SUMS OF MONEY AND IT IS
IMPORTANT THAT THEY ARE PROPERLY MANAGED AND THAT THEIR ACCOUNTS PRESENT FAIRLY THE
RESULTS OF THEIR OPERATIONS.
NPE ENTITIES INCLUDES:
COLLEGES AND UNIVERSITIES
HEALTH CARE ENTITIES
VOLUNTARY HEALTH AND WELFARE ORGANIZATIONS
OTHER NOT-FOR-PROFIT ORGANIZATIONS (CHURCHES AND MUSEUM)
CONCEPTUAL FRAMEWORK
• THE OBJECTIVE OF FINANCIAL REPORTING AND QUALITATIVE CHARACTERISTICS OF DECISION-USEFUL
FINANCIAL REPORTING INFORMATION
a. NOT-FOR-PROFIT ENTITIES HAVE DIFFERENT OBJECTIVES, DIFFERENT OPERATING ENVIRONMENTS AND
CHARACTERISTICS TO PRIVATE SECTOR BUSINESSES.
b. THE FOLLOWING ISSUES EXIST REGARDING THE APPLICATION OF THE PROPOSALS FOR NPE
INSUFFICIENT EMPHASIS ON ACCOUNTABILITY/STEWARDSHIP
A NEED TO BROADEN THE DEFINITION OF THE USERS AND USER GROUPS
THE EMPHASIS ON FUTURE CASH FLOWS IS INAPPROPRIATE TO NPE
INSUFFICIENT EMPHASIS ON BUDGETING
ACCOUNTABILITY/STEWARDSHIP
• NPE ARE NOT REPORTING TO SHAREHOLDERS, BUT IT IS VERY IMPORTANT THAT THEY CAN ACCOUNT FOR
FUNDS RECEIVED AND SHOW HOW THEY HAVE BEEN.
• RESOURCES MAY BE CONTRIBUTED FOR SPECIFIC PURPOSES
- MANAGEMENT IS REQUIRED TO SHOW THAT THEY HAVE BEEN UTILIZED FOR THAT PURPOSES.
• TAXPAYERS ARE ENTITLED TO SEE HOW GOVERNMENT IS SPENDING THEIR MONEY.
USERS AND USER GROUPS
• PRIMARY USER GROUP - PROVIDERS OF FUNDS
PUBLIC BODIES SUCH AS GOVERNMENT DEPARTMENTS – TAXPAYERS
PRIVATE BODIES SUCH AS CHARITIES – FINANCIAL SUPPORTERS, AND POTENTIAL FUTURE FINANCIAL
SUPPORTERS.

• SECONDARY PRIMARY USER GROUP – THE RECIPIENTS OF THE GOODS AND SERVICES PROVIDED BY THE
NPE
CASH FLOWS FOCUS
• EMPHASIZES THE NEED TO PROVIDE INFORMATION WHICH WILL ENABLE USERS TO ACCESS AN ENTITY’S
ABILITY TO GENERATE NET CASH INFLOWS.
• NPE NEED TO GENERATE CASH FLOWS, BUT OTHER ASPECTS ARE GENERALLY MORE SIGNIFICANT
- THE RESOURCES THE ENTITY HAS AVAILABLE TO DELIVER FUTURE GOODS AND SERVICES,
- THE COST AND EFFECTIVENESS OF THOSE IT HASDELIVERED IN THE PAST
- DEGREE TO WHICH IT IS MEETING ITS OBJECTIVES
BUDGETING

• THE IASB HAS DECIDED TO LEAVE CONSIDERATION OF WHETHER FINANCIAL REPORTING SHOULD INCLUDE
FORECAST INFORMATION UNTIL LATER IN THE PROJECT.
• FOR NPE, BUDGETS AND VARIANCE ANALYSES ARE MORE IMPORTANT.
- FUNDING IS SUPPLIED ON THE BASIS OF A FORMAL, PUBLISHED BUDGET
REGULATORY FRAMEWORK

• REGULATION OF PUBLIC NPE, PRINCIPALLY LOCAL AND NATIONAL GOVERNMENT AND GOVERNMENTAL
AGENCIES, IS BY INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD (IPSASB) WHICH
COMES UNDER INTERNATIONAL FEDERATION OF ACCOUNTANT (IFAC)
INTERNATIONAL PUBLIC SECTOR
ACCOUNTING STANDARDS
• THE IPSASB IS DEVELOPING A SET OF STANDARDS (IPSAS), BASED ON THE PFRS.
• THE FOLLOWING HAVE BEEN ISSUED:
1. PRESENTATION OF FINANCIAL STATEMENTS
2. CASH FLOW STATEMENTS
3. NET SURPLUS OR DEFICIT FOR THE PERIOD, FUNDAMENTAL ERRORS AND CHANGES IN
ACCOUNTING POLICIES
4. THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES
5. BORROWING COSTS
6.CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING FOR CONTROLLED ENTITIES
7. ACCOUNTING FOR INVESTMENTS IN ASSOCIATES
8. FINANCIAL REPORTING OF INTERESTS IN JOINT VENTURES
9. REVENUE FROM EXCHANGE TRANSACTIONS
10. FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
11. CONSTRUCTIONS CONTRACTS
12. INVENTORIES
13. LEASES
14. EVENTS AFTER THE REPORTING DATE
15. FINANCIAL INSTRUMENTS, DISCLOSURE AND PRESENTATION
16. INVESTMENT PROPERTY
17. PROPERTY, PLANT AND EQUIPMENT
18. SEGMENT REPORTING
19. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
20. RELATED PARTY DISCLOSURES
21 IMPAIRMENT OF NON- CASH GENERATING ASESTS
CHARACTERISTICS OF NPE
 PRIVATE SECTOR PUBLIC SECTOR

THEIR OBJECTIVE IS TO PROVIDE GOODS AND SERVICES THEY ARE TYPICALLY ESTABLISHED BY LEGISLATION.
TO VARIOUS RECIPIENTS AND NOT TO MAKE A PROFIT THEIR OBJECTIVE IS TO PROVIDE GOODS AND SERVICES
TO VARIOUS RECIPIENTS OR TO DEVELOP OR IMPLEMENT
POLICY ON BEHALF OF GOVERNMENT AND NOT TO MAKE
PROFIT
CHARACTERIZED BY THE ABSENCE OF DEFINED CHARACTERIZED BY THE ABSENCE OF DEFINED
OWNERSHIP INTERESTS (SHARES) SOLD, TRANSFERRED OWNERSHIP INTERESTS (SHARES) SOLD, TRANSFERRED
OR REDEEMED. OR REDEEMED.
HAVE A WIDE GROUP OF STAKEHOLDERS TO CONSIDER HAVE A WIDE GROUP OF STAKEHOLDERS TO CONSIDER
(INCLUDING THE PUBLIC AT LARGE) (INCLUDING THE PUBLIC AT LARGE)
THEIR REVENUES ARISE FROM CONTRIBUTIONS THEIR REVENUES GENERALLY DERIVED FROM TAXES OR
(DONATIONS OR MEMBERSHIP DUES) RATHER THAN SALES OTHER SIMILAR CONTRIBUTIONS OBTAINED THROUGH
EXERCISE OF COERCIVE POWERS
CAPITAL ASSETS ARE TYPICALLY ACQUIRED AND HELD TO CAPITAL ASSETS ARE TYPICALLY ACQUIRED AND HELD TO
DELIVER SERVICES WITHOUT THE INTENTION EARNING A DELIVER SERVICES WITHOUT THE INTENTION EARNING A
RETURN ON THEM RETURN ON THEM
NPE – SPECIFIC ISSUES
COST OF TRASITION
GENERAL ASSUMPTION THAT FOR PUBLIC SECTOR ENTITIES THE MOVE TO THE ACCRUAL BASIS
WILL RESULT TO MORE RELEVANT AND BETTER QUALITY FINANCIAL REPORTING, NO ACTUAL COST-BENEFIT
HAS BEEN UNDERTAKEN ON THIS.
ONE OF THE ARGUMENTS IN FAVOR OF THE ADAPTION OF THE ACCRUALS BASIS IS THAT IT WILL BE
POSSIBLE TO COMPARE THE COST OF PROVIDING A SERVICE AGAINST THE SAME COST IN THE PRIVATE
SECTOR.
 DEFINITION OF A LIABILITY
THE FRAMEWORK DEFINES LIABILITY AS “ A PRESENT OBLIGATION OF THE ENTITY ARISING FROM PAST EVENTS, THE
SETTLEMENT OF WHICH IS EXPECTED TO RESULT TO AN OUTFLOW FROM THE ENTITY OF RESOURCES EMBODYING ECONOMIC
BENEFITS”.
LIABILITY IS RECOGNIZED WHEN THE AMOUNT OF THE OUTFLOW CAN BE RELIABLY MEASURED.
PUBLIC BENEFIT ENTITIES ARE SUBJECT TO A COMMITMENT TO PROVIDE PUBLIC BENEFITS, BUT THERE IS AN ISSUE
TO BE RESOLVED OVER WHETHER THIS COMMITMENT MEETS THE DEFINITION OF LIABILITY.
THE ENTITY HAS NOT RECEIVED ANY GOODS OR SERVICES FOR WHICH IT IS REQUIRED TO MAKE “SETTLEMENT”.
DISTINCTION CA BE DRAWN BETWEEN “GENERAL COMMITMENTS TO PROVIDE PUBLIC BENEFITS” AND “ SPECIFIC
COMMITMENTS TO PROVIDE PUBLIC BENEFITS”
 SPECIFIC COMMITMENT CAN BE REGARDED AS A “PRESENT OBLIGATION” BUT ARGUED THAT THE OBLIGATION ONLY ARISES
WHEN THE ENTITY FORMALLY UNDERTAKES TO PROVIDE SOMETHING SUCH AS A NON – PERFORMANCE – RELATED GRANT.
(IF THE GRANTS WERE PERFORMANCE RELATED , THE ENTITY WOULD BE ABLE TO WITHDRAW FROM THE AGREEMENT IF THE
PERFORMANCE TARGETS WERE NOT REACHED)
THERE IS ALSO THE ISSUE OF “RELIABLE MEASUREMNENT”
NATURE OF NPE
• RECEIVES CONTRIBUTIONS OF SIGNIFICANT AMOUNTS OF RESOURCES
• OPERATES FOR PURPOSES OTHER THAN TO PROVIDE GOODS OR SERVICES
• DOES NOT POSSESS OWNERSHIP INTERESTS LIKE THOSE OF BUSINESS ENTERPRISES
ACCOUNTING AND FINANCIAL REPORTING METHODS OF EACH TYPE OF NPE VARY.
NONGOVERNMENTAL NOT- FOR- PROFIT ORGANIZATIONS ARE NPE THAT LACK THE GOVERNMENTAL
ELEMENT.
- ALL NONGOVERNMENTAL, NOT –FOR –PROFIT ORGANIZATIONS USE ESSENTIALLY THE SAME
BASIC GUIDANCE, ALTHOUGH THE NATURE OF THEIR TRANSACTIONS DIFFERS.
ACCOUNTING FOR PRIVATE NPE
• THE FULL ACCRUAL BASIS OF ACCOUNTING IS USED FOR ALL NOT-FOR-PROFIT
• FINANCIAL REPORTING FOR PRIVATE NPE EMPHASIZES THE ORGANIZATION AS A WHOLE
• ACCOUNTING STANDARDS REQUIRES NOT-FOR-PROFIT ORGANIZATIONS TO PROVIDE FINANCIAL
STATEMENTS WITH THE ORGANIZATION – WIDE TOTAL ASSETS, LIABILITIES AND NET ASSETS AS WELL AS
ORGANIZATION WIDE CHANGES IN NET ASSETS AND CASH FLOWS
• FUND ACCOUNTING CONTINUES TO BE USED
• THREE NET ASSET CLASSES
- UNRESTRICTED
- TEMPORARY RESTRICTED
- PERMANENTLY RESTRICTED
NET ASSETS CLASSES PROVIDE A CLEAR DISTINCTION BETWEEN RESOURCES THAT ARE EXTERNALLY
RESTRICTED AND THOSE THAT ARE INTERNALLY DESIGNATED BY ACTION OF THE GOVERNING BOARD.
BECAUSE OF A SHIFT AWAY FROM A FUND ACCOUNTING FOCUS TOWARD AN ORGANIZATION- WIDE
FOCUS, EXTERNAL FINANCIAL STATEMENTS ARE NOT REQUIRED TO INCLUDE FUND REPORTING.
FUND ACCOUNTING
• NPE CONTINUE TO USE FUNDS FOR INTERNAL CONTROL AND MANAGEMENT.
• FUND ACCOUNTING PRINCIPLES PROVIDE A CONVENIENT METHOD FOR SEGREGATING THE ACCOUNTING
RECORDS OF RESOURCES RESTRICTED FOR SPECIFIC PURPOSES.
• MANY NOT-FOR-PROFIT ORGANIZATIONS CHOOSE TO USE FUND ACCOUNTING FOR INTERNAL
ACCOUNTING
- ALTHOUGH FASB ISSUANCES AND THE AICPA GUIDE DO NOT REQUIRE FUND ACCOUNTING
• ALTHOUGH GAAP ALLOWS FUND REPORTING AS ADDITIONAL INFORMATION, FUND INFO IS RARELY
PRESENTED IN FINANCIAL STATEMENTS OF NONGOVERNMENTAL NOT-FOR-PROFIT ORGANIZATIONS.
 VOLUNTARY HEALTH AND
WELFARE ORGANIZATION (VHWO)
■ An organization formed for the purpose of performing voluntary services for
various segments of society.
■ Promote humanitarian activities
■ Depends on donation

To qualify as Voluntary health and welfare organization

(VHWO) two criteria must be met:
– Primary source of Revenue - Contributions from Donors
– The program must be in the area of health, welfare, or community service
Accounting for Voluntary Heath and
Welfare Organization
– To isolate and demonstrate compliance with restrictions, fund
accounting is often used.
 Accounting for Voluntary Heath and
Welfare Organization
■ Net Assets categories:
– Permanently restricted net assets – portion of assets
whose use is limited by donor-imposed stipulations that
do not expire by time and cannot be removed by action
of the not-for-profit entity.
– Temporarily restricted net assets - portion of assets
whose use is limited by donor-imposed stipulations that
either expire or be removed by organization.
– Unrestricted assets – portion of net asset that carry no
donor-imposed stipulations.
■ Classes of Funds
– Current Fund (Unrestricted) – includes all the assets of a
nonprofit organization that are available for use as
authorized by the board of directors and not restricted for
specific purposes.
– Current Fund (Restricted ) – to account for assets received
from donors. These assets are available for current use but
expandable only as authorized by the donor of the assets.
– Land, Building, and Equipment Fund (Plant Fund) – for the
activity related to fixed assets.
– Endowment Fund (Pure or Regular) – for gifts or bequests
with legal restrictions.
– Agency (Custodian) Fund – often established for payroll
withholding.
Accounting Principles and Procedures

Revenues/ Contributions
Revenues are recorded using the full accrual basis. A distinction should
be made between Public Support and Revenues.
The dependence upon which public support for the majority of its
resources influences the accounting for a VHWO. Two major categories
are used to record and communicate inflows of resources: public support
and revenues.
■ Public Support is the inflow of resources from voluntary donors who
receive no direct, personal benefit from the organizations usual
programs in exchange for their contributions.
The following accounts are used to record
receipts of assets in the public support category:

■ Contributions
■ Special Events Support
■ Legacies and Bequests
■ Proceeds from fund raisers.
Contributions are recognized as public support in the period
received and as assets, decreases of liabilities, or expenses
depending on the form of the benefits received. Although most
contributions to VHWOs are made with no restrictions
attached. Some donations specify the purpose for which they
must be expended.

Revenues are inflows of resources resulting from a charge for

service from financial activities or from other exchange
transactions.
In addition to public support, resources may be received form
the exchange transactions that are classified as unrestricted
revenue. These resources would include the following
accounts:
■ Membership Dues Revenue for dues charged members to
join and use facilities or receive publications.
■ Program Service Fees for amounts charged clients for
services of the organization, such as consulting, testing, or
advising.
■ Sales of Publication and Supplies for proceed from the sales
of these items
■ Investment transaction revenue classified as unrestricted or
restricted.
– Investments Revenue for interest, dividends and other earnings.
– Realized Gain on Investment Transaction for gain from the sale or
exchange of investments
– Net increase (or Decrease) in Carrying Value if Investments for
the unrealized appreciation(or depreciation) of investments if they
are carried at fair value
Each of the items of investment transactions revenue would be
recorded as unrestricted or restricted depending on donor
stipulations. Thus, the unrestricted revenue from an
endowment would be recorded with a credit t investment
revenue – Unrestricted, Restricted investment revenue is
reported as temporarily or permanently restricted in
compliance with donor’s wishes.
A significant aspect of accounting and reporting for
VHWOs is that financial reports must show expenses
on a program basis. As a result of this requirements,
the costs of each program and supporting services are
available, and the effectiveness with which the
organization’s resources have been managed can be
measured.
Expenses – Program and Supporting
Services Costs
VHWOs exist to render service or to conduct programs. Their
operating statements will not show typical expenses, such as
salaries or rent, but will show the cost of each program or service
the organization provides – the costs in which the general public,
the contributors, and the controlling agencies are primarily
interested.
The other expenses grouping shown on an operating statement is
referred to as Supporting Services, which includes fund-raising
costs, management and general costs, and membership
development activities for the overall direction of the organization.
Expenses are classified as program services and
supporting services and are reported on a functional
basis under these classifications.
■ Program Services relate to the expenses incurred in
the providing the organizations social service
activities.
– Research
– Public Education
– Professional Education
– Community Services
Supporting Services

■ Management and general activities include all management,

financing, and administrative activities, except for direct
activities of programs or fund raising.
■ Fund-raising activities include publicizing and conducting fund
raising campaigns, maintaining donor mailing lists, conducting
special fund-raising events, preparing and distributing fund-
raising materials, and other activities involved in soliciting
contributions. Membership development activities include
soliciting for prospective members and membership dues,
membership relations, and similar activities.
Individual Expenses, such as salaries or rent, are recorded in the
respective natural expense accounts in much the same way that they
would be recorded in the accounts of profit entities. All expenses are
considered reductions in unrestricted net assets.
Therefore, when expenses are recorded for purposes stipulated be
donors. A reclassification of temporarily restricted to unrestricted net
assets is also recorded. At the end of the fiscal year, the expenses are
allocated to the individual programs conducted and to the supporting
services of management, fund raising, and membership development
Allocation of joint costs should be on some rational
basis, such as assigning salaries on the basis of time
expended, allotting rental charges on the basis of floor
space, or apportioning supplies expense on the basis
of consumption. However it is not always simple to
allocate costs.
Financial Statements

Consistent with other not-for-profits, the financial statements

for VHWOs are a statement of financial position, a statement
of activities, and a statement of cash flows. In addition,
VHWOs must provide a statement of functional expenses.

A statement of financial position is prepared either in singles-

column form or with a column for each asset class.
Organization-wide totals of assets, liabilities, and net assets
are presented.
An activities statement can be prepared after the expense
allocation entry has been recorded. It is structured with a
column for each asset class and shows how effectively the
organization operated during the period. Since program costs
and not the typical (natural) expenses, such as salaries are
shown in an operating statement, a summary of expenses by
object-of-expense classification is provided in a separate
statement. This statement of functional expenses
supplements the operating statement, it presents the total of
each functional expense to programs and supporting services.
 Transactions Entry
1. As a result of its fund-raising program, cash Cash P 390,000
contributions of P390,000 were received. Contributions-Unrestricted P 378,000
P378,000 was unrestricted and P10,000 was Contributions-Temporarily
restricted for Reforestation Program operating Restricted 12,000
costs. In addition, unconditional promises to give Contributions Receivable 120,000
totaled P120,000, of which P96,000 was Contributions-Unrestricted 96,000
unrestricted and P24,000 restricted for Contributions-Temporarily
acquisition of equipment. Restricted 24,000

2. Based on past experience, 5% of the promises Doubtful accounts expense-

to give were estimated to be doubtful. Contributions 6,000
Allowance for doubtful
accounts-Contributions 6,000
3. During the year, cash was collected from some Cash 114,600
unconditional promises to give, while others were Allowance for doubtful
written off as uncollectible. accounts-Contributions 6,720
Contributions receivable 121,320
4. A cash donation of P48,000 was received, with Cash 48,000
the donor stipulation that it used to be acquire Contributions-Temporarily
equipment for water quality improvement. Restricted 48,000

5. With the donor’s approval, the P48,000 served Land, Building, and Equipment 60,000
as a partial payment on the purchase of a filter Cash 48,000
system costing P60,000. A note was signed for the Notes payable equipment 12,000
unpaid balance. EPA choses to release the donor
restriction over the life of the asset.

6. EPA received P6,000 from an individual who Cash 6,000

restricted its use to a special project within the Refundable advances 6,000
cleaning program. If that special project is not
accomplished within six months, the individual
requested that the money be returned. PEP has not
yet undertaken the project. Two months remain in
the time period specified by the donor.
7. The following bequest were received: Cash 144,000
P120,000 unrestricted and P24,000 to be Legacies and bequests-
invested in an endowment whose earnings are to Unrestricted 120,000
be unrestricted. Legacies and bequests-
Permanently Restricted 24,000

8. EPA received donated goods with a fair value of Inventories 2,820

P2,820. Of those donated goods, P900 is Contributions-Unrestricted 1,920
restricted by the donor for use in the cleaning Contributions-Temporarily
program; the remaining gifts can be used after Restricted 900
the management’s discretion.

9. EPA held a special event to promote its Cash 10,800

activities, the net proceeds which were Special events support-
unrestricted. Gross revenues totaled P10,800, Unrestricted 10,800
with direct costs for the event amounting to Costs of special events 2,400
P2,400. Cash 2,400
10. EPA uses volunteers to distribute brochures
about its operations. To assist, the volunteers
provided 1,200 hours of service this year. If the
volunteers were unavailable, the task would
either be done by staff at a later date or not done
at all.
11. Members were assessed and all paid Cash 141,600
membership dues of P141,600 Membership dues revenues 141,600

12. The local EPA unit receives unrestricted cash Cash 19,200
of P19,200 as its share of a campaign run by its Received for national
national affiliate. campaigns-Unrestricted 19,200

13. Income from endowment investments total Cash 33,600

P33,600, of which P25,200 is not restricted and Investment revenue-
P8,400 is restricted to investment in equipment Unrestricted 25,200
for flood control. Investment revenue-
Temporarily Restricted 2,400
14. EPA carries its investments in at fair value. Cash 32,400
Endowment investments are sold for P23,400. Investment (at fair value) 30,000
They had a cost of P24,000 and a carrying value Gain on sale of investment-
of P30,000 in the investment account. All Permanently Restricted 2,400
endowment gains are to be permanently
restricted according to donor specifications.

15. An additional P55,200 of investments are Investments-Permanently

purchased from endowment funds. Restricted 55,200
Cash 55,200

16. Unrestricted investments have shown no Investments 34,800

material change in fair value over the year. At year Investments-Permanently
end, the fair value of permanently restricted Restricted 34,800
endowment investments has increased from
P318,000 to P352,800. All endowment gains are
to be permanently restricted according to the
donor specifications.
17. A lawyer provided five hours service to EPA Professional Services 600
to draw up an endowment agreement. He did Contributions-Unrestricted 600
not charge for his services. He normally would
charge a client P600 for consultation on a
similar type of agreement. In the absence of the
donated professional services. EPA would have
hired a lawyer to draft the agreement.

18. A special recreational room with amenities Land, building and equipment 115,200
costing P115,200 were purchased with Cash
unrestricted cash. 115,200
19. Contributions received in the prior period Reclassification out-
with the stipulation that they be used for Temporarily Restricted-
expenses for this period are now available. Satisfaction of time
requirements 12,000
Reclassification in-
Unrestricted-Satisfaction
of time requirements 12,000
20. Accounts payable and expenses were paid or Accounts payable(January 1) 44,400
established. Operating expenses related to Salaries expense 240,000
donor-specific programs totaled P123,600. Payroll taxes 36,000
Mailing and postages expense 60,000
Rent expense 33,600
Telephone expense 7,200
Research expense 258,000
Professional services-
Legal and Audit 40,800
Supplies expense 15,600
Miscellaneous expense 6,000
Accounts payable 38,400
Cash
703,200

Reclassification out-
Temporarily Restricted-
Satisfaction of program
requirements 123,600
Reclassification in-
Unrestricted- Satisfaction
of program requirements 123,600
21. Contributed goods on equipment purchased Supplies expense 1,740
with donor-restricted contribution in item (8). Inventories 1,740

Reclassification out-
Temporarily Restricted-
Satisfaction of program
requirements 900
Reclassification in-
Unrestricted- Satisfaction
of program requirements 900
22. Depreciation on equipment purchased with Depreciation expense 26,400
donor-restricted contributions amounted to Accumulated depreciation 26,400
P26,400 for the year (Reforestation Project –
P2,400; Cleaning Program – P19,200; Reclassification out-
Management and General Services – P1,200). Temporarily Restricted-
An equivalent amount of temporarily unspecified Satisfaction of equipment
net assets is released from restrictions. acquisition requirements 26,400
Reclassification in-
Unrestricted- Satisfaction
of equipment acquisition
requirements 26,400
23. Early in the year, cash contributions for Cash 2,400
current operations were received, but they Contributions- Temporarily
cannot be used until late in the following year. Restricted 2,400
24. At year-end, the expenses were allocated to the Reforestation project 158,400
various programs and supporting services. The Cleaning program 221,340
direct cost of a special event is not included in the Flood control program 301,200
allocation process because it is subtracted from Management and general
the gross proceeds of that event. The special event services 35,400
is considered an incidental activity and reported Fund-raising services 13,200
“net” in the statement of activities. Membership development 2,400
Salaries expense 240,000
Payroll taxes 36,000
Mailing and postages expense 60,000
Rent expense 33,600
Telephone expense 7,200
Research expense 258,000
Professional services-
Legal and Audit 41,400
Supplies expense 17,340
Miscellaneous expense 6,000
Doubtful account expense-
Contributions 2,400
Depreciation expense 26,400
 Contributions-Unrestricted 476,520
Special events support 10,800
25. Closing entries. Each class Legacies and bequests-
of asset is closed separately.
Unrestricted 120,000
Received from national
campaigns 19,200
Membership dues revenue 141,600
Investment revenue 25,200
Reclassification in-
Unrestricted- Satisfaction
of program restrictions 124,500
Reclassification in-
Unrestricted- Satisfaction
of equipment acquisition
restrictions 26,400
Reclassification in-
Unrestricted- Satisfaction
of time restrictions 12,000
Reforestation project 158,400
Cleaning program 221,340
Flood control program 301,200
Management and general
services 35,400
Fund-raising services 13,200
Membership development 2,400
Cost of special events 2,400
Unrestricted net assets 221,880
Contributions-Temporarily
Restricted 87,300
Investment revenue-
Temporarily Restricted 8,400
Temporarily restricted
net assets 47,200
Reclassification out-
Unrestricted- Satisfaction
of program restrictions 124,500
Reclassification out-
Unrestricted- Satisfaction
of equipment acquisition
restrictions 26,400
Reclassification out-
Unrestricted- Satisfaction
of time restrictions 12,000
Legacies and bequests-
Endowment- Permanently
restricted 24,000
Net increase in carrying
value of endowment
investments- Permanently
Restricted 34,800
Gain on sale of endowment
investments- Permanently
Restricted 2,400
Permanently restricted net assets 61,200
The statement of activities

Sequence of items:
■ Inflows of resources from public support
■ Revenues
■ Reclassifications
■ Expense totals for each program and supporting
services
■ Net assets beginning each year
■ Net assets end of year
Statement of functional expenses

This statement shows the allocation of each expenses

(salaries, rent, etc.) and reveals the cost by function of
carrying on the organization’s activities.