Accounting for Government and Not-for-Profit Organizations SIM Manual

UM Digos College
Department of Accounting Education

Bachelor of Science in Accountancy
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for Self-Directed Learning

(SDL)
Course/Subject: ACP 313 – Accounting for Government and Not-for-

Profit Organizations
Name of Teacher: April Kate F. Valisno, CPA
THIS SIM/ SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS
INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF
THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT. EXPECT REVISIONS OF THE MANUAL.
UM DIGOS COLLEGE
Roxas Extension, Digos City
Telefax: (082)553-2914
Table of Contents
Page
Part 1. Quality Assurance Policies and Course Outline Policies ................... 1

Course Outcomes .................................................................................... 4
Facilitator’s Voice .................................................................................... 4
Part 2. Week 1-3

ULOa........................................................................................................... 5
Metalanguage .................................................................................... 5
Essential Knowledge ......................................................................... 5
Self-Help ............................................................................................... 11
Let’s Check ............................................................................................... 12
Let’s Analyze .................................................................................... 12
Nutshell ............................................................................................... 14
ULOb ......................................................................................................... 22
Metalanguage .................................................................................... 22
Self-Help ............................................................................................... 27
Let’s Check ............................................................................................... 28
Let’s Analyze .................................................................................... 29
Nutshell ............................................................................................... 30
Part 3. Week 4-5

ULOa........................................................................................................... 32
Metalanguage .................................................................................... 32
Self-Help ............................................................................................... 42
Let’s Check ............................................................................................... 42
Let’s Analyze .................................................................................... 44
Nutshell ............................................................................................... 45
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Course Outline: ACP 313 – Accounting for Government and Not-for-

Profit Organizations
Course Coordinator: April Kate F. Valisno

Email: aprilkateafernandez@gmail.com
Student Consultation: Done online (LMS) or traditional contact
(calls, texts, emails)
Mobile: 09125002858
Phone: (082) 553-2914
Effectivity Date: October 2020
Mode of Delivery: Blended (On-Line with face to face or virtual
sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: ACP 312
Credit: 3 units
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled virtual or face to face sessions.
Course Outline Policy
Areas of Concern Details

Contact and Non-contact This 3-unit course self-instructional manual is
Hours designed for blended learning mode of
instructional delivery with scheduled face to face
or virtual sessions. The expected number of hours
will be 54 including the face to face or virtual
sessions. The face to face sessions shall include
the summative assessment tasks (exams) since
this course is crucial in the licensure examination
for accountants.
Assessment Task Submission Submission of assessment tasks shall be on 3rd,
5th, 7th and 9th week of the term. The assessment
paper shall be attached with a cover page
indicating the title of the assessment task (if the
task is performance), the name of the course
coordinator, date of submission and name of the
student. The document should be emailed to the
course coordinator. It is also expected that you
already paid your tuition and other fees before the
submission of the assessment task.
If the assessment task is done in real time through

the features in the Quipper Learning Management
System, the schedule shall be arranged ahead of
time by the course coordinator.
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Since this course is included in the licensure

examination for accountants, you will be required
to take the Multiple-Choice Question exam inside
the University. This should be scheduled ahead of
time by your course coordinator. This is non-
negotiable for all licensure-based programs.
Turnitin Submission To ensure honesty and authenticity, all
(if necessary) assessment tasks are required to be submitted
through Turnitin with a maximum similarity index
of 30% allowed. This means that if your paper
goes beyond 30%, the students will either opt to
redo her/his paper or explain in writing addressed
to the course coordinator the reasons for the
similarity. In addition, if the paper has reached
more than 30% similarity index, the student may
be called for a disciplinary action in accordance
with the University’s OPM on Intellectual and
Academic Honesty.
Please note that academic dishonesty such as

cheating and commissioning other students or
people to complete the task for you have severe
punishments (reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after
Assignments/Assessments the designated time on the due date, without an
approved extension of time, will be reduced by 5%
of the possible maximum score for that
assessment item for each day or part day that the
assessment item is late.
However, if the late submission of assessment

paper has a valid reason, a letter of explanation
should be submitted and approved by the course
coordinator. If necessary, you will also be required
to present/attach evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2)
Assessments weeks after the submission. This will be returned
by email or via Quipper portal.
For group assessment tasks, the course

coordinator will require some or few of the
students for online or virtual sessions to ask
clarificatory questions to validate the originality of
the assessment task submitted and to ensure that
all the group members are involved.
Assignment Resubmission You should request in writing addressed to the
course coordinator his/her intention to resubmit an
assessment task. The resubmission is premised
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on the student’s failure to comply with the

similarity index and other reasonable grounds
such as academic literacy standards or other
reasonable circumstances e.g. illness, accidents
financial constraints.
Re-marking of Assessment You should request in writing addressed to the
Papers and Appeal program coordinator your intention to appeal or
contest the score given to an assessment task.
The letter should explicitly explain the
reasons/points to contest the grade. The program
coordinator shall communicate with the students
on the approval and disapproval of the request.
If disapproved by the course coordinator, you can

elevate your case to the program head or the dean
with the original letter of request. The final
decision will come from the dean of the college.
Grading System All culled from Quipper sessions and traditional
contact
Course discussions/exercises – 40%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 30%
Submission of the final grades shall follow the

usual University system and procedures.
Preferred Referencing Style Depends on the discipline; if uncertain or
inadequate, use the general practice of the APA
6th Edition.
Student Communication You are required to create an email account which
is a requirement to access the Quipper portal.
Then, the course coordinator shall enroll the
students to have access to the materials and
resources of the course. All communication
formats: chat, submission of assessment tasks,
requests etc. shall be through the portal and other
university recognized platforms.
You can also meet the course coordinator in

person through the scheduled face to face
sessions to raise your issues and concerns.
For students who have not created their student

email, please contact the course coordinator or
program head.
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Contact Details of the Dean Eduard L. Pulvera, MSIS

Email: eduardpulvera@umdigoscollege.edu.ph
Phone: 09295288740
Contact Details of the Program Jeaneth P. Tormis, CPA, MBA
Head Email: tormis.jeaneth@yahoo.com
Phone: 09097231679
Students with Special Needs Students with special needs shall communicate
with the course coordinator about the nature of his
or her special needs. Depending on the nature of
the need, the course coordinator with the approval
of the program coordinator may provide
alternative assessment tasks or extension of the
deadline of submission of assessment tasks.
However, the alternative assessment tasks should
still be in the service of achieving the desired
course learning outcomes.
Course Information – see/download course syllabus in the Quipper
CC’s Voice: Hello prospective accountant! Welcome to this course ACP 313:
Accounting for Government and Not-for-Profit Organizations. This
course is a continuation of Accounting for Business Combinations. It
deals mainly with the procedures and accounting standards applicable to
government accounting and non-profit organizations. Accounting for
foreign currency transactions, including hedging, and foreign currency
translations will also be discussed in the latter part of this course.
CO Aside from understanding procedures on government accounting, you

are also expected to understand the different accounting records and
account titles used in recording government transactions and non-profit
organizations. You are also expected to analyze and solve situations
under foreign currency transactions and hedging of derivatives. You will
be studying accounting procedures of government accounting and
nonprofit organizations mainly in this course. Thus, you are expected to
read in advance the New Government Accounting System (NGAS)
Manual.
Let us begin!
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Big Picture
Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Understand the accounting terms, reports and accounting procedures in
government accounting; and
b. Prepare journal entries for government transactions including financial
statements.
Big Picture in Focus: ULOa. Understand the accounting terms,

reports and accounting procedures in government accounting
Metalanguage
To be able to understand more fully the terms in this section, the most essential
terms relevant to finance and to demonstrate ULOa will be defined to establish a
common frame of reference as to how the texts work in a business setting. You will
encounter these terms as we go through the study of financial management. Please
refer to these definitions in case you will encounter trouble in understanding
educational concepts.
1. Government accounting. Government accounting is the process of recording,

analyzing, classifying, summarizing communicating and interpreting financial
information about government in aggregate and in detail reflecting transactions
and other economic events involving the receipt, spending, transfer, usability
and disposition of assets and liabilities.
2. New Government Accounting System (NGAS). This is a new manual created
by COA to assist accountants in accounting for guidelines for government
transactions and preparation of financial statements.
3. Government Accounting System (GAS). This is the manual used as
guidelines for government accounting. It is now being superseded by NGAS.
4. International Public Sector Accounting Standards Board (IPSAB). This is
the standard setting body that works to improve public sector financial reporting
worldwide through the development of IPSAS, international accrual-based
accounting standards, for use by governments and other public sector entities
around the world.
5. Commission on Audit. This is the government agency that regulates
government accounting and auditing of all government departments and
agencies.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the first three
(3) weeks of the course, you need to fully understand the following essential
knowledge that will be laid down in the succeeding pages. Please note that you are
not limited to exclusively refer to these resources. Thus, you are expected to utilize
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other books, research articles and other resources that are available in the university’s
library e.g. ebrary, search.proquest.com etc.
Government entities do not report to shareholders like profit-oriented entities, but it

is very important that they can account for funds received and show how they have
been spent. Most importantly, taxpayers are entitled to see how the government is
spending their money.
Our local accounting standards are based by the International Public Secor
Accounting Standards Board (IPSAB), which comes under the International
Federation of Accountants (IFAC). Sometime in 2014, the Commission on Audit
(COA) issued a new regulation on government accounting under COA Circular 2014-
03 with te introduction of a New Chart of Accounts. Likewise, New Government
Accounting System (NGAS) shall be adopted.
Section 110 Presidential Decree 1445 sets down the following objectives of
government accounting:
1. To produce information concerning past operations and present conditions’

2. To provide a basis for guidance for future operations;
3. To provide for control of the acts of public bodies and offices in the receipt,
disposition and utilization of funds and property; an
4. To report on the financial position and the results of operations of government
agencies for the information and guidance of all persons concerned.
Subjects of Government Accounting
The subjects of government accounting include:

1. National Government – consisting of departments, bureaus, commissions,
boards, state colleges and universities.
2. Local Government – provinces, chartered cities, municipalities, and barangays.
3. Government-owned or government controlled corporations – which were
created by law to manage specific type of business.
Objective of NGAS
The New Government Accounting System (NGAS) Manual presents the basic
policies, and procedures; the new coding system; the accounting systems, books,
registries, records, forms, reports, and financial statements; and illustrative
accounting entries be adopted by all national government agencies effective January
1, 2002. The objectives of the Manual are to prescribe the following:
• Uniform guidelines and procedures in accounting for government funds a

property;
• New coding structure and chart of accounts;
• Accounting books, registries, records, forms, reports and financial statements:
and
• Accounting entries.
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Basic Features and Policies
The NGAS has the following basic features and policies:
1. Accrual Accounting. A modified accrual basis of accounting shall be used.

Under this method, all expenses shall be recognized when incurred and
reported in the financial statements in the period to which they relate. Income
shall be on accrual basis except for transactions where accrual basis is
impractical or when other methods are required by law.
2. One Fund Concept. This system adopts the one fund concept. Separate fund
accounting shall be done only when specifically required by law or by a donor
agency or when otherwise necessitated by circumstances subject to prior
approval of the Commission on Audit (COA).
In government accounting, fund is both a sum of money set aside for a specific
purpose, and an independent fiscal and accounting entity. It is created by the
constitution and by legislative enactments, which direct that certain receipts be
collected or collections generated and accounted for as a special resource to out
specific activities or attain objectives.
The NGAS adopts the fund concept, and that is the general fund.
a. General Fund. General Funds are funds which are generally available for all
functions of government or for any purpose that Congress may choose to apply,
and are composed of all receipts or revenues that do not otherwise accrue to
other funds.
Separate fund accounting shall be done only when specifically required by law or by
a donor agency or when otherwise necessitated by circumstances subject to. prior
approval of the Commission on Audit (COA), in which case, a Special Purpose Fund
may be created.
b. Special-purpose Fund. Special-purpose Fund is a fund appropriated for

purposes other than those provided in the regular funds of government
agencies, such as:
i. Miscellaneous Personnel Fund - fund appropriated to cover personnel

benefits which are not provided for in the regular budget of the agency.
ii. Calamity Fund — fund appropriated to cover relief, rehabilitation,
reconstruction and other services in connection with calamities that may
occur during the budget year.
iii. Organizational Adjustment Fund — fund appropriated to cover budgetary
requirements of a newly created organization, program/project/activity
within an agency.
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c. Off-Budgetary Funds. Off-Budgetary Funds refer to receipts for expenditure

items that are not part of the National Expenditure Program, and which are
authorized for depositing in government financial institutions. These are
categorized into:
• Retained Income/Receipts, and
• Revolving Funds
d. Custodial Funds. Custodial Funds refer to receipts or cash received by any

government agency—whether from a private source or another government
agency—to fulfill a specific purpose. Custodial receipts include receipts
collected as an agent for another entity. These include trust receipts—both from
an individual or corporation—that are required to be held by government until
the outcome of a court's case or procurement activity is determined, as well as
Cases where a department or agency holds receipt; as a trustee for the
fulfillment of some obligations.
3. New General Appropriations. New General Appropriations are annual

authorizations for incurring Obligations during a specified budget year, as listed
in the General Appropriations Act (CAA). The CAA is the legislative
authorization that identifies new appropriations in terms of specific amounts for
salaries, wages and other personnel benefits; Maintenance and Other
Operating Expenses (MOOE), Financial Expenses (FEx) and Capital Outlays
(CO) for the implementation of programs, projects and activities of all
departments, bureau and offices of government for a given year.
4. Retained Income/Funds. Retained Income/Funds are collections that are

authorized by law to be used directly by agencies for their operation or specific
purposes. These include but are not limited to receipts from:
• state Universities and Colleges (SUCS) - tuition and matriculation fees and
other internally generated receipts
• Department of Health (DOH) - hospital income such as hospital fees;
medical, dental and laboratory fees; rent income derived from the use of
hospital equipment and facilities: proceeds from sale of hospital therapeutic
products, prosthetic, appliances and other medical devices; diagnostic
examination fees: donations in cash from individuals or nongovernment
organizations satisfied with hospital services.
5. Revolving Funds. Revolving Funds are receipts derived from business-type

activities of departments/agencies as authorized by law, and which are
deposited in an authorized government depository bank. These funds shall be
self-liquidating. All obligations and expenditures incurred because of these
business type activities shall be charged against the Revolving Fund.
6. Trust Receipts. Trust Receipts are receipts that are officially in the possession
of government agencies or a public officer as trustee, agent, or administrator,
or which have been received for the fulfillment of a particular obligation. These
receipts may be classified as:
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a. Inter-Agency Transferred Funds (IATF), which are receipts or fund

transfers from any government-agency or Government Owned and/or
Controlled Corporations (GOCC) to another agency, and which are
deposited in the National Treasury to facilitate project implementation;
b. Receipts deposited with the National Treasury other than IATF, which
are receipts from other sources—including private persons or foreign
institutions—which are deposited with the National Treasury, pursuant to
E.O. No. 338, for the fulfillment of some obligations; and,
c. Receipts deposited with Authorized Government Depository Bank
(AGDB), which are receipts from other sources that should be deposited in
the ACDB for the fulfillment of some obligations
7. Chart of Accounts and Unified Accounts Code Structure (UACS). The

Chart of Accounts provides the framework within which the accounting records
are constructed. It is defined as a list of general {edger accounts consisting of
real and nominal accounts prepared for the use of national and local
government units.
Coding Scheme. Codes are assigned to account groups to facilitate location Of

accounts in the general and subsidiary ledgers, to provide systematic arrangement
and classification of accounts and facilitate preparation of the consolidated financial
reports as follows:
Code Account Groups
1 Assets
2 Liabilities
3 Equity
4 Income
5 Expenses
The account structure consists of eight (8) mandatory digit as follows:

0 00 00 000
Account Group
Major Accounts Group
Sub-Major Account Group
General Ledger Accounts
General Ledger Contra-Accounts
Account Group represents the accounts classification as to assets, liabilities,

equity, income and expenses.
Major account group represents classification within the account group, e.g. for
assets major accounts: cash and cash equivalents, investment receivables,
inventories, investment property, etc.
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Sub-major account group represents classification within the major account e.g.
for cash and cash equivalents: Cash on Hand, Cash in Bank-Local Currency, Cash
in Bank-Foreign Currency, etc.
General ledger (GL) accounts represent the accounts to be presented in the

detailed financial statements, e.g. Cash Collecting Officer, Petty Cash etc. This is
composed of two (2) segments. The first two digits from left is the GL code and the
last digit is reserved for contra accounts like, Allowance for Impairment, Accumulated
Depreciation.
The key purpose of the UACS is to enable the timely and accurate reporting of actual
revenue collections and expenditures against budgeted programmed revenues and
expenditures.
Reporting requirements that will be best served by the UACS include:
a. Financial reports as required by the Department of Budget and Management

(DBM) and the Commission on Audit (COA),
b. Financial Statements as required by the Public Sector Accounting Standards
Board of the Philippines,
c. Management reports as required by the executive officials/heads of
departments and agencies, and
d. Economic statistics consistent with the Government Finance Statistics (CFS)
Manual 2001.
Responsibilities. The DBM, Department of Finance-Bureau of the Treasury (DOF-

BTr) and COA are collectively responsible for the UACS. Validation and assignment
of new codes for funding source, organization, sub-object code for expenditure items
shall be the responsibility of DBM.
Validation and assignment of new Program, Activity, and Project Codes shall be
decided jointly by the proponent agency and DBM. Consistency account
classification and coding structure with the Revised Chart Accounts shall be the
responsibility of COA. Consistency of account classification and coding standards
with the Government Finance Statistics shah be the responsibility of DOF — BTr.
Elements. The key elements of the coding framework are:

a. Funding Source codes
b. Organization codes
c. Location codes
d. MFO/Program, Activity and Project (PAP) codes, and
e. Object Codes for Assets, Liabilities, Equity, Income and Expenses.
8. Financial statements. The following statements shall be prepared:

a. Balance sheet
b. Statement of Government Equity
c. Statement of Income and Expense
d. Statement of Cash Flows
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Notes to Financial Statements shall accompany the above statements.
9. Allotment and Obligation. Obligation accounting is modified to simplify

procedures in the incurrence and liquidation of obligations and the recording of
the budgetary accounts (allotments and obligations incurred and liquidated).
Separate registries shall be maintained to control the allotments and obligations
for each of the four classes of allotments, namely:
a. Registry of Allotments and Obligations - Capital Outlay (RAOCO)
b. Registry of Allotments and Obligations - Maintenance and Other Operating
Expenses (RAOMO)
c. Registry of Allotments and Obligations - Personal Services (RAOPS)
d. Registry of Allotments and Obligations- Financial Expenses (RAOFE)
10. Notice of Cash Allocation (NCA). The receipt of NCA by the agency shall be
recorded in the books as debit to account "Cash-National Treasury, Modified
Disbursement System (MDS)" and credit to account "Subsidy Income from
National Government".
11. Financial Expenses. Financial expenses such as bank charges, interest

expenses, commitment charges and other related expenses shall be separately
classified from Maintenance and Other Operating Expenses (MOOE).
Budget Process (Budgetary Procedures)
One of the distinguishing characteristics of government accounting is the

requirement of a budget which shall be the basis for all expenditures. Budgeting is
performed on a basis consistent with the revenue and appropriation systems. The
appropriation system provides for the control and ultimate disbursement of funds.
Budgetary procedures are as follows:
1. Budget Preparation and Presentation. It covers estimation of government

revenues, the determination of budgetary priorities and activities within the
constraints imposed by available revenues and borrowing limits, and the
translation of approved priorities and activities into expenditure levels for a
budget year.
The budget preparation begins with the issuance of a budget call issued by the
Department of Budget and Management (DBM). This document outlines the specific
guidelines on the preparation of the agency budget estimates to be submitted to the
DBM. The DBM then consolidates all budgets to form a government-wide budget to
be submitted to the President for final approval before it will be forwarded to the
Congress.
2. Budget Legislation and Authorization. This procedure is a prerogative of the

Congress, which refers to the enactment of the General Appropriations Bill
based on the budget of "receipts and expenditures" into Appropriations Act.
Series of budget hearings/debate is conducted whereby the various heads of
agencies would explain to Congress the details of their respective budgets.
Appropriations are approved by the legislative body in the form of General
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Appropriations Act which covers most of the expenditures of the government.

This Act will be forwarded to the President to sign it into law.
3. Budget Execution or Operation. This covers the various operational aspects

of budgeting, thus making budgeting to serve as one of the principal tools of
management control to insure that public funds are spent only for the purpose
for which they are appropriated. This aspect involves also the regulations of
funds release, the scheduling of preferred activities, etc. The responsibility
monitoring the budget execution rests primarily with the DBM.
4. Budget Accountability. This aspect focuses on tracking, monitoring,

evaluation of expenditures and performance. This is simply achieved by
comparing performance with predetermined plans.
Budgetary Accounts
Budgetary accounts comprise of the following items:
1. Appropriation — it refers to an authorization made by law or other legislative

enactment, directing the payment of goods •and services out of government funds
under specified conditions or for special purposes.
2. Allotment — it refers to the authorization issued by the DBM to the Agency, which
allows it to incur obligations, for specified amounts, within the legislative
appropriation.
3. Obligation — it refers to the commitment by a government agency arising frc an

act of a duly authorized official, which binds the government to immediate or eventual
payments of a sum of money.
In order that the appropriation may be released, the Agency, in consultation with
DBM, is required to prepare and to submit the Agency Budget Matrix (ABM), the
official document used as the basis in the release of the obligational authority. The
ABM is prepared by appropriation source and major programs and the amounts are
classified into "Needing Clearance" and "Not Needing Clearance". For automatic
appropriations, a separate ABM is prepared and submitted.
An Annual Cash Program, which shall provide cash to finance the programs reflected
in the ABM and the prior years' accounts payable, is also submitted with the ABM.
Upon approval of the total comprehensive release, the DBM machine validates the
last page of the ABM and releases it to Agency.
Responsibility, Accountability and Liability over Government Funds and

Property
Responsibility over Government Funds and Property
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It is the declared policy of the State that all resources of the government shall be
managed, expended or utilized in accordance with laws and regulations, and
safeguarded against loss or wastage through illegal or improper disposition, with a
view to ensuring efficiency, economy and effectiveness in the operations of
government. The responsibility to take care that such policy is faithfully adhered to
rests directly with the chief or head of the government agency concerned.
Fiscal responsibility shall, to the greatest extent, be shared by all those exercising
authority over the financial affairs, transactions, and operations of the government
agency.
The head of any agency of the government is immediately and primarily responsible
for all government funds and property pertaining to his agency. Persons entrusted with
the possession or custody of the lands or property under the agency head shall be
immediately responsible to him, without prejudice to the liability of either party to the
government.
Accountability over Government Funds and Property
Every officer of any government agency whose duties permit or require the possession
or custody of government funds or property shall be accountable therefore and for the
safekeeping thereof in conformity with law. Every AO shall be properly bonded in
accordance with law.
Transfer of government funds from one officer to another shall, except as allowed by
law or regulation, be made only upon prior direction or authorization of the Commission
or its representative.
When government funds or property are transferred from one AO to another. or an

outgoing officer to his successor, it shall be done upon properly itemized invoice and
receipt which shall invariably support the clearance to be issued to the relieved or
outgoing officer, subject to regulations of the Commission.
Liability over Government Funds and Property
Expenditures of government Kinds or uses of government property in violation of law

or regulations shall be a personal liability of the official or employee found to be directly
responsible thereof.
Every officer accountable for government funds shall be liable for all losses resulting
from the unlawful deposit, use, or application thereof and for all losses attributable to
negligence in the keeping of the funds.
No AO shall be relieved from liability by reason of this having acted under the direction
of a superior officer in paying out, applying, or disposing of the funds or property with
which he is chargeable, unless prior to that act, he notified the superior officer in writing
of the illegality of the payment or disposition of the funds or property.
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When a loss of government funds or property occurs while they are in transit or the
loss is caused by fire, theft, or other casualty or force majeure, the officer accountable
therefor or having custody thereof shall immediately notify the Commission or the
auditor concerned and, within 30 days or such longer period as the Commission or
auditor may in the particular case allow, shall present his application for relief, with the
available supporting evidence. Whenever warranted by the evidence, credit for the
loss shall be allowed. An officer who fails to comply with this requirement shall not be
relieved of liability or allowed credit for any loss in the settlement of his accounts.
Responsibility for Financial Statements
The responsibility for the preparation of the FSs rests with the following:
a. for individual entity/department FSs - the head of the entity/department central

office (COf) or regional office (RO) or operating unit (OU) or his/her authorized
representative jointly with the head of the finance/accounting division/unit; and
b. for department/entity FSs as single entity- the head of the entity/department
COf jointly with the head of the finance unit.
Books of Accounts and Registries
The books of accounts and registries of the NG entities consist of:
1. Journals
a. General Journal
b. Cash Receipts Journal
c. Cash Disbursement Journal
d. Check Disbursement Journal
2. Ledgers
a. General Ledgers
b. Subsidiary Ledgers
3. Registries
a. Registry of Revenue and Other Receipts.
b. Registry of Appropriations and Allotments.
c. Registries of Allotments, Obligations and Disbursements.
d. Registries of Budget, Utilization and Disbursements.
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Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Granof, Michael H., et al. Government and Not-for-Profit Accounting: Concepts and
Practices, 7th Edition, Wiley, 2016. ProQuest Ebook Central,
https://www.proquest.com/legacydocview/EBC/5106301?accountid=31259.
Guerrero, P. and Peralta, J. (2017). Advance Accounting: Principles and Procedural

Applications, Volume 2. GIC Enterprices & Co., Inc.: Manila, Philippines
Let’s Check
Activity 1.
1. Government Accounting Manual aims to update:

a. standards, policies, guidelines and procedures in accounting for government
funds and property
b. coding structure and accounts, and
c. accounting books, registries, records, reports and financial statements
d. all of the above
2. The basis of accounting in which transactions and events are recognized in the
accounting records and in the financial statements of the periods to which they relate.
a. Cash basis
b. Accrual basis
c. Installment basis
d. Modified basis
3. This refers to a government agency, department or operating field unit:

a. Entity
b. Corporation
c. Partnership
d. Proprietor
4. Accounting which encompasses the processes of analyzing, recording, classifying,

summarizing and communicating all transactions involving the disposition of
government funds and property, and interpreting the results thereof:
a. Commercial accounting
b. Government accounting
c. Philippine standard accounting
d. Public accounting
5. The financial plan of the government for a given period, usually fora fiscal year,
which shows what its resources are, and how they will be generated and used
a. Fund plan
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b. Master plan
c. Government plan
d. Budget
6. Which is not charged with the government accounting responsibility?

a. Commission of audit
b. Department of Budget and Management
c. National Government Agencies
d. Legislative Department
7. What is the role of the Bureau of Treasure in relation to government accounting

responsibility?
a. To receive and keep national funds and manage control disbursements thereof.
b. To design, prepare and approve the accounting system of government
agencies
c. To keep the general accounts of the national government
8. The Department of Budget and Management, Department of Finance, Bureau of

Treasury, and Commission on Audit are collectively responsible for the Unified
Accounts Code Structure (UACS). Who is responsible for the validation and
assignment of new codes for funding source, organization, sub-object codes for
expenditure items?
a. Department of Budget and Management
b. Department of Finance
c. Bureau of Treasury
d. Commission on Audit

Accounts Code Structure (UACS). Who is responsible for the consistency of account
and coding structure with the Revised Chart of Accounts?
b. Department of Finance
c. Bureau of Treasury
d. Commission on Audit

Accounts Code Structure (UACS). Who is responsible or the consistency of account
classification and coding standards with the Government Finance Statistics?
b. Department of Finance & Bureau of Treasury
c. Commission on Audit
d. All of them are responsible
11. The Philippines Sector Accounting Standards (PPSAS) shall be applied to the
following except:
a. National Government Agencies
b. Government Business Enterprises
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c. Local Government Units

d. Government-Owned and/or Controlled Corporations
12. Its function is to assist the Commission on Audit in formulating and

implementing Philippine Public Sector Accounting Standards.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Public Sector Accounting Standards Boards
d. Philippine Accounting Standards Committee
13. This registry shall be maintained by fund cluster by the Budget Division/Unit of
each government entity to ensure that allotment releases are within the authorized
appropriation.
a. Registry of Allotment and Notice of Allocation.
b. Registry of Appropriations and Allotments
c. Registry of Budget, Utilization and Disbursements
d. Registry of Allotments, Obligation’s and Disbursements
14. This registry shall be maintained by Appropriation Act, by Fund Cluster, by Major
Fund Output or Program/Activity/Project for personnel services.
a. Registry of Allotments, Obligations and Disbursements – Personnel Services
b. Registry of Budget, Utilizations and Disbursements – Personnel Services.
c. Registry of Allotment and Notice of Transfer of Allocations
d. Registry of Revenue and Other Receipts.
15. It refers to an accounting entity for recording expenditures and revenue associated
with a specific activity for which accounting records are maintained and periodic
reports are prepared.
a. Financial accounting and reporting
b. Public sector accounting and reporting
c. Fund cluster accounting
d. Responsibility accounting
16. Organization Codes is one of the key elements of Unified Accounts Codes
Structure (UACS). Which of the following is not one of those reflected by this element?
a. Department
b. Agency
c. Operating Unit
d. Government-Owned and Controlled Corporation
17. It is the fund available for any purpose that Congress may choose to apply and
composed of all receipts or revenues that do not otherwise accrue to other funds.
a. Custodial fund
b. General fund
c. Off-budgetary fund
d. Revolving fund
18. It denotes the responsibility to others than one or more persons have for their
actions and behavior.
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a. Preparation
b. Accountability
c. Authorization
d. Execution
19. As specifically provided for in the New Constitution, no money shall be of the
National Treasury EXCEPT in the pursuance of paid out
a. Budget
b. President's executive order
c. Fund
d. Appropriation
20. It is the authorization from the Department of Budget and Management to an

agency to incur obligation up to a specified amount that must be within the legislative
appropriation.
a. Obligation
b. Appropriation
c. Allotment
d. Fund release
21. The budgetary accounts in government accounting consist of the following:

a. Allotment, obligation, and liquidation.
b. Appropriation, liquidation, and Notice of Cash Allocation
c. Appropriation, allotment, and obligation.
d. Allotment, liquidation, and Notice of Cash Allocation.
22. The basis of accounting in which transactions and events are recognized in the
accounting records and in financial statements of the periods to which they relate
a. Cash basis
b. Accrual basis
c. Installment basis
d. Modified basis
23. Comprise all funds derived from the income of agency of the government and
available for appropriation or expenditure in accordance with law
a. Special fund
b. General fund
c. Petty cash fund
d. Revenue fund
24. A department should post an obligation in the of an equipment in the payable

column of the
a. RAOD – CO
b. Obligation, Request and Status (ORS)
c. RAOD – MOOE
d. RAOD – PS
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25. It is the formal document issued by the Department of Budget and Management
to the head of the agency containing the authorization, conditions and amount of
allocation
a. Special Allotment Release Order
b. Allotment and Obligation Slip
c. Notice of Cash Allocation
d. Registry of Allotment and Obligation
Let’s Analyze
Activity 1. Elaborate the following statements based on your understanding.
1. Enumerate and distinguish differences between GAM and NGAS.
2. Explain the concepts about the responsibility for preparation of financial statements.
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In a Nutshell
Activity 1. The new government accounting manual is introduced in this unit. Based
from the definition of the most essential terms in the course and the learning exercises
that you have done, please feel free to write your arguments or lessons learned below.
I have indicated my arguments or lessons learned.
1. New Government Accounting System (NGAS) provides guidelines for accountants

in recording government transactions. It is important to understand the concepts and
principles of the manual to correctly account for transactions.
Your Turn
2.
3.
4.
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5.
6.
7.
8.
9.
10.
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Big Picture in Focus: ULOb. Prepare journal entries for government

transactions including financial statements
Metalanguage
The most essential terms below are operationally defined for you to have a better
understanding of this section in the course.
1. Notice of Cash Allocation (NCA). It is an authorization issued by the

Department Budget and Management to government agencies to withdraw
cash from the National Treasury through the issuance of Modified
Disbursement System (MDS) checks or other authorized mode of
disbursements.
1.1 The receipt of Notice of Cash Allocation by the agency shall be recorded
in the Regular Agency (RA) books as debit to account "Cash – Modified
Disbursement System (MDS), Regular”, and credit to account "Subsidy from
National Government."
2. Obligation. This refers to a commitment by a government agency arising from
an act of a duly authorized official which binds the government to the immediate
or eventual payment of a sum of money.
3. Disbursement. This constitutes all cash paid out during a given period either
in currency (cash) or by check. It may also mean the settlement of government
or payables/obligations by cash or by check.
Essential Knowledge
Components of Budget and Financial Accountability Reports
The budget reports consist of the following Budget and Financial Accountability
Reports.
a. Quarterly Physical Report of Operation (QPRO).
b. Statement of Appropriations, Allotment, Obligations, Disbursements and
Balances (SAAODB).
c. Summary of Appropriations, Allotments, Obligations, Disbursements and
Balances by Object of Expenditures (SAAODBOE).
d. List of Allotments and Sub-Allotments (LASA).
e. Statement of Approved Budget, Utilizations, Disbursements and Balances
(SABUDB).
f. Summary of Approved Budget, Utilizations, Disbursements and Balances by
Object of Expenditures (SABUDBOE).
g. Aging of Due and Demandable Obligations (ADDO).
h. Monthly Report of Disbursement (MRD).
i. Quarterly Report of Revenue and Other Receipts (QRROR).
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Fair Presentation of Financial Statements
The FSs shall present fairly the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the
effects of transactions, other events, and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, revenue, and expenses set out in PPSAS.
The application of PPSAS, with appropriate disclosures, if necessary, would result in
fair presentation of the FS.
Compliance with PPSASs
An entity whose financial statements comply with PPSASs shall make an explicit and
unreserved statement of such compliance in the notes. Financial statements shall not
be described as complying with PPSASs unless they comply with all the requirements
of PPSASs. Inappropriate accounting policies that do not comply with PPSAS are not
rectified either by disclosure of the accounting policies used, or by notes or explanatory
material.
Departure from PPSAS
In the event that Management strongly believes that compliance with the requirement
of PPSAS would result in misleading presentation that it would contradict the objective
of the FSs set forth in PPSAS, the entity may depart from that requirement if the
relevant regulatory framework allows, or otherwise does not prohibit, such a departure.
Going Concern
The FSs shall be prepared on a going concern basis unless there is an intention to
discontinue the entity operations, or if there is no realistic alternative but to do so.
Consistency of Presentation
The presentation and classification of items in the FSs shall be retained from one
period to the next unless laws, rules and regulations, and PPSAS require a change in
presentation.
Materiality and Aggregation
Each material class of similar items shall be presented separately in the financial
statements. Items of a dissimilar nature or function shall be presented separately
unless they are immaterial. If a line item is not material, it is aggregated with other
items either on the face of FSs or in the Notes to the FSs. A specific disclosure
requirement in a PPSAS need not be satisfied if the information is not material.
Offsetting
Assets and liabilities, and revenue and expenses shall not be allowed to offset unless
required or permitted by a PPSAS except when offsetting reflects the substance of the
transaction or other event.
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Comparative Information
Comparative information shall be disclosed with respect to the previous period for all
amounts reported in the FSs. Comparative information shall be included for narrative
and descriptive information when it is relevant to an understanding of the current
period's FSs.
Statement of Financial Position
An entity shall present current and non-current assets, as well as current and non-
current liabilities, as separate classifications on the face of the Statement of Financial
Position (SFP).
The Balance sheet accounts consist of assets, liabilities and equity. These are
classified to the following:
Assets
Current assets
Cash
Receivables
Inventories
Prepaid Expenses
Other Current assets
Long term investments
Property, Plant and Equipment
Other Assets
Liabilities
Current liabilities
Long term liabilities
Other liabilities
Equity
Accumulated Surplus/(Deficit)
Statement of Performance
The Statement of Financial Performance shall include line items that present the
revenue, expenses and net surplus or deficit for the period.
Revenue/income and expenses consist of the following:

Revenue/Income
1. General Income Accounts – This account classification encompasses all types
of revenue/income generated by government agencies in the exercise of their
administrative and regulatory function, income from public
enterprises/ investments, and income from grants and donations including
subsidies.
2. Tax Revenue Accounts — This account classification encompasses all taxes
imposed on taxable income, properties, and use or sale of goods and services,
taxes on international trade and transactions and their taxes including fines and
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penalties. Also included under these accounts are income generated from local
government, schools and hospital operations.
Expenses
1. Personal Services (PS) — items under this account includes basic pay, all
authorized allowances, bonus, cash, gifts, incentives and other personal
benefits of officials and employees of the government.
2. Maintenance and Other Operating Expenses (MOOE) — items under this
account includes expenses necessary for the regular operations of an agency
like, among others, travelling expenses, training and seminar expenses, water,
electricity, supplies expense, maintenance of property, plant and equipment,
and other maintenance and operating expenses.
3. Financial Expenses (FE) – Items under this account includes bank charges,
interest expense, commitment charges, documentary stamp expense and other
financial charges. It includes those losses incurred relative exchange
transactions and debt service subsidy to Government Owned and Controlled
Corporations (GOCCs).
Statement of Cash Flows
The Statement of Cash Flow (SCF) provides information to the users of FSs a basis
to assess the ability of the entity to generate cash and cash equivalents and to
determine the entity’s utilization of funds. This also provides information on how the
entity generates income authorized to be used in their operation and its utilization.
Statement of Comparison of Budget and Actual Amounts
A comparison of budget and actual amounts will enhance the transparency of financial
reporting in government. This shall be presented by government agencies as a
separate additional financial statement referred in this Manual as the Statement of
Comparison of Budget and Actual Amounts (SCBAA).
Notes to Financial Statements
The Notes to FSs contain information in addition to that presented in the SEP, SFPer,
SCNA/E, SCF and SCBAA. Notes provide narrative descriptions or disaggregation of
items disclosed in those FSs and information about items that do not qualify for
recognition in those statements.
Qualitative Characteristics of Financial Reporting
An entity shall present information including accounting policies in a manner that

meets a number of qualitative characteristics such as understandability, relevance,
materiality, reliability and comparability. These qualitative characteristics are the
attributes that make the information provided in the FSs useful to users.
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Accounting for Disbursements and Related Transactions
The disbursement activities of the National Government Agencies shall start from the
receipt of Notice of Cash Allocation (NCA) from the Department of Budget
Management. Government agency cannot pay its payables/obligations without NCA
since it is the sole purpose of the agency in receiving their NCA for incurrence and
eventual payment of its obligations.
The Notice of Cash Allocation
The NCA received by the agency may be net of the amount of the taxes to be withheld
by the agency, because of the Tax Remittance Advice (TRA) System. The NCA may
be used for payment of personal services, maintenance and other operating expenses,
financial expenses, capital outlay, and other miscellaneous transactions.
Pursuant to the Tax Remittance Advice (TRA) system, the NCA released by the
Department of Budget and Management to the agency is reduced by the estimate
taxes expected to be remitted by the Agency to the Bureau of Internal Revenue (BIR)
through the TRA.
Accounting for Obligation
The agency is authorized to incur obligations only in the performance of activities

which are in pursuits of its functions and programs authorized in appropriation
acts/laws within the limit of the Allotment Release Order (ARO).
Disbursements
Disbursements refer to the settlement of governments payables/obligations by cash

or by check. Typical transactions for which disbursements are made are as follows:
1. Personal Services
2. Maintenance and Other Operating System
3. Capital Outlay
4. Financial Expenses
Payment Out of the Petty Cash Fund
Petty cash fund shall be maintained under the imprest system. The fund shall be
sufficient for the non-recurring, emergency and petty expenses of the local
government unit for one month.
Disbursements by Check
The following are the two types of checks being issued by government agencies:
1. Modified Disbursement System (MDS) Checks - issued by government

agencies chargeable against the account of the Bureau of Treasury, which are
maintained with different MDS — Government Servicing Banks. These are
covered by Notice of Cash Allocation (NCA), an authorization issued by the
Department of Budget and Management to government agencies to withdraw
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cash from the National Treasury through the issuance of the MDS checks or
other authorized mode of disbursements
2. Commercial Checks — issued by the government agencies chargeable against

the Agency Checking Account with government servicing banks. These are
covered by income/receipts authorized to be deposited with authorized
government depository banks.
Disbursements by Cash
Disbursements by cash shall be made from cash advances drawn and maintained in
accordance with Commission on Audit rules and regulations. Cash payments shall be
made based on duty approved payroll/disbursements vouchers.
Granof, Michael H., et al. Government and Not-for-Profit Accounting: Concepts and
Practices, 7th Edition, Wiley, 2016. ProQuest Ebook Central,
https://www.proquest.com/legacydocview/EBC/5106301?accountid=31259.

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Let’s Check
Activity 1. Choose the best answer.
1. Comprise all finds derived from the income of any agency of the government and
available for appropriation or expenditure in accordance with law.
a. Special fund
b. General fund
c. Petty cash fund
d. Revenue fund
2. The authorization made by a legislative body to allocate funds for purposes

specified by the legislative or similar authority.
a. Appropriations
b. Allotments
c. Obligations
d. Expenditures
3. The authorization issued by the Department of Budget and Management (DBM) to

National Government Agency (NGA) to incur obligation for specified amounts
contained as a legislative appropriation in the form of budget release documents.
a. Appropriations
b. Allotments
c. Obligations
d. Expenditures
4. An act of a duly authorized official which binds the government to immediate or

eventual payment of a sum of money.
a. Appropriations
b. Allotments
c. Obligations
d. Expenditures
5. A comprehensive authority issued to all national government agencies, in general,

to incur obligation not exceeding an authorized amount during a specified period for
the purpose indicated therein:
a. Cash Disbursement Ceiling (CDC)
b. Special Allotment Release Order (SARO)
c. General Appropriation Act Release Document (GAARD)
d. General Allotment Release Order (GARO)
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Let’s Analyze
Activity 1. Journalizing entries
Entity X is a national government agency. Some of the major transactions of the

agency for the year were as follows:
1. The approved legislative appropriation for the year was 2 Billion. 5% of this
appropriation was allotted by the Department of Budget and Management (DBM) to
Entity X. This allotment is broken down as follows:
Capital Outlay (CO) 50%

Maintenance & Other Operating Exp. (MOOE) 40%
Personnel Services (PS) 10%
2. Received Notice of Cash Allocation (NCA) from DBM, 40 Million (net of tax)
3. Obligations were incurred as follows:

Capital Outlay 10 Million
Obligation for MOOE 6 Million
Personnel Services 4 Million
4. Payable to Officers and Employees upon approval of payroll:
Salaries and wages 2,000,000

PERA 300,000
Gross Payroll 2,300,000
Less: Deductions:
Withholding tax 70,000
GSIS 50,000
PAGIBIG 4,000
PhilHealth 6,000 130,000
Net 2,170,000
5. Grant of cash advance for payroll, P2,170,000.
6. Liquidation of payroll.
7. Remittance of salary deductions.
8. Payment of the following MOOE:

DASURECO 100,000
PLDT 60,000
Janitorial 40,000
200,000
Less: Withholding taxes 10,000
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Net 190,000
9. Payment of accounts payable, P3,000,000 (net of withholding tax of P300,000).
10. Receipt of NCA for TRA, P380,000.
In a Nutshell
Activity 1. Understanding the different account titles used in government transactions

is an important thing for accountants. Based from the definition of the most essential
terms in the course and the learning exercises that you have done, please feel free to
write your arguments or lessons learned below. I have indicated my arguments or
lessons learned.
1. Since accounting for government transactions follow different guidelines and chart
of accounts, accountants use different account titles in journalizing entries.
Your Turn
2.
3.
4.
5.
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6.
7.
8.
9.
10.
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Big Picture
Week 4-5: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Understand the concepts in accounting for not-for-profit organizations; and
b. Account for not-for-profit transactions and prepare financial statements
Big Picture in Focus: ULOa. Understand the concepts in accounting

for not-for-profit organizations
Metalanguage
The most essential terms below are operationally defined for you to have a better
understanding of this section in the course.
1. Non-profit organization. It is a non-stock corporation that is organized for the

benefit of the public as a rather than for the benefit of an individual proprietor
or a group of partners or stockholders.
1.1 Therefore, the concept of net income is not the primary objective of a
nonprofit organization. Instead, a nonprofit organization generally obtains
revenues sufficient to cover its expenses.
2. Restricted funds. These are funds that is specifically designated for a purpose
by the donor.
3. Unrestricted fund. These are funds with no designation specified by the donor.
This can also include board-designated funds.
Essential Knowledge
This unit provides an introduction to accounting principles and reporting practices of

not-for-profit (NPE) entities, which include colleges and universities, health care
entities, voluntary health and welfare organizations, and other not-for-profit
organizations (such as churches and museums). Each of these important for the
resources if controls and for its impact on society. Although NPE organizational types
often share a focus on service objectives, their sources of financing and degree of
autonomy vary significantly.
Characteristics of Not-for-Profit Entities
The IASB sets out some of the not-for-profit entities as follows:
1. Private Sector. Not-for-profit entities in the private sector have the following
characteristics:
• Their objective is to provide goods and services to various recipients and
not to make a profit.
• They are generally characterized by the absence of defined ownership
interests (shares) sold, transferred or redeemed.
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• They may have a wide group of stakeholders to consider (including the

public at large in cases).
• Their revenues generally arise from contributions (donations or membership
dues) rather than sales
• Their capital assets are typically acquired and held to deliver services
without the intention earning a return on them
2. Public Sector. Not-for-profit entities in the public sector have similar key
characteristics to those in the private sector.
• They are typically established by legislation. Their objective is to provide
goods and services to various recipients or to develop or implement policy
on behalf of governments and not to make a profit.
• They are characterized by the absence of defined ownership interests that
can be sold, transferred or redeemed.
• They typically have a wide group of stakeholders to consider (including the
public at large)
• Their revenues are generally derived from taxes or other similar
contributions obtained through exercise of coercive powers.
• Their capital assets are typically acquired and held to deliver services
without the intention earning a return on them
The Nature of Not-for-Profit Entities (NPE)
We can distinguish a not-for-profit entity from a commercial business enterprise by

examining its underlying characteristics.
A not-for-profit entity:
• receives contributions of significant amounts of resources from resource

providers who do not expect commensurate or proportionate pecuniary return,
• operates for purposes other than to provide goods or services, and
• does not possess ownership interests like 'those of business enterprises Once
designated as such, a not-for-profit organization finds itself in a quite diverse
sector of entities whose members are public and private, charitable and
promoting, and tax-exempt and taxable.
Although the term "not-for profit" summon up thoughts non-government organization

local church, NPE (not-for-profit entities) can fall into one of four categories:
1. Colleges and universities

2. Health care entities
3. Voluntary health and welfare organizations, and
4. Other not-for-profit organizations (such as churches and museums, etc.)
The accounting and financial reporting methods of each type of NPE vary. Not-for-
profit entities are designated in the Philippines as nongovernmental to determine
whether they should follow IASB standards (refer to discussion above regarding
IPSAS) in its absence with Financial Accounting Standards Board (FASB) standards.
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Nongovernmental not-for-profit organizations are NPE that lack the governmental

element. All nongovernmental, not-for-profit organizations—whether colleges and
universities, health care organizations voluntary health and welfare organizations
(VHWOs), or other—use essentially the same basic guidance, although the nature
of their transactions differs.
Accounting for Private Not-for-Profit Entities
The full accrual basis of accounting and reporting is used in accounting and reporting
for all not-for-profits. Financial reporting for private not-for-profit entities emphasizes
the organizational as a whole.
Accounting standards requires not-for-profit organizations to provide financial

statements with organization-wide totals of assets, liabilities and net assets as well
as information concerning organization wide changes in net assets and cash flows.
Fund accounting continues to be used. Three net asset classes —unrestricted,

temporary restricted, and permanently restricted — are used instead of fund
balances.
These net assets classes provide a clear distinction between resources that an
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
Not-for-profit entities 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
information is rarely presented in financial statements of nongovernmental not-for-
profit organizations.
Financial Statements
Financial statements emphasize the organization as a whole. Although private not-

for-profit organizations have much in common with for-profit business entities, there
are three critical differences.
• First, the donations that private not-for-profit organizations received create

transactions that have no counterparts in commercial accounting.
• Second, these contributions often have donor-imposed restrictions that require
their use for a specified purpose or not until a specified time.
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• Third, no single reported indicator can describe performance as effectively as

net income does for commercial entities; thus, other indicators are necessary.
These differences suggest the need for a somewhat different set of financial
statements for not-for-profit organizations.
As a result, three financial statements must be presented:
1. The statement of financial position reports the assets, liabilities, and net
assets of these private not-for-profits. The final category, net assets, replaces
owners' equity or fund balance. The amount of net assets the organization holds
must be classified as unrestricted, temporarily restricted, or permanently
restricted. This distinction is quite significant because it discloses the use that
can be made of the assets being held.
2. The statement of activities and changes in net assets reports revenues,

expenses, gains, and losses for the period. Revenues and expenses are
determined using the accrual basis of accounting, and includes depreciation of
fixed assets. This statement is structured to present the change in each
category of net assets for the period.
Organizations can report revenues, gains, and losses in each net asset class, but
expenses are reported only in the unrestricted net assets class. Changes in each of
these three classes of net assets must also be reported. Reclassifications that
simultaneously decrease temporarily restricted net assets and increase unrestricted
net assets are reported separately.
3. The statement of cash flows uses the standard classifications of cash flows
from operations, investing activities, and financing activities. Cash flows from
operating activities may be presented by either the direct or indirect basis. This
statement follows the traditional format for a for-profit business.
In addition to these three statements, voluntary health and welfare organizations are
required to prepare a statement of functional expenses.
Classification of Net Assets
The Financial Statements reporting requirements are based on a division of net

assets into three classifications. These classes of net assets are totally dependent
on the existence absence of donor-imposed restrictions. The three classes of net
assets are:
1. Permanently restricted net assets are the portion of net assets whose use is
limited by donor-imposed stipulations that do not expire and cannot be removed
by action of the not-for-profit entity.
2. Temporarily restricted net assets are the portion of net assets whose use is
limited by donor-imposed stipulations that either expire (time restrictions) or can
be removed by the organization fulfilling the stipulations (purpose restrictions).
3. Unrestricted net assets are the portion of net assets that carry no donor-
imposed stipulations.
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The organization’s net assets, revenues. expenses, gains, and losses are classified
according to the tree classes of net assets. This division of net assets into
permanently restricted, restricted, and unrestricted classifications is the focal point
in presenting financial not-for-profit entities. Revenues, gains, and losses can be
exported in each net asset class. but expenses are only in unrestricted net assets
class.
A. Accounting for Hospitals
Hospitals depend its large part on donations and grants, which often come with
restrictions. Fund accounting is required for hospitals in order to maintain
accountability over restricted resources. Hospitals will use normal accrual
accounting methods, including classification of costs as expenses rather than
expenditures, and will not record budgetary accounts or encumbrances on the
books.
Types of Funds
In general, there are two types of funds used by a hospital:
1. General (Unrestricted) Fund – account for all resources of the hospital which
are not subject to outside restrictions. They are used for day-to-day operations.
Note board-designated funds are unrestricted. Items in this category includes:
a. Assets whose use is limited include assets set aside by the governing board for
identified purpose.
b. Agency Funds are included in General Funds as both an asset and a liability.
They are used to account for fees collected as an agent of physicians who have
private-practice patients coming to hospital offices provided to the staff
physicians.
c. Property and equipment used for general operations. and the related liabilities.
Property plant and equipment whose use is restricted are reported in the donor-
restricted fund.
2. Donor-Restricted Funds — accounts for temporarily restricted and

permanently restricted resources. This class is subdivided into:
a. Temporary Restricted Fund may be a specific purpose fund, a term

endowment fund, or a plant replacement and expansion fund. An annuity and
life income fund may also be included.
i. Specific Purpose Fund is a restricted fund used by health care providers
to account for principal and income in accordance with donor's specified
restrictions.
ii. Endowment Fund is used by hospital to account for a trust where the
principal must be kept intact and the income be expanded for either current
operations or a specific purpose in accordance with grantor's wishes. An
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endowment may be in perpetuity, or it may be fixed term or until a specific

event occurs.
iii. Plant Replacement and Expansion Fund is a restricted fund used by
hospitals and other health care providers. to account for donor's
contributions that must be used to acquire property, plant and equipment.
b. Permanently Restricted Fund is also an endowment fund but differs from a

term-endowment fund in that the principal must be maintained intact in
perpetuity and only the income may be used in accordance with the donor's
wishes.
Accounting for Revenues and Expenses
Revenues and Gains
1. Patient Service Revenue include room and. board, nursing services and other
professional services. Patient service-revenues typically are recorded at
established (gross) rates as the services are provided but are reported net of
amounts that are considered deductions from revenues. The objective is to
report the amount that the hospital is entitled to collect as patient service
revenues.
Charity care services provided free of charge to patients who qualify under a
hospital's charity care policy — are excluded from both gross and net patient service
revenues.
According to AICPA Audit Guide and Accounting Guide, Health Care Organization:
“Charity care cases do not qualify for recognition as receivables or revenues in the
financial statements".
If further states that:

"Management's policy for providing charity care, as well as the level of charity care
provided, should be disclosed in the financial statements. Such disclosure generally
is made in the notes to the financial statement and is measured based on the
provider's rates, costs units of service, or other statistical measure."
Allowance accounts are used to reduce receivables for estimated deductions from
revenues, as well as estimated doubtful accounts. Deductions from revenues
include:
a. Courtesy allowances — discounts to doctors and employees.

b. Contractual adjustments - discounts arranged with third-party payors
(PhilHealth for example) that frequently have agreements to reimburse of less-
than-established rates.
2. Premium Fees also known as subscriber fees or capitation fees, are revenues
from agreements which a hospital provides any necessary patient services
(perhaps from a contractually established list of services) for a specific fee. The
fee is usually a specific fee per member per month. The fees are earned
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whether the standard charges for services actually rendered are more or less
than the amount of the fee — i.e., without regard to services actually provided
in the period. Therefore, they are reported separately from patient service
revenues. This is a growing portion of hospital revenues in many hospitals.
3. Other Operating Revenues includes revenues from services to patients other

than for health care and revenues from safes and services provided to non-
patients. This classification might include tuition from schools operated by the
hospital, rentals of hospital space, charges for preparing and reproducing
medical records room charges for telephone calls and television, proceeds from
cafeterias, gift shops, snack bars, donated medicine, linen and office supplies,
etc.
The control account Nonoperating Revenues records revenue not related directly to
an entity's principal operations. These items are primarily financial in nature and
include unrestricted and donor-restricted pledges, gifts or grants, unrestricted
income from endowment funds, maturing term endowment funds, income and pain
from investments, gains on sale or hospital property. Investments are reported at fair
value with both realized and unrealized gains included as part of nonoperating
revenue.
Note: The Other Operating Revenue and Nonoperating Revenue can be lump as
one account and be called, as Other Revenue and Gains.
Classification of Operating Expenses
Operating expenses of hospitals are reported on an accrual basis and normally

include functional categories for nursing services (medical and surgical, intensive
care, nurseries, operating rooms), other profession services (laboratories, radiology,
anesthesiology, pharmacy), general services (housekeeping, maintenance,
laundry), fiscal services (accounting, cashier, credits and collection, data
processing), administrative services (personnel, purchasing, insurance, governing
board) interest and depreciation provisions.
Although accounts are maintained for employee and contractual allowances, these
items are not expenses. As stated earlier, they are revenue deductions that are
subtracted from gross patient service revenues to arrive at net patient service
revenue reported in the statement of operations.
Provision for bad debts is an expense. The difference between charity care and bad
debts expense is that charity care results from the hospital's policy or providing
health care to individuals who meet certain financial criteria, whereas bad debts
results from extension credit. Health care services provided as charity care were
never intended to provide cash flows.
B. Accounting for Colleges and Universities
Colleges and universities are required to use fund accounting due to the large
amount of restricted resources under their control. Accrual accounting is used, but
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there are certain similarities to accounting by governmental funds, especially in the

reporting of expenditures rather than expenses.
Types of Funds
The-e six different fund groups which may be used by a college or university. They
include current funds (or-restricted and restricted), loan funds. endowment and
similar funds, annuity and life income funds, plant funds, and agency funds. Fund
are established as needed.
1. Current Funds. The current funds account for resources of the institution that
will be used in carrying out the primary instruction, research, and public service.
Unrestricted current funds are not subject to outside restraints on usage, and
restricted current funds have been restricted by donors or grantors to specific
purposes. As in the case of hospitals, resources designated by the Board of
Trustees are still considered unrestricted, since they lack externally-imposed
restrictions.
2. Loan Funds. Loan funds are established for resources that are to be loaned to
students, faculty, or staff. The loan fund is not for loans, notes, or bonds payable
to others. It is designed to hold assets, not liabilities. Fund balances should
separately report restricted and unrestricted amounts. Restricted amounts
represent resources which outside parties provided to the university on
condition it will be used for loans. Unrestricted fund balances represent
resources which were placed in the loan fund at the election of the university
itself.
3. Endowment and Similar Funds. Endowment funds are resources which

outside parties contributed to the university on condition they not be spent, but
invested to yield earnings which may be spent. Term endowment funds may be
spent after a specific period of time has passed or a certain event has occurred.
Quasi-endowment funds aren't actually restricted, but have been designated by
the board of the university to be retained and invested.
Occasionally. a donor will establish an endowment fund, but place the funds
with an independent trustee, who will remit earnings to the university on a
regular basis. Since the fund principal is not under the control of the university,
it will not account for it, but simply note the arrangement by memorandum and
in the notes to the financial statements.
4. Annuity and Life Income Funds. Annuity funds are resources given to the
university on condition that regular payments be made to a specific person for
a certain period of time, after which all principal is available to the institution.
Life income funds require distribution of all earnings to a specified person, upon
whose death the balance becomes\expendable by the university.
5. Plant Funds. All of the assets and liabilities associated with fixed assets of a
university are accounted in the plant fund. The plant fund balances include (1)
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unexpended plant funds, (2) funds for renewals and replacements, (3) funds for
retirement of indebtedness, and (4) investment in plant.
Unexpended plant funds contain liquid assets which are to be used to acquire
new plant assets in the future. Funds for renewals and replacements contain
liquid assets which are to be used to replace existing plant assets as needed.
Funds for retirement of indebtedness contain resources to be used to make
principal and interest payments on debts incurred to acquire plant assets.
Investment in plant consists of the fixed assets themselves and any long-term
debt issued in connection with acquisitions of these assets.
The fund balances of the first three funds should be subdivided further into
restricted and unrestricted balances, based on whether classification in the
plant fund is the result of external requirements or internal designation. The
investment in plant fund balance isn't subdivided.
6. Agency Funds. Resources received by the institution which belong to others,

such as body fees, are held in agency funds, with a liability equal to the assets
collected. There is never any fund balance in agency funds, since all assets
held are owed to others.
Revenues include tuition and fees; government appropriations; government grants

and contracts; private gifts, grants, and contracts; endowment income; sales and
services of educational activities; soles and services of auxiliary (such as residence
halls, food services, intercollegiate athletics, and college stores); sales and services
of hospitals (if operated by the university); other sources (such as expired term
endowments, annuities, and life income agreements): and independent operations
(such as government research laboratories).
Expenditures include educational and general expenditures, auxiliary enterprises,

hospitals, and independent operations.
C. Accounting for Voluntary Health and Welfare Organization and Other Not-
for-Profit Organizations
The funds used by the VHWO include:
1. Current Fund – Unrestricted. This fund is for operations that require only the
discretion of the organization's board of directors, and include assets
designated by the board for specific purposes. Revenues are recorded using
the full accrual basis. A distinction should be made between Public Support and
Revenues.
Public Support is the inflow of resources from voluntary donors who receive no
direct, personal benefit from the organization's usual programs in exchange for their
contributions. They include the following:
a. Contributions
b. Special Events Support
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c. Legacies and Bequests

d. Proceeds from fund raisers
Revenues are inflows of resources resulting from a charge for service from financial
activities or from other exchange transactions.
a. Membership Dues
b. Program Service Fees
c. Sales of Publications and Supplies for proceeds from the sales of these items
d. Investment Income e.g., interest dividends. and other earnings
Expenses are classified as program. services. and' supporting services and are
reported on a functional basis under these classifications.
a. Program services relate to the expenses incurred in providing the organization's

social service activities.
i. Research
ii. Public Education Professional Education
iii. Community Services
b. Supporting services consist of administrative expenses and fund-raising costs.

i. Management and general
ii. Fund-raising
Expenses ore recorded on a full accrual basis in a manner similar to that used by
business organizations. Expenses are recorded in each fund that incurs the
expenses,
2. Current Fund — Restricted. This fund is used for operations, but only in
accordance with a donor or grantor's specifications.
Restricted pledges to be used to promote the adoption of handicapped children

would be recorded in this classification.
3. Land, Building, and Equipment Fund. This fund is used to account for:
a. Land, buildings, and equipment acquired by the organization;
b. Liabilities arising from the acquisition or improvement of plant assets;
c. Current assets restricted by donors or grantors for future disposition.
4. Endowment Fund. This fund is used to accounts for permanently restricted

endowment principal to be maintained intact either in perpetuity or until a
specific event occurs and temporary restricted term endowments.
5. Custodian Fund. A fund established to account for assets received by an

organization to be held or disbursed only on instructions of the person or
organization from whom they were received. This fund is similar to agency fund
of a college or university. The assets do not belong to the organization.
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Accounting Principles
Voluntary health and welfare organizations adhere to the accrual basis of

accounting. Revenues are generally recognized when earned and expenses are
shown when the related services of the organization provided. Sources and uses of
funds are not merely classified as revenues and expenses, however, but are instead
broken down into categories.
• Donations of services should be charged to the appropriate expense with an

offsetting credit to support.
• Donated property should be recorded at fair market value on the date of the
gift.
• Pledges should be recognized net of uncollectible amounts, and pledges or
cash donations that will not be spendable until a future period should be shown
as a deferred credit on the balance sheet.
Voluntary Health and Welfare Organization also must provide a Statement of

Functional Expenses. This statement reports expenses by both function (program
and supporting) and by their natural classification (salary expenses, depreciation
expenses, etc).

Dayag, A. (2015). Advance financial accounting Volume 2 (2016 ed.). Lajara

Publishing House
Let’s Check
1. One characteristic of nonprofit organizations that is comparable with

characteristics of governmental entities is:
a. Stewardship of resources
b. Governance by board of directors
c. Measurement of cost expirations
d. None of the foregoing
2. A gift to a nonprofit organization that is not restricted by the donor is credited in

the unrestricted (general) fund to:
a. Contributions revenue
b. Deferred revenue
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c. Fund balance
d. Nonoperating revenue
3. Which of the following is not a source of resources of a nonprofit organization’s

restricted fund?
a. Operations of the nonprofit organization
b. Gains on disposal of investments
c. Revenues from endowment
d. Contributions of individual government entities
4. A contractual adjustment account of a nonprofit organization is:

a. A contra asset account
b. A loss account
c. An expense account
d. A revenue account
5. In addition to a statement of financial position and a statement of activity, a

nonprofit organization should also prepare a:
a. Statement of cash flows
b. Statement of changes in fund balance
c. Statement of changes in financial position
d. Statement current funds revenue and expenses
6. Unconditional promises to give are recognized as contribution revenue when:

a. The promise is received
b. The related receivable is collected
c. The time or purpose restriction is satisfied
d. The future event that binds the promisor occurs
7. Net assets that are restricted by the governing board of a nongovernment, not-for-
profit organization are reported as a part of:
a. Permanently restricted net assets
b. Temporarily restricted net assets
c. Unrestricted net assets
d. Either permanently restricted or temporarily restricted net assets, depending
on the term of the restriction
8. Which of the following is not a characteristic of a conditional promise to give:

a. Depends on the occurrence of a specified future and uncertain event to bind
the promisor
b. Gift may have to be returned to donor if condition is not met
c. Recognized as contribution revenue when the conditions are substantially met
d. Depends on demand by the promisee for performance
9. The following are characteristics of a nonprofit organization, except:

a. private service
b. no profit motive
c. financed by citizenry
d. stewardship of resources
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10. Changes in net assets during the year shall be presented in the
a. statement of activities
b. statement of functional expenses
c. statement of financial position
d. statement of cash flows
Let’s Analyze
Activity 1. Elaborate the following statements based on your own understanding.
1. In your own words, distinguish characteristics of a private not-for-profit

organization with a public organization.
2. Enumerate points in accounting practices made by a public organization that differ

with a private not-for-profit organization.
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In a Nutshell
Activity 1. Nonprofit organizations also use a different set of accounts to record its
transactions. So accountants need to have knowledge regarding such accounting.
Based from the definition of the most essential terms in the course and the learning
exercises that you have done, please feel free to write your arguments or lessons
learned below. I have indicated my arguments or lessons learned.
1. Nonprofit organization has similarities with government accounting because they

both use fund accounting. But they are dissimilar in many account titles.
Your Turn
2.
3.
4.
5.
6.
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7.
8.
9.
10.
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Big Picture in Focus: ULOb. Account for not-for-profit transactions

and prepare financial statements
Metalanguage
The most essential terms of this section has been defined below for you to have a
better understanding of this section in the course. You are to refer also with the
definitions set in the previous unit.
1. Financial statements. These are financial reports prepared by entities to

present the organizations position and performance for the period.
2. Statement of Financial Position. This financial report shows the assets,
liabilities and net assets of the organization.
3. Statement of activities. This is a financial report that presents the changes in
net assets of the organization.
4. Statement of cash flow. This report shows the cash inflow and outflow of the
organization for the period.
Essential Knowledge
Statement of Financial Position
The asset and liabilities section resembles those of for-profit enterprises. However,
unlike businesses, individuals and organizations often provide resources to not-for-
profit organizations without the expectation of earning a return on their investment.
In the place of paid-in-capital and retained earnings, the final section of this
statement presents "total net assets," which is the excess of the organization's
assets over liabilities. Net assets are presented in categories: unrestricted,
temporarily restricted, and permanently restricted
Classification of the organization's net assets is based on the existence or donor-

imposed restrictions. The three classes of net assets are defined as follows:
1. Permanently restricted net assets – expected to remain restricted as long as

the organization exists, although some or all of the income is for general or
specified use.
2. Temporarily restricted net assets – designated by an external party for a

particular purpose or for use in a future time period.
Example, a private college could receive a grant or medical research.

Amounts received from that grant are reported as temporarily restricted for
that particular use. Alternatively, the college could be awarded a grant
supporting general education programs the next three years. Thus, amounts
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received or promised for use in future period are viewed as temporarily

restricted.
3. Unrestricted net assets – no donor-imposed stipulations.
Specific requirements must be imposed by donors from outside the organization

before an asset amount is classified as restricted. For that reason, designated or
internally designated assets continue to be classified unrestricted for financial
statement purposes.
Statement of Activities and Changes in Net Assets
A Statement of Activities (and Changes in Net Assets) reports revenues, expenses,

gains, losses, and reclassifications (between classes of net assets). The statement
of activities focuses on the organization as a whole. It reports the amount of change
in net assets, ending with a net asset figure that is the same as net assets on the
balance sheet.
The organization can report revenues, gains, and losses in each net asset class, but
expenses are reported only in the unrestricted net assets class. Statement of
activities provides information about the change in amount and nature of net assets
and reports how resources are used to provide various program or services.
• Not-for-profit revenues increase unrestricted net assets unless use of the

assets is limited by donor-imposed restrictions.
• Gains and losses on investments are increases or decreases in unrestricted

net unless their use is restricted by explicit donor stipulations or by law.
• Temporarily restricted or permanently restricted net assets consist of donor-

restricted contributions whose restrictions have not yet been met. If restrictions
placed on donor-restricted contributions are met in the same reporting period
in which the contribution is made, the organization may report the contribution
as unrestricted as long as the organization follows a consistent policy.
• Expenses always decrease unrestricted net assets; thus, they cannot appear
in the temporarily restricted or permanently restricted net asset classes.
• Not-for-profit organizations that issue GAAP-basis financial statements must

recognize depreciation expense on long-lived assets. NPE should record
depreciation even if the assets are gifts; however, certain works of art and
certain historical treasures that meet the definition of "collections" need not be
capitalized or depreciated.
Generally, NPE report revenues and expenses at gross amounts. Gains and losses
from peripheral or incidental transactions or events beyond the control of the
organization may be reported at net amounts, and investment income is reported net
of related expenses.
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Expenses and Release of Temporarily Restricted Net Assets
All expenses are reported in a statement of activities solely within the Unrestricted
Net Assets column. In that way, this first column can be viewed as a reflection of
current operations for the not-for-profit organization.
When a temporary restriction (either time or usage) is fulfilled, that amount is

reclassified as unrestricted. Therefore, if an expense is incurred to meet a donor
stipulation, both the expense and the contribution appear in the statement of
activities in the unrestricted column in the same time period.
A donor might require the organization to hold the equipment for the entire expected
life or for a specific number of years. In that case, no immediate reclassification is
made from temporarily restricted net assets to unrestricted net because the use of
the asset is not completely at the discretion of the organization. Instead, a gradual
reclassification equal to the depreciation of the asset is made each year.
Statement of Functional Expenses
Voluntary health and welfare organizations must report expenses classified by

function and by natural classification (salaries, rent, etc.) in a matrix format as a
separate statement. Other not-for-profit organizations are encouraged, but not
required, provide this additional expense information.
Statement of Cash Flows
NPEs use the same cash flow classifications and definitions as business enterprises
except that the description of financing activities is expanded to include resources
that are donor restricted for long-term purposes.
The NPE statement of cash flows reports investing activities of permanent

endowment as cash flows of investing activities. When preparing the balance sheet,
organization cannot aggregate cash restricted for long-term purposes with cash
available for current uses in the balance sheet. Similarly, they should exclude cash
and cash equivalents that are restricted for long-term purposes from cash in the cash
flow statement.
Organizations that select the direct method must provide a schedule to reconcile the
change in net assets in the statement of activities to net cash flows from operating
activities.
Accounting for Contributions, Revenues and Gains
Not-for-profit entities record all events as either:

• Contributions
• Exchange transactions
• Expenses
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• Capital transactions or
• Agency transactions
Contributions/Donations
• unconditional transfers of cash or other resources to an entity in a voluntary
nonreciprocal transaction and should be recognized as revenue in the period
received at fair value.
• Conditional promises to give are not recognized as revenue until the conditions
are met. Conditions are different from restrictions. Conditional promises require
some future action on the part of the non-profit organization before asset will
be transferred.
Restricted contributions specify how the contributions must be used and are
recognized as increases in either temporarily restricted net assets or permanently
restricted net assets when the promise is received.
These non-exchange transactions may include cash, securities, land, and buildings.
These may also include noncash items or gifts in kind such as free or discounted
use of facilities or utilities, donated materials and supplies, intangible assets, and
services of unpaid workers. All of these are recorded at the fair value at the date of
the gift. In case of noncash gifts, a corresponding asset or expense is recorded.
Exceptions to the general rule on recognition provision are made for:

1. Contributions of services (Donated Services), and
2. Donated works of art.
Donated/Contributed Services
Not-for-profits recognize contributed services as revenue but only if the service

provided meets one of two criteria:
1. Creates or enhances a nonfinancial asset, or

2. Requires a specialized skill possessed by the contributor that would typically
need to be purchased if not donated.
Examples of the first type include donated labor by carpenters, electricians, and
masons. If these services enhance nonfinancial assets, the organization recognizes
the fair value of the services as an increase in both fixed assets and contribution
revenue. Another example of the second type of donation include legal or accounting
services that are recognized as both an expense and revenue when contributed.
Contributed services (such as volunteer servers at a soup kitchen) are not

recognized as revenue if they fail to meet either of these criteria. This is not because
the service have no value but because of the difficulty in measuring that value.
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Donated Works of Art
Not-for-profit organizations need not recognize contributed works of art, historical

treasures, and similar assets as contributions, if the donated items are:
• held for public exhibition, education, or research in furtherance of public service
rather than financial gain;
• protected, kept encumbered, cared for, and preserved; and
• subject to an organizational policy that requires proceeds from sales collection
items to be used to acquire other items for collections.
Organizations that choose not to capitalize collections should describe the collection
in the notes to the financial statements. Contributed collection items are recognized
revenues or gains if the collection is capitalized. When collection items are
recognized, the costs of collection items, proceeds from sales, and proceeds from
insurance recoveries appear as increases or decreases of the appropriate net a
class on the activities statement, separately from revenues, expenses, gains, and
loss
Pledge
A pledge (promise to give) is a written or oral agreement to contribute cash or other

assets to another entity. A promise to give may be conditional or unconditional.
• Unconditional pledges depend only on the passage of time the demands by the
not-for-profit to be collected are recognized as a receivable and revenue (or
support) in the year made.
• Conditional pledges depend on the occurrence of a specified future and
uncertain events and should be recognized as revenue and receivables when
the conditions are substantially met (meaning when the conditional promise to
give becomes unconditional); however, the conditional gift of cash or other
asset that may have to be returned to donor if the condition is not met as a
refundable advance (liability).
Disclosures in notes to the financial statements for conditional promises to give

include the total amounts promised and a description and amount for any group of
promises having similar characteristics (i.e., a specific project or goal).
They report such promises as restricted support (meaning, as contribution in

temporarily restricted net assets, based on the time restriction), even if the sources
are not restricted for specific purposes, until cash is received and available for
expenditure.
Donor-lmposed Condition, Restrictions and Reclassifications
Donor-imposed restrictions do not affect the timing when contributions are

recognized. Rather, these donor restrictions affect the manner of reporting
contributions and related assets:
• If a donor does not stipulate how the asset should be used, then the gift is
classified as unrestricted.
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• If the donor does impose a restriction, such as identifying a particular program,

capital asset, or time period that the donated asset may be used, the
contribution is classified as temporarily restricted.
• Other assets may be donated as permanently restricted endowments.
Exchange Transactions
• reciprocal transfers in which each party receives sacrifices approximately equal
value, are considered unrestricted.
Sale of products and services are exchange transactions. Many transactions

traditionally are recognized as contributions, for example, grants, awards,
sponsorships, and appropriations, may be categorized as exchange transactions
rather than contributions and accounted for as Increases in unrestricted assets.
Government grants that require performance by the not-for-profit organization are

accounted for as refundable deposits (liabilities) until earned. Unrestricted revenue
is earned when expenses are made in conjunction with the provisions of the grant.
Dues charged to members of not-for-profit entities may have characteristics of both

contributions and exchange transactions. The portion of the dues representing
contributions will be recognized as revenue when received, but the portion
representing an exchange transaction will be recognized as revenue as it is earned.
Agency Transaction
• when assets are transferred to the not-for-profit entity, not-for-profit entity has
little or no discretion over the use of those assets, and the assets are passed
on to a third party. The resource provider is using the not-for-profit an agent or
intermediary to transfer assets to a third-party donee.
• Government grants, which are essentially pass-through financial aid to
beneficiaries, are accounted for as agency transactions.
Gifts in Kind
• noncash contributions, such as clothing, furniture, and services. They are
contributions if the not-for-profit entity has discretion over the disposition of the
resources. Otherwise, the entity will account for the gifts as agency
transactions.
• measure gifts in kind that are contributions at fair value
• If value cannot be reasonably determined, NPEs should record the item as
sales revenue when they are sold
Accounting for a Private Not-for-Profit College or University
Accounting for Revenues
A university might establish one master control account for unrestricted revenues,
with details as to major sources recorded in subsidiary records. More commonly,
separate revenue accounts are established using the following three major groups
of revenues:
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1. Educational and general revenues group, with accounts for:

a. Student tuition and fees (recognized when due or billed, net of an
appropriate allowance for uncollectibles)
b. Governmental appropriations
c. Governmental grants and contracts
d. Gifts and private grants
e. Endowment income
f. Other sources
2. Auxiliary enterprises revenues
3. Expired term endowment revenues
Revenues are classified either as:

a. Operating revenues (student tuition fees, government appropriations, and
governmental grants)
b. Non-operating revenues (all government appropriations, gifts, investment
income, endowment income, and interest)
Accounting for Expenses
Expenses are recognized in all funds on the accrual basis and may be classified on
a natural basis or by function.
1. Educational and general expenses group, with accounts for:

a. Instruction (expenses for credit and noncredit courses)
b. Research (expenses to produce research results)
c. Public support (expenses for non-instructional services, including
conferences, seminars, and consulting)
d. Academic support (expenses supporting instruction and public services,
such as libraries, galleries, audiovisual services, and academic deans)
e. Student services (expenses for student admission and registration and
cultural and athletic activities)
f. Institutional support (expenses for central administration)
g. Operation and maintenance of plant (expenses for capital repairs and
depreciation)
h. Student aid (expenses for scholarships, fellowships, tuition remissions, and
outright grants)
2. Auxiliary enterprises expenses
In private universities, grants awards, sponsorships, and appropriations, are now

categorized as exchange transactions rather than contributions and accounted for
as increases in unrestricted assets.
Accounting for Health Care Providers – Hospitals
Assets of a health care provider comprise three distinct segments:

• Current assets
• Assets whose use is limited
• Property and equipment
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Non-operating Revenue
• Revenues, expenses, gains, or losses from activities that are incidental to the
providing of health care services or from events beyond the entity's control as
classified as non-operating.
• Nonoperating Revenues record revenue not related directly to on entity's
principal operations. These items are primarily financial in nature and include:
• Unrestricted and donor-restricted pledges, gifts or grants
• Unrestricted income from endowment funds
• Maturing term endowment funds
• Income and gain from investments
• Gains on sale of hospital property
Unrestricted donations of property are recognized as Non-operating Revenues –

Unrestricted. If donations of property are donor restricted, the same entry is made
but with a credit to temporarily or permanently restricted revenues.
Classification of Operating Expenses
The following functional expense categories are common to many health care
organizations:
1. Nursing Services Expense, for the cost of nursing services directly related to
the patient or resident.
2. Other Professional Services Expense, for professional services indirectly
related to the patient or resident, such as lab fees or pharmacy costs. Note that
some hospitals combine the two accounts Nursing Services Expense and Other
professional Services Expense into one account labeled Professional Care of
Patients Expense.
3. General Services Expense, for costs of the cafeteria, food service, and
housekeeping. Where food services constitute a major cost, some hospitals
prefer to segregate them into the account Dietary Services Expense.
4. Fiscal Services Expense, for admitting, data processing, billing, and accounting
costs.
5. Administrative Services Expense, for purchasing, public relations, insurance,
taxes. and personnel costs.
6. Other Services.
7. Malpractice Insurance Expense, if not allocated.
8. Depreciation Expense if not already allocated.
9. Interest Expense, if not already allocated.
10. Provision for Bad Debts, if not already allocated.
Accounting for Voluntary and Welfare Organizations
To qualify as a voluntary health and welfare organization (VHWO), two criteria must
be met:
• First, a primary source of revenue should be contributions from donors who do
themselves directly benefit from the organization's programs; and
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• Second, the program must be in the area of health, welfare, or community

service, such as care for the elderly, the indigent, or the handicapped, or
projects to protect the environment.
The following table lists the funds used by most VHWOs with the three net asset
categories:
Funds Unrestricted Temporarily restricted Permanently
net assets net assets restricted
net assets
Current unrestricted x
Current Restricted x x
Plant Fund x x x
Endowment Fund x x
Agency (Custodian Fund)
Accounting for Revenues/Contributions

• A distinction should be between Public Support and Revenues. 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 organization's usual programs in exchange for
their contributions.
The following accounts are used to record receipts of assets in the public support
category:
1. Contributions
2. Special Events Support
3. Legacies and Bequests
4. Proceeds from fund raisers
Contributions
• Recognized as public support in the period received and as assets, decreases
of liabilities, or expenses depending on the form of the benefits received.
When public support category covers an organization's special fund-raising events

in which the participant has the opportunity to receive something of value in
exchange for a contribution (raffles, dinners, bingo games, and bake sales), the
gross inflow of resources is credited to an unrestricted account.
Revenues
• In addition to public support, resources may be received from exchange
transactions that are classified as unrestricted revenue. These resources would
include the following accounts:
1. Membership Dues Revenue for dues charged members to join and use facilities
or receive publications.
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2. Program Services Fees for amounts charged clients for services of the
organization, such as consulting, testing, or advising.
3. Sales of Publications and Supplies for proceeds from the sales of these items,
4. Investment transaction revenue, classified as unrestricted or restricted, could
include the following accounts:
a. Investment Revenue for interest, dividends, and other earnings.
b. Realized Gain on Investment Transactions for gains from the sale or
exchange of investments.
c. Net Increase (or Decrease) in Carrying Value of Investments for the
Unrealized appreciation (or depreciation) of investments if they are carried
at fair value.
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 each
program or service the organization provides - the costs in which the general
contributors, and the controlling agencies are primarily interested. Expenses are
classified as program services and supporting services and are report on a functional
basis under these classifications.
• Program services relate to the expenses incurred in providing the organization

social service activities. Under this category, it includes:
1. Research
2. Public Education
3. Professional Education
4. Community Services
• Supporting services consist of administrative expenses and fund-raising costs.

Under this category, it includes:
1. Management and general. Management and general activities include all
management, financing, and administrative activities, except for direct
activities of programs or fund raising.
2. 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 with soliciting contributions. Membership
development activities include soliciting for prospective members and
membership dues, membership relations, and similar activities.
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Dayag, A. (2015). Advance financial accounting Volume 2 (2016 ed.). Lajara

Publishing House
Let’s Check
Activity 1. Evaluate the following statements whether it is True or False.
_____ 1. Contributed services are always recognized both as expenses and

contributions revenue.
_____ 2. On the statement of financial position for a private not for profit performing
arts center, expenses should be deducted from unrestricted revenue only.
_____ 3. A pledge represents income derived from other related activities, other than
service revenue of nonprofit organizations.
_____ 4. Restricted fund includes all assets of a nonprofit organization that are
available for use as authorized by the board of directors.
_____ 5. The statement of cash flows for a private not for profit hospital should
report cash flows according to unrestricted, temporarily restricted and permanently
restricted.
_____ 6. The concept of net income can be a primary objective of organizing a
nonprofit organization in certain circumstance.
_____ 7. A nonprofit organization is organized for the benefit of the public as well as
for the benefit of an individual proprietor, or a group of partners or stockholders.
_____ 8. Contributed services and facilities are debited to an unrestricted fund as
Rent Expense for contributed services and Salary expense for contributed facilities.
_____ 9. Supporting services are goods and services provided to beneficiaries or
customers that fulfill the purpose of the organization.
_____ 10. A plant fund is used to account for assets held by a nonprofit organization
as a custodian. The assets are disbursed only as instructed by their owner.
Activity 2. Not-for-Profit Organization: Private University, Contributions
Indicate how the following events are recorded in a private university. Write the letter
and account to be used.H
a. Credit Contributions – Unrestricted
b. Credit Contributions – Temporarily Restricted
c. Credit Contributions – Permanently Restricted
d. Credit Refundable Deposits
e. Credit Fund Balance
f. No entry
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1. Receipt of an unconditional cash contribution.

2. Receipt of cash to be used for a specific purpose.
3. Receipt of an unconditional promise to give.
4. Receipt of an unconditional promise to give over a 5-year period.
5. Receipt of investments that are to be used to set up an endowment with
earnings available for operations.
6. Receipt of a fixed asset with donor – specified use for an Outreach program.
7. Receipt of a conditional promise to give.
8. Receipt of a fixed asset with donor restriction.
9. Receipt of free accounting services.
10. Receipt of time of volunteers who helped with fund-raising mailings.
11. Receipt of a cash contribution to be used next year for general operations at
the discretion of management.
12. Receipt of a cash contribution to be used next year for a research project.
13. Receipt of a cash as part of a government grant funding a cancer research
project. A report with research results will be prepared for the government
funding agency.
14. Receipt of a cash contribution to be used for acquisition of fixed assets.
15. Receipt of a permanent collection of geography maps that will be displayed to
the public.
Let’s Analyze
1. East Avenue Hospital fiscal year ends on March 2020. In March 2020, a P300,000
unrestricted bequest and a P500,000 pure endowment grant was received. In April
2020, a bank notified East Avenue that the bank received P10,000 to be held in
permanent trust by the bank. East Avenue is to receive the income from this donation.
East Avenue should record the P300,000 unrestricted bequest as
a. Non-operating revenue
b. Other operating revenue
c. A direct credit to the fund balance
d. A credit to operating expenses
2, Using the same information in No. 1, the P500,000 pure endowment grant:
a. May be expended by the governing board only to the extent of the principal
since the income from this fund must be accumulated.
b. Should be reported as non-operating revenue when the full amount of principal
is expended.
c. Should be recorded as a memorandum entry only.
d. Should be accounted for as donor-restricted funds upon receipt.
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3. Using the same information in No. 1, the P10,000 donation being held by the bank
as permanent trust should be:
a. Recorded in East Avenue's restricted revenue.
b. Recorded by East Avenue as non-operating revenue.
c. Recorded by East Avenue as other operating revenue.
d. Disclosed in notes to East Avenue's financial statements.
4. In 2020, St. Paul Hospital received an unrestricted bequest of common stock with
a fair market value of P50,000 on the date of receipt of the stock. The testator had
paid P20,000 for this stock in 2020. St. Paul Hospital should record this bequest as
a. Non-operating revenue of P50,000.
b. Non-operating revenue of P30,000.
c. Non-operating revenue of P20,000.
d. A memorandum entry only.
5. FEU Hospital a nonprofit hospital affiliated with FEU University, received the
following cash contributions from donors during the year ended December 31, 2019.
Contributions restricted by donors for research P50,000

Contributions restricted by donors for capital acquisitions 250,000
Neither of the contributions was spent during 2019, however, during 2020, the hospital
spent the entire P50,000 contribution on research and the entire P250,000 contribution
on a capital asset which was placed into service during the year. On the hospital’s
statement of operations for the year ended December 31, 2020, what total amount
should be reported "net assets released from restrictions."
a. P 50,000
b. P300,000
c. P250,000
d. 0
6. University of Santo Tomas unrestricted current funds comprised the following:
Assets P5,000,000
Liabilities (including deferred revenues of P100,000) 3,000,000
The fund balance of net assets of University of Santo Tomas unrestricted set assets
was
a. 1,900,000
b. 2,000,000
c. 2,100,000
d. 5,000,000
7. For the 2020 summer session, Far Eastern University assessed its students
P300,000 for tuition and fees. However, the net amount realized was only P290,000
because of the following reductions:
Tuition remissions granted to faculty members' families P3,000

Class cancellation refunds 7,000
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How much unrestricted revenues from tuition and fees should Far Eastern University
report for the period?
a. 290,000
b. 297,000
c. 293,000
d. 300,000
8. For the summer session of 2020, Silliman University assessed its students
P1,700,000 (net of refunds), covering tuition and fees for educational and general
purposes. However. only P1,500,000 was expected to be realized because
scholarships totaling P150,000 were granted to students, and tuition remissions of
P50,000 were allowed to faculty members’ children attending Silliman. What amount
should Silliman include in the unrestricted revenues from student tuition and fees?
a. 1,500,000
b. 1,550,000
c. 1,650,000
d. 1,700,000
9. Charity Fund is a voluntary welfare organization funded by contributions from the

general public. During 2020, unrestricted pledges of P100,000 were received, half of
which were payable, in 2020, with the other half payable in 2021 for use in 2021. It
was estimated that 20% of these pledges would be uncollectible. With respect to the
pledges, the amount that should be reported for 2020 as net contributions, under
public support, is
a. 100,000
b. 80,000
c. 50,000
d. 40,000
10. In 2020, the Board of Trustees of Ayala Foundation designated P100,000 from its
current funds for college scholarships. Also in 2020, the foundation received a bequest
of P200,000 from an estate of a benefactor who specified that the bequest was to be
used for hiring teachers to tutor handicapped students. What amount should be
accounted for as current restricted funds?
a. 0
b. 100,000
c. 200,000
d. 300,000
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In a Nutshell
Activity 1. Financial statements of nonprofit organizations and recording of

transactions has been discussed in this unit. Based from the definition of the most
essential terms in the course and the learning exercises that you have done, please
feel free to write your arguments or lessons learned below. I have indicated my
arguments or lessons learned.
1. Nonprofit organizations prepare similar financial statements to profit organizations

except that since it’s not for profit, it does not prepare income statement. Instead it
prepares statement of activities.
Your Turn
2.
3.
4.
5.
6.
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7.
8.
9.
10.
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Accounting for Government and Not-for-Profit Organizations SIM Manual

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UM Digos College

Department of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning

Course/Subject: ACP 313 – Accounting for Government and Not-for-

Name of Teacher: April Kate F. Valisno, CPA

THIS SIM/ SDL MANUAL IS A DRAFT VERSION ONLY; NOT

Part 1. Quality Assurance Policies and Course Outline Policies ................... 1

Part 2. Week 1-3

Part 3. Week 4-5

Course Outline: ACP 313 – Accounting for Government and Not-for-

Course Coordinator: April Kate F. Valisno

Course Outline Policy

Areas of Concern Details

If the assessment task is done in real time through

Since this course is included in the licensure

Please note that academic dishonesty such as

However, if the late submission of assessment

For group assessment tasks, the course

on the student’s failure to comply with the

If disapproved by the course coordinator, you can

All culled from on-campus/onsite sessions (TBA):

Submission of the final grades shall follow the

You can also meet the course coordinator in

For students who have not created their student

Contact Details of the Dean Eduard L. Pulvera, MSIS

Course Information – see/download course syllabus in the Quipper

CO Aside from understanding procedures on government accounting, you

Big Picture in Focus: ULOa. Understand the accounting terms,

1. Government accounting. Government accounting is the process of recording,

Government entities do not report to shareholders like profit-oriented entities, but it

1. To produce information concerning past operations and present conditions’

Subjects of Government Accounting

The subjects of government accounting include:

• Uniform guidelines and procedures in accounting for government funds a

Basic Features and Policies

The NGAS has the following basic features and policies:

1. Accrual Accounting. A modified accrual basis of accounting shall be used.

b. Special-purpose Fund. Special-purpose Fund is a fund appropriated for

i. Miscellaneous Personnel Fund - fund appropriated to cover personnel

c. Off-Budgetary Funds. Off-Budgetary Funds refer to receipts for expenditure

d. Custodial Funds. Custodial Funds refer to receipts or cash received by any

3. New General Appropriations. New General Appropriations are annual

4. Retained Income/Funds. Retained Income/Funds are collections that are

5. Revolving Funds. Revolving Funds are receipts derived from business-type

a. Inter-Agency Transferred Funds (IATF), which are receipts or fund

7. Chart of Accounts and Unified Accounts Code Structure (UACS). The

Coding Scheme. Codes are assigned to account groups to facilitate location Of

The account structure consists of eight (8) mandatory digit as follows:

Major Accounts Group

Sub-Major Account Group

General Ledger Accounts

General Ledger Contra-Accounts

Account Group represents the accounts classification as to assets, liabilities,

General ledger (GL) accounts represent the accounts to be presented in the

Reporting requirements that will be best served by the UACS include:

a. Financial reports as required by the Department of Budget and Management

Responsibilities. The DBM, Department of Finance-Bureau of the Treasury (DOF-

Elements. The key elements of the coding framework are:

8. Financial statements. The following statements shall be prepared:

Notes to Financial Statements shall accompany the above statements.

9. Allotment and Obligation. Obligation accounting is modified to simplify