ACCOUNTING FOR NON-PROFIT

ORGANIZATION

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 Various scholars and organizations have different definitions of Non-Profit Organizations (NPO).
With all the definitions available, the study on global civil society yielded a consensus on five structural-
operational features that defined organizations within the NPO sector:
● Organized, i.e., they have some structure and regularity to their operations, whether or not they
are formally constituted or legally registered. More than legal or formal recognition, this
qualification stresses organizational permanence and regularity, reflected in regular meetings, a
membership, and legitimate decision-making structures and procedures.
● Private, i.e., they are not part of the apparatus of the state, even though they may receive
support from governmental sources.
● Not profit-distributing, i.e., they are not primarily commercial in purpose and do not distribute
profits to a set of directors, stockholders, or managers. While NPOs may generate a surplus from
time to time, they must reinvest these resources back into the objectives of their respective
organizations.
● Self-governing, i.e., they have their own mechanisms for internal governance, are able to cease
operations on their own authority, and are fundamentally in control of their own affairs.
● Voluntary, i.e., membership or participation in them is not legally required or otherwise
compulsory.

These organizations include professional organizations, schools, colleges and universities, hospitals,
churches, charities and social service groups. Services of these units may be offered only to closed
membership groups or they may be offered to the general public. Most hospitals, trade associations and
membership organizations provide a statement of financial position and a statement of revenues and
expenses (activities) that report their financial position and results of operations for the entity as a
whole. Educational institutions, religious organizations and certain other not-for-profit organizations
often provide information on financial position, changes in financial position and results of operations by
fund groups and not for the entity as a whole. At present, a statement of cash flow is now a required
statement.
Service organizations differ widely as to size, nature and diversity or operations. They may differ
in the means they employ to finance their activities. Contributions are generally an important part of the
financing program, but the nature of the contributions and the use of such resources also differ. Such
organizations require books and records to summarize receipts and disbursements as well as assets,
liabilities and equities. Systems for achieving accounting and administrative control are required.
Budgets that provide for direction and control of proposed activities and financial statements that
summarize past activities are indispensable parts of an accounting program.
Although privately organized service organizations are bit subject to the rigid legal controls that
are found in the governmental unit, they are still subject to special conditions that suggest an
accounting similar to that employed by the government. Service organizations ordinarily engage in a
core of general activities that are accompanied by a number of auxiliary services. Gifts and grants from
both private and public channels in the form of cash and other properties are frequently accompanied
by detailed requirements on exactly how such resources are to be spent or utilized. Instead of emphasis

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upon operating at a profit, emphasis centers upon the resources in meeting the service objectives of
each of these organizations.
When fund accounting is used, the resources that are for financing the normal or general
activities in the operations of the service organizations are commonly called general or current fund. The
receipts or resources that are to be used in the special activities such as publication of a periodic journal
or construction of a building for the unit are designated as special or current fund. Each fund group or
subdivision calls for a separate set of self-balancing accounts and the recognition of related asset,
liability and fund balances or net assets. When a number of different revenues and expenses affect a
fund balance, nominal accounts are established to summarize them and the nominal accounts are
closed at the end of each project; when relatively few transactions affect a fund balance, they may be
recorded directly in the fund balance. At the end of each period, financial statements are prepared to
summarize the operations and to report on the financial conditions of each of the funds or fund groups
maintained and not for the entity as a whole. In many cases, locally, combined statement of financial
position and statement of revenues and expenditures now called statement of activities together with
statement summarizing the changes in fund balances, now called the statement of cash flows are
prepared.
The discussion in this chapter will focus upon accounting for four types of not-for- profit/service
organizations, namely: (1) the professional organization, (2) the privately organized education
institutions-school, college, university, (3) the privately organized hospital and (4) the cooperative. The
first type uses the net asset approach for the statement of financial position while in the second and the
third types, fund accounting finds extensive use. The fourth type is more similar to
trading/manufacturing or loaning entities.
Whether fund accounting is used or not, a complete set of financial statements of not-for-profit
organization shall include a statement of financial position as of the end of the reporting period, a
statement of activities and a statement of cash flows. Disclosure and reporting requirements are similar
to those of a business form such as those for financial instrument, loss contingencies, extraordinary,
unusual and infrequently occurring events and accounting changes. The degree of segregation and order
of presentation of items of assets and liabilities in statements of financial position or of items of revenue
and expenses in statements of activities although not specified in the statement issued generally should
be similar to those of a business enterprise as various requirements of internal and external users would
be met.
The primary purpose of financial statements is to provide relevant information to meet the
common interests of donors, members, creditors and others who provide resources to not-for-profit
organizations. Those external users of financial statements have common interests in assessing (a) the
services an organization provides and its ability to continue to provide those services and (b) how
managers discharge their stewardship responsibilities and other aspects of their performance. More
specifically, the purpose of financial statements, including accompanying notes, is to provide
information about:
(a) The amount and nature of an organization’s assets, liabilities and net assets
(b) The effects of transactions and other events and circumstances that change the amount and
nature of net assets

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 (c) The amount and kinds of inflows and outflows of economic resources during a period and
the relation between inflows and outflows
(d) How an organization obtains and spends cash, its borrowing and repayment of borrowing
and other factors that may affect its liquidity
(e) The service efforts of an organization

STATEMENT OF FINANCIAL POSITION

This statement provides relevant information about the liquidity, financial flexibility and
interrelationship of an organization’s assets and liabilities in order to let the external users of such be
able to assess the organization’s ability to continue providing the services, to meet obligations, and
needs for external financing. This statement shows the assets, liabilities and net assets of a not-for-profit
organization

NFP Organization
Statement of Financial Position
December 31, 20B and 20A
(In thousands)
ASSETS 20B 20A
29,75
Cash and cash equivalents P 0 P 365
Receivables 1,000 500
Inventories and prepaid expenses 610 110
Assets restricted to investment in building and equipment 66,000 66,000
Land, building and equipment 210,000   213,000
TOTAL ASSETS P 307,360 P 279,975
LIABILITIES AND NET ASSETS
4,25
Voucher payable P 5 P 3,255
Refundable advances 500 1500
Long-term debt 10,000 10000
TOTAL LIABILITIES P 14,755 P 14,755
Net Assets:
153,50
Unrestricted P 172,605 P 0
Temporarily restricted 20,000 11,900
Permanently restarted 100,000 99,820
TOTAL NET ASSETS P 292,605 P 265,220
TOTAL LIABILITIES AND NET ASSETS P 307,360 P 279,975

Information about the nature and amounts of different types of permanent restrictions or
temporary restrictions shall be provided either by reporting their amounts on the face of the statement
or by including relevant details in notes to financial statements. Separate line items may be reported
within permanently restricted net assets or in notes to financial statements o distinguish between

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permanent restrictions for holding of (a) assets, such as land or works of art, donated with stipulations
that they be used to a specified purpose, be preserved and not be sold or (b) assets donated with
stipulations that they be invested to provide permanent source of income such as gifts that create
permanent endowment funds.
Separate line items may be reported within temporarily restricted net assets or in notes to
financial statements to distinguish between temporary restrictions for (a) support of particular
operating activities, (b) investment for a specified term, (c) use in specified future period, or (d)
acquisition of long-lived assets. Donors’ temporary restriction may require that resources be used for
specified purpose as purpose restrictions, or both. Gifts called term endowments such as gifts of cash or
other assets with stipulations that they be invested to provide source of income for a specified term and
that the income be used for a specified purpose are both time and purpose restricted.

STATEMENT OF ACTIVITIES
This statement shows the revenues, gains, expenses and losses. The primary purpose of this
statement is to provide relevant information about (a) the effects of transaction and other events and
circumstances that change the amount and nature of net assets, (b) the relationships of those
transactions and other events and circumstances to each other, and (c) how the organization’s resources
are used in providing carious programs or services. The information in this statement used with related
disclosures and information in other financial statements, helps donors, creditors and others to (1)
evaluate the organization’s performance during a period, (2) assess an organization’s service efforts and
its ability to continue to provide services, and (3) assess how an organization’s managers have
discharged their stewardship responsibilities and other aspects of their performance. This statement
uses the descriptive term- change in net assets or change in equity of the entity as a whole. The
following format shows revenues and expenses segregated using the net asset classification/category.
NPF Organization
Statement of Activities
For the year ended December 31, 20B
Temporaril Permanentl
Unrestricted y Restricted y Restricted Total
Revenues, gains and other support:
Contributions P 20,700 P 8,100 P 180 P 28,980
Fees 12,000 12,000
P
Total P 32,700 40,980
Expenses and losses
Program A P 6,000 6,000
Program B 2,895 2,895
Management and General 3,700 3,700
Fund Raising 1,000 1,000
P
Total P 13,595 13,595
Change in net assets P 19,105 P 8,100 P 180 27,835

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 Net assets at beginning of year 153,500 11,900 99,820 265,220
P
Net assets at end of year P 172,605 P 20,000 P 100,000 292,605

STATEMENT OF CASH FLOWS

This statement provides relevant information about the cash receipts and cash payments of an
organization during a period. Although this statement may be using either of the two methods. Direct
and indirect, only the direct method is illustrated below.

NFP Organization
Statement of Cash flows
For the year ended December 31, 20B
Cash flows from operating activities:

P 28,9
Cash received from members and contributors 89
Cash received from service recipients 12,000
Cash paid for:
Program A P 5,000
Program B 1,895
Fund Raising   1,000 (7,895)
Cash paid to employees and suppliers   (3,700)
P
Net cash from operating activities 29,835
Cash and cash equivalents at beginning of year   365
P
Cash and cash equivalents at end of year 29,750

Reconciliation of change in net assets to net cash received from operating activities:
Change in net assets P 27,685
Adjustments to reconcile change in net assets to
net cash from Operating activities:
Depreciation 3,000
Decrease in refundable advance (1,000)
Increase in vouchers payable 1,000
Increase in receivables (500)
Increase in inventories and prepaid expenses (500)
Net cash flow from operating activities P 29,835
PROFESSIONAL ORGANIZATIONS

There are more than 40 professional organizations accredited by the Professional Regulation
Commission. These associations or institutions have their head offices in Metro Manila, but their
chapters are found all over the country. Their operations are generally financed by membership dues

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that are paid annually. Sharing of these membership fees among the different chapters, regional
councils and head office are provided for in their by-laws. Bigger organizations have established regional
councils which oversee the chapters. Each organization has its own mission and vision and its activities
shall be towards the attainment of these goals.

Their operations are characterized by having a board of directors establishing the policies and
guidelines based in the by-laws which are implemented by means of a set of officers elected from
among the members of the boars. Every year elections are conducted nationwide. Various committees
are created with a chairman and members who give their time and effort voluntarily to achieve the
objectives of the organization. Full accrual basis is used whenever practicable, depreciation is provided
but is not considered in determining the excess of receipts over disbursements.

Two kinds of net assets are commonly accounted for, unrestricted or general and restricted or
special net assets. The spreadsheet is used to summarize daily transactions in these two types of net
assets. An updated list of members is requirement to ensure accounting of annual dues in arrears to
support the receivable accounts. Collections are normally done by the chapters and monthly reports are
prepared to account for the remittances due to the head office and the regional councils. Restricted net
assets are created every time collections would include receipts for subscriptions to the periodic journal
or for additions or betterment of the building.

To illustrate the journal entries under these two types of net assets, the transactions affecting a
professional organization is given below and in the succeeding pages. Financial statements are
illustrated immediately after the journal entries. The entries are posted to arrive at the account balances
at the end of the fiscal period. The beginning balances for assets and equities were:

Cash 1,000,000
Receivables 400,000
Assets restricted for investment in building & equipment 500,000
Asset restricted for continuing professional education 500,000
Equipment 1,000,000
Accumulated Depreciation-equipment 500,000
Buildings 5,000,000
Accumulated Depreciation-buildings 1,000,000
Vouchers payable 1,200,000
Unrestricted net assets 4,700,000
Restricted net assets for professional education 500,000
Restricted net assets for plant assets 500,000

JOURNAL ENTRIES:
1. Annual dues received from regional councils and chapters
Account Titles Debit Credit
Cash 2,300,000  
  Membership fees 2,000,000

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   Receivables*   300,000
*Receivables are supported by subsidiary ledgers for each regional council and chapter
2. General expenditures (salaries and supplies)
Account Titles Debit Credit
Salaries and Wages 1,300,000  
Supplies expense 200,000  
  Cash   1,000,000
  Vouchers payable   500,000
3. Acquisition of equipment per approval of the board of directors
Account Titles Debit Credit
Equipment* 500,000  
  Asset restricted for investment in bldg.& equipment    
      500,000
*Equipment was acquired using the assets restricted to investment in building and equipment.
4. Payment of vouchers
Account Titles Debit Credit
Vouchers payable 400,000  
  Cash   400,000
5. Adjustments required at year-end:
(a) Rental of office due P100,000; Inventory of supplies P50,000; accrued expenses P20,000; allow. For
dues in arrears P20,000; depreciation 10% p.a. for equipment & 5% p.a. for buildings
Account Titles Debit Credit
Rent receivable 100,000  
Supplies on hand 50,000  
Salaries and wages 20,000  
Loss on doubtful accts 20,000  
Depreciation-equipment 150,000  
Depreciation-building 250,000  
  Rent income   100,000
  Supplies expense   50,000
  Allow. For doubtful accounts   20,000
  Accumulated depreciation-equipment   150,000
  Accumulated depreciation-building   250,000
  Accrued expenses payable   20,000
6. To close the nominal accounts
Account Titles Debit Credit
Membership fees 2,000,000  
Rent income 100,000  
  Salaries and wages   1,320,000
  Supplies expense   150,000
  Loss on doubtful accounts   20,000
  Depreciation-equipment   150,000
  Depreciation-building   250,000

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   Unrestricted net assets   210,000
7. To Record time deposits which can be preterminated anytime
Account Titles Debit Credit
Cash equivalents 1,000,000  
  Cash   1,000,000

8. To setup P100,000 as additional CPE project fund per board of directors approval
Account Titles Debit Credit
Asset restricted for continuing prof. educ 100,000  
  Cash   100,000
Professional Organization
Statement of Financial Position
December 31, 20B
ASSETS
Cash and cash equivalents P 1,800,000
Receivables P 100,000
Less: Allowance for doubtful accounts   20,000 80,000
Rent receivable 100,000
Supplies on hand 50,000
Asset restricted for continuing professional
education projects 600,000
Equipment P 1,500,000
Less: Accumulated Depreciation   650,000 850,000
Building 5,000,000
Less: Accumulated Depreciation P 1,250,000   3,750,000
TOTAL ASSETS P 7,230,000
LIABILITIES AND NET ASSETS
Vouchers Payable P 1,300,000
Accrued salaries and wages 20,000
TOTAL LIABILITIES P 1,320,000
Net Assets:
Unrestricted P 5,310,000
Restricted to continuing professional educ.
Projects 600,000
TOTAL NET ASSETS P 5,910,000
TOTAL LIABILITIES AND NET ASSETS P 7,230,000

Professional Organization
Statement of Activities
For the year ended December 31, 20B
Restricte
Income: Total Unrestricted d
Membership fees P 2,000,000

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 P 2,000,000

Income from other sources (rent) 100,000 P 100,000

P
Subtotal P 2,100,000 P 2,000,000 100,000
Expenditures:
Salaries and Wages P 1,320,000
Supplies expense 150,000
Loss on doubtful accounts 20,000
Depreciation-equipment 150,000
Depreciation-building 250,000
Subtotal   1,890,000   1,890,000    
Excess of income over expenditures P 210,000 P 110,000 P 100,000

Professional Organization
Statement of Cash Flows
For the year ended December 31, 20B
Cash flows from operating activities:
Cash received from members as annual dues P 2,000,000
Cash paid to employees and suppliers 300,000
(1,400,000
Cash paid to increase CPE funds )
Net cash flow from operating activities (100,000)
Net increase in cash and cash equivalents P 800,000
Cash and cash equivalents, beginning 800,000
Cash and cash equivalents, end 1,000,000
P 1,800,000
Reconciliation of change in net asset to net cash from operating activities:
Change in net assets P 110,000
Adjustments to reconcile change in net assets
to net cash from operating activities:
Depreciation and loss on doubtful accounts 420,000
Decrease in receivables 220,000
Increase in prepaid expenses (50,000)
Increase in vouchers payable 100,000
Net cash from operating activities P 800,000
Supplemental data for noncash investing activity:
Purchase of equipment using the asset restricted
for the purpose P 500,000

EDUCATIONAL INSTITUTIONS

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 The activities of an educational institution may be classifies as (1) instructional, (2)
administrative and (3) auxiliary. Instructional activities include both resident and extension instruction,
public services, organized research and the operation of libraries. Administrative activities include
staffing and promotion, registration and enrollment, operation of the business office, and operation and
maintenance of the educational plant. Auxiliary services include the operation of residence halls, dining
rooms, college unions and bookstores, health centers, and athletic and cultural programs. Revenues in
support of these different activities are provided by such varied sources as contributions, governmental
appropriations, student fees, endowment income, and revenues from the sale of goods and services.
There are six major fund groupings for educational institutions, namely:
(1) current funds;
(2) loan funds;
(3) endowment and other nonexpendable funds;
(4) annuity funds;
(5) plant funds, divided into unexpended plant funds, retirement of indebtedness funds and an
invested in plant section; and
(6) agency funds
Current Funds
Current funds are composed of current resources that are to be employed in meeting
obligations arising from the general operations of the educational institution. The educational unit
establishes the following funds within this grouping:
(1) a current unrestricted fund that consists of the resources that can be applied to current
purposes without restriction and
(2) restricted current funds consisting of resources that, while available for current purposes,
are subject to certain limitations in their application.
Student fees and resources from gifts or from income of endowment funds that carry no specific
limitations as to use, then, are reported in the current unrestricted fund. On the other hand, resources
from gifts or grants and from the income of endowment funds that can be spent only for specified
purposes, such as for a library, for scholarships, for an athletic program, or for research, would be
reported in restricted current funds.
Operations of the educational institutions normally include the establishment of a number of
auxiliary enterprises that offer services to students and staff on a self-supporting basis. Activities of such
auxiliary enterprises are generally reported in the current unrestricted fund. It would be possible,
however, to establish a third subgrouping within the current funds category for revolving funds or
working capital funds and thus provide a separate accounting for auxiliary units.
Accounting practices that are special in accounting for the educational unit include the
employment of “a modified accrual basis”. In general, the accounts of colleges and universities should
be kept on the accrual basis. This means that bills for materials received or for services rendered,
whether or not paid, should be reported to the fullest extent practicable. Income should be reported
when it becomes due or when a bull has been rendered for it, and appropriate allowance should be
made for probable losses. Since the primary purpose of accounting for educational institutions is to
report on the stewardship of the funds and property entrusted to the institution rather than to
determine net profits and net worth, some items of income need not be accrued and certain

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expenditures need not be prorated. For example, few institutions find it necessary or desirable to report
accrued interest receivable, or to allocate insurance premiums to subsequent periods. Consequently, it
may be said that the accounts of educational institutions generally are maintained in a modified accrual
basis.
The above discussion is especially applied to government supported educational institutions.
Privately owned educational institutions operate just like business enterprises, except that in most local
private educational institutions, tuition fees are accounted for using the cash basis. Supporting
schedules are prepared to reflect receivables from students for tuition fees. These schedules, however,
are not reflected on the balance sheet and therefore the corresponding income is not reflected on the
statement of activities.
To illustrate the accounting for transactions affecting thee Unrestricted Current Funds of NPO
University and the entries to record these transactions are listed below:
1. Educational and general revenue for year ended June 30, 20B P3,000,000 of which P150,000 has not
yet been collected
Account Titles Debit Credit
Cash 2,850,000  
Account Receivables 150,000  
  Student fees   1,620,000
  Gifts and grants   920,000
  Endowment income   60,000
  Sales & service-educational depts.   325,000
  Income from org. acts. Rel. to educ. depts   40,000
  Income from other sources   35,000
2. Revenue related to auxiliary unit bookstore, P262,500 of which P25,000 has not yet been collected
Account Titles Debit Credit
Cash 237,500  
Accounts Receivable 25,000  
  Revenue-auxiliary unit   262,500
3. Revenue for student aid, P400,000 collected
Account Titles Debit Credit
Cash 400,000  
  Revenue for student aid   400,000
4. Educational and general expenses (salaries and supplies), 2,750,000 of which P180,000 has not yet
been paid.
Account Titles Debit Credit
General administration 190,000  
General expense 60,000  
Instruction & departmental research 1,230,000  
Organized activities rel. to educ. Depts. 35,000  
Organized research 415,000  
Extension and public services 160,000  
Libraries 360,000  
Operation & maintenance of physical plant 300,000  

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   Cash   2,570,000
  Vouchers payable   180,000
5. Expenses related to auxiliary enterprise- bookstore (materials &supplies, salaries, and other
expenses), P300,000 of which P55,000 has not yet been paid.
Account Titles Debit Credit
Expenses-auxiliary enterprise 300,000  
  Cash   245,000
  Vouchers payable   55,000
6. Payments representing student aid, P415,000
Account Titles Debit Credit
Student aid 415,000  
  Cash   415,000
7. Payments of interest on current and long-term indebtedness, P100,000 and payment of installment
due on mortgage carried as liability in invested in plant section, P25,000
Account Titles Debit Credit
General expense 100,000  
Current unrestricted net assets 25,000  
  Cash   125,000
8. Acquisition of equipment to be carried as asset invested in plant section, P15,000
Account Titles Debit Credit
Current unrestricted net assets 15,000  
  Cash   15,000
9. Transfer to unexpected plant funds of cash to be used for plant renewals and replacements, P30,000
Account Titles Debit Credit
Current unrestricted net assets 30,000  
  Cash   30,000
10. Transfer to endowment fund or cash to be employed as an endowment until alternative use is
authorized by board of directors
Account Titles Debit Credit
Current unrestricted net assets 50,000  
  Cash   50,000
The expenses established in transactions (7) to (10) should not be considered in summarizing
and evaluation the results of educational and general operations. It may be noted that some educational
institutions would distinguish between acquisitions of equipment for new buildings and acquisitions of
equipment other than for new buildings. They would charge acquisitions of equipment for new buildings
against the corresponding fund balance but would recognize all other acquisitions of equipment as
current fund expenses and would report these in the statement of operations within appropriate
functional classifications.
11. Adjustments, June 30, 20B: (a) Earnings, P2,500, reported by annuity fund, to become available next
period for education and general purposes; (b) adjustments related to auxiliary enterprise-
bookstore: inventories, materials and supplies – P50,000 prepaid expenses – P2,500; accrued

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 expenses- P5,000; (c) adjustments related to educational and general activities: allowance for
doubtful accounts, P5,000
Account Titles Debit Credit
Due from annuity fund 2,500  
  Unearned income from annuity fund   2,500
Inventory of materials and supplies 50,000  
     
Prepaid expenses 2,500  
  Accrued expenses   50,000
  Expenses-auxiliary enterprise   2,500
General expense 5,000  
  Allowance for doubtful accounts   5,000
12. To close educational and general revenue and expense accounts at end of fiscal year
Account Titles Debit Credit
Student fees 1,620,000  
Gifts and grants 920,000  
Endowment income 60,000  
Sales & services-educational departments 325,000  
Income from org. activities-educ. depts 40,000  
Income from other sources 35,000  
  General administration   190,000
  General expense   165,000
  Instruction and departmental research   1,230,000
  Organized activities re educational depts.   35,000
  Organized research   415,000
  Extension and public services   160,000
  Operation and maintenance-physical plant   300,000
  Libraries   360,000
  Current unrestricted net assets   145,000
13. To close auxiliary enterprise revenue and expense accounts at the end of the fiscal year
Account Titles Debit Credit
Revenue-auxiliary enterprise 262,500  
  Expenses-auxiliary enterprise   252,500
  Current unrestricted net assets   10,000
14. To close student aid revenue and expenses at the end of fiscal year
Account Titles Debit Credit
Revenue for student aid 400,000  
Current unrestricted net assets 15,000  
  Student Aid   415,000
To illustrate the accounting for transaction affecting the Restricted Current Funds of NPO
University and the entries to record these transactions are listed below:
1. Revenues for year ended June 30, 20B – P182,500 of which P15,000 applies to expenses of next
year.
Account Titles Debit Credit
Cash 177,500  

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   Unearned income   15,000
  Endowment income   45,000
  Gifts and grants   37,500
  Revenues-auxiliary enterprise   80,000
2. Expenses, P140,000 of which P7,500 has not yet been paid
Account Titles Debit Credit
General administration 10,000  
Instruction and departmental research 35,000  
Extension and public services 5,000  
Expenses-auxiliary enterprise 57,500  
Libraries 32,500  
  Cash   132,500
  Vouchers payable   7,500
3. Investments of cash in securities – P30,000
Account Titles Debit Credit
Temporary investment 30,000
 
  Cash   30,000
4. Required transfer to endowment fund of P10,000 representing charge for depreciation on
endowment properties (dormitory) employed in producing auxiliary income
Account Titles Debit Credit
Expenses-auxiliary enterprises 10,000  
  Cash   10,000
In this example, the net earnings of a dormitory become available for certain designated current
purposes and hence revenues and expenses of this enterprise are reported in the restricted current
funds. It is assumed, however, that terms of the dormitory grant call for a periodic charge against
revenue for depreciation and a transfer of cash to the endowment fund equal to the depreciation
charge. The depreciation is recognized by a charge to expense and a credit to a liability account;
subsequent payment to the endowment fund will call for a charge to the liability account and a credit to
Cash.
5. To close educational, general revenues & expenses
Account Titles Debit Credit
Endowment income 45,000  
Gifts and grants 37,500  
  General administration   10,000
  Instruction and departmental research   35,000
  Extension and public services   5,000
  Libraries   32,500

NPO University
Current Funds
Statement of Financial Position
June 30, 20B

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 ASSETS
Unrestricted
Cash 37,500
Due from annuity fund 2,500
Accounts receivable 175,000
Less: Allowance for doubtful accounts 20,000 170,000
Inventories (materials & supplies) 50,000
Prepaid expenses 2,500
Total Unrestricted 262,500
Restricted:
Cash 15,000
Temporary Investments 30,000
Total 45,000
TOTAL ASSETS 307,000
LIABILITIES AND NET ASSETS
Unrestricted:
Voucher payable 235,000
Accrued expenses 5,000
Unearned income from annuity fund 2,500
Total 242,500
Restricted:
Vouchers payable 7,500
Due to endowment Fund D 10,000
Unearned income from annuity fund 15,000
Total 32,500
TOTAL LIABILITIES 275,000
Net Assets:
Unrestricted 20,000
Restricted 12,500
TOTAL NET ASSETS 37,500
TOTAL LIABILITIES AND NET ASSETS 307,500

NPO University
Current Funds
Statement of Activities
For the year ended June 30, 20B

Current Total Unrestricted Restricted

Income:
Education and General

16
 Student fees P 1,620,000 P 1,620,000
Endowment income 105,000 60,000 P 45000
Gifts and grants 957,500 920,000 37500
Sales & services-educ. depts 325,000 325,000
Income from org. activities 40,000 40,000
Income from other resources 35,000 35,000
Total P 3,082,500 P 3,000,000 P 82500
Auxiliary enterprises:
Bookstore P 262,500 P 262,500
Dormitory 80,000 P 80000
Total P 342,500 P 262,500 P 80000
Student aid P 400,000 P 400,000  
Total Current Income P 3,830,000 P 3,662,500 P 167500
Less: Current Expenses:
Education and General
General administration P 200,000 P 190,000 P 10000
General expense 165,000 165,000
Instruction &dept research 1,265,000 1,230,000 35000
Organized activities 35,000 35,000
Organized research 415,000 415,000
Extension & public services 165,000 160,000 5000
Libraries 392,500 360,000 32500
Operation & maintenance of physical plant 300,000 300,000
Total P 2,937,500 P 2,855,000 P 82500
Auxiliary enterprises:
Bookstore P 252,500 P 252,500
Dormitory 67,500 P 67500
Total P 320,000 P 252,500 P 67500
Student aid P 415,000 P 415,000
Total current expenses P 3,672,500 P 3,522,500 P 150000
Excess of current income over current expenses P 152,500 P 140,000 P 12500

NPO University
Current Funds
Statement of Changes in Equity
For the year ended June 30, 20B
Total Unrestricted Restricted
Net Assets, July 1, 20A -0- -0- -0-
Add: Increase for year ended June 30, 20B per
summary of current income and expenses P 152,500 P 140,000 P 12500
Total P 152,500 P 140,000 P 12500
Less:

17
 Payment on mortgage note reported as
invested P 25,000 P 25,000
in plant section
Acquisition of equipment reported as
invested in plant section 15,000 15,000
Transfer to unexpected plant funds 30,000 30,000
Transfer to endowment fund 50,000 50,000
Total P 120,000 P 120,000
Change in net assets* P 32,500 P 20,000 P 12500
*Change in net assets under the current fund is equal to the cash balance at year-end since no beginning
balance exists.
The statements for the current funds to report financial position, revenues and expenses, changes in
funds balance, and cash flows are prepared periodically.
LOAN FUNDS
Loan funds consist of resources that are available for loans to students. Loan funds originate from
gifts, they may be built up over a period of years from student fees collected for such purpose or from
transfers from endowment fund whose income is available for such purpose. Loans may be made with
or without interest depending upon the conditions established by those providing the loan fund. Loan
funds are regarded as nonexpendable uncollectible loans, fund administrative expenses, and losses on
the sale of fund investments, and gains on the sale of fund investments.
Transactions related to the loan fund of NPO University and the entries to record these are listed
below:
1. Receipt of cash gift to be used for loans to students, P50,000
Account Titles Debit Credit
Cash 50,000  
  Loan Fund net assets   50,000
2. Purchase of securities for P25,000 which includes accrued interest of P600
Account Titles Debit Credit
Investments 25,000  
Accrued interest 600  
  Cash   25,600
3. Loans to students, P20,000
Account Titles Debit Credit
Noted receivable 20,000  
  Cash   20,000
4. Collections of interest on investments, P1,500
Account Titles Debit Credit
Cash 1,500  
Accrued interest 600  

18
   Loan fund net assets   900
5. Collections of loans with interest of P150, P7,650
Account Titles Debit Credit
Cash 7,650  
  Notes receivable   7,500
  Loan fund net assets   150
6. Uncollectible loans written off, P300
Account Titles Debit Credit
Loam fund net assets 300  
  Notes receivable   300

Loan fund resources are balanced by the account Loan Fund Balance/ Loan Fund Net Assets. During
the period, entries are made to record the operations of the fund. Nominal accounts may be established
to summarize the separate sources of fund increases and decreases for a period; when fund changes are
few in number, changes are recorded directly in the loan fund balance/ loan fund net asset balance. This
was done in the example.
NPO University
Loan Fund
Statement of Financial Position
June 30, 20B
ASSETS
Cash P 13,550
Investments 25,000
Notes Receivable 12,200
TOTAL ASSETS P 50,750
LIABILITIES AND NET ASSETS
TOTAL ET ASSETS P 50,750
NPO University
Loan Fund
Statement of Activities
For the year ended June 30, 20B
Revenues:
Interest on investments P 900
Interest on loans   150 P 1,050
Less: Expenses/losses:
Uncollectible loans written off   300
Excess of revenue over expenses P 750

NPO University

19
 Loan Fund
Statement of Cash Flows
For the year ended June 30, 20B
Cash from operating activities:
Receipts of gifts P 50,000
Excess of receipts over expenses   750

Net cash from operating activities or net assets P 50,750

ENDOWMENT AND OTHER NONEXPENDABLE FUNDS

An endowment fund is formed when cash or other properties are transferred to the institution
under conditions that provide that only the income produced by such resources can be used for the
benefit of the institution. Fund, principal, then, is unexpendable; although fund principal may change as
a result of the sale of restrictions are placed on the use of fund income by the institution, the
endowment is referred to as an Unrestricted Endowment . When the use of the fund income is limited
to certain objectives, the endowment is called a Restricted Endowment. Income from an unrestricted
endowment becomes available to the unrestricted current fund; income from a restricted endowment is
transferred to the appropriate restricted current fund or to the plant fund.
Endowments are generally created by transfers of assets directly to the institution. The governing
body of the institution then takes steps to carry out the terms of the endowment. In some instances,
assets are transferred to a trustee who assumes the responsibility for administering the endowment.
Here, the trustee transfers endowment income to the institution for use in accordance with the terms of
the endowment. In other instances, resources not currently required by unrestricted current fund may
be transferred out of this fund to be administered as an endowment until the resources are required for
alternative use. These resources are referred to as Fund Temporarily Functioning as an Endowment.
Authority for the establishment of the latter funds, the use of income from such funds rests with the
governing body of the institution.
The proper management of endowment fund calls for measuring income accurately so that income
distributions do not impair fund principal. Terms of the endowment may define certain practices for
calculating distributable income. When specific provisions for distinguishing between principal and
income are not included in the endowment instrument, reference is made to law. Principal and income
distinctions are the same as those that were recognized in the discussion of trust.
In maintaining a single set of books for the endowment fund group, investments and other property
items should be identifies with specific endowments, and separate endowment fund balances should be
reported for each endowment. Earnings of the different endowments do not need to be reflected on the
books for the endowment funds that may be entered directly in the books of the funds receiving the
earnings.
An institution may arrange for pooling the resources of some or all of its endowments when such
action is not prohibited by terms of the individual endowments. Pooling frequently makes possible more
attractive investment opportunities. It also reduces the amount of detailed record keeping.
Furthermore, arrangements may be made for assuring regularly periodic income distributions by
adopting conservative distribution rates that permit an accumulated of income for distribution in

20
periods of below-normal investment return. Under the latter circumstances, both investment income
and distributions of income would be reported in the endowment fund books and any undistributed
earnings balance would be carried forward.
Entries to record transactions related to endowment funds for NPO University are as follows:
1. Receipt of cash from donor in establishment of endowment Fund A, P1,000,000. No restrictions are
made as to use of endowment income.
Account Titles Debit Credit
Cash 1,000,000  
  Endowment Fund A balance   1,000,000
2. Receipt of securities from 2 donors in establishment of Endowment Funds B and C. Endowment
Fund B- 10,000 shares of X Co. ordinary shares, value on date of transfer is P715,000. Endowment
Fund C- 2,500 shares of Y Co. preference shares, value on fate of transfer P245,000. No restrictions
are made as to use of endowment income
Account Titles Debit Credit
Investments-ordinary shares 715,000  
Investments-preference shares 245,000  
  Endowment Fund B balance   715,000
  Endowment Fund C balance   245,000
3. Pooling of Endowment Funds A, B, and C. Endowment fund balances were restated in terms of
market values of securities as of date of pooling as follows: Ordinary shares market value, P750,000
and Preference shares market value – P250,000.
Account Titles Debit Credit
Pooled Cash 1,000,000  
Pooled investments- ordinary shares 750,000  
Pooled investments- preference shares 250,000  
  Cash   1,000,000
  Investments- ordinary shares   715,000
  Investments- preference shares   245,000

  Endowment Fund B balance   35,000

  Endowment Fund C balance   5,000
The receipt of endowment fund resources is recorded by charges to appropriate asset accounts and
credits to properly identified endowment fund balances. In the example, resources from Endowment
Funds A, B, and C are pooled. Securities and endowment fund balances are restated in terms of the
values of the respective contributions on the date of pooling.
Account Titles Debit Credit
Pooled investments- bonds 900,000  
Pooled investments - unamortized bond premium 45,000  
  Pooled cash   945,000
4. Purchase of P900,000 of Z Co. bonds at a price of 105

21
 Account Titles Debit Credit
Pooled Cash 107,500  
  Undistributed pooled income   107,500
5. Collection of interest and dividends on pooled investments, P107,500
Account Titles Debit Credit
Undistributed pooled income 2,500
  Pooled investments-unamortized bond premium   2,500
6. Premium amortization on pooled investments, P2,500
Revenues of P107,500 are related to pooled investments, but these revenues are reduced by bond
premium amortization of P2,500 to assure that endowment principal balances remain unimpaired.
Account Titles Debit Credit
Undistributed pooled income 105,000  
  Pooled cash   105,000
7. Distribution of income on pools endowments to unrestricted and restricted current funds:
Endowment Fund A: 1,000,000 / 2,000,000 x 105,000 or P52,500. Endowment Fund B: 750,000/
2,000,000 x 105,000 or P30,375. Endowment Fund C: 250,000/ 2,000,000 x 105,000 or P13,125
Account Titles Debit Credit
Undistributed pooled income 105,000  
  Pooled cash   105,000
It is assumed in the example that the total revenue from pooled investments is distributed, and
consequently distribution is made in proportion to respective fund contributions. With endowment fund
principal balances of P2,000,000 and income available for distribution of P105,000, the return on
principal balances is 5 ¼ %, would have resulted in a distribution limited to P90,000 and would have left
a balance of P15,000 to be carried forward as undistributed pooled income
8. Sale of Y Co. preference shares for P260,000
Account Titles Debit Credit
Pooled cash 260,000  
  Pooled investments- preference shares   250,000
  Gains and losses on pooled investments   10,000
The gain from sales of pooled securities made during the year is reported separately in an account
titled Gains and losses on Pooled Investments, Gains and losses in subsequent periods can also be
carried to this account. Ultimately, and balance in this account will be transferred to the individual
endowment fund balances in proportion to the respective fund interest in the pooling
9. Receipt of gift of properties to be used as a dormitory. Net income after recognizing an annual
charge for depreciation of P10,000 is to be used for certain restricted purposes. Appraised values of
properties in date of gift: Land – P125,000, Buildings – P175,000
Account Titles Debit Credit
Land 125,000  
Buildings 175,000  
  Endowment Fund D balance   300,000

22
 Endowment Fund D, E, and F are examples of funds carried separately. Fund D arises from gift of
land and buildings whose net income is to be used for certain restricted purposes. Properties forming
the endowment are recorded in the endowment fund.
10. Receipt of cash from unrestricted current fund to be used as an endowment fund until alternative
use is authorized, P50,000
Account Titles Debit Credit
Cash 50,000  
Principal temporarily functioning as
  Endowment   50,000
  Fund E balance    
Fund E arises from a transfer of unrestricted current fund cash for use as an endowment until some
alternative employment of funds is authorized.
11. To recognize resources of P400,000 held by trustee as an endowment. No restrictions are made as
to use of endowment income.
Account Titles Debit Credit
Fund held by trustee 400,000  
  Endowment Fund F balance   400,000
Fund D is established to recognized resources that are held for the benefit of the institution by a
trustee. Upon notification from the trustee of a change in fund principal, an appropriate adjustment
would be made in the endowment fund balance. Income distributions by the trustee are recognized by
the fund receiving such income.
12. Amount receivable from restricted current fund representing recovery of depreciation on
endowment properties (dormitory), P10,000
Account Titles Debit Credit
Due from restricted current fund 10,000  
  Accumulated depreciation-buildings   10,000
Revenues and expenses relating to operations of the properties are reported in the restricted
current funds. The recognition of a claim against a restricted current fund for the recovery of cash equal
to the depreciation on endowment properties, as required by the terms of the endowment, is recorded
by a charge to a receivable account and a credit to an allowance for depreciation.
NPO University
Endowment and Other Nonexpendable Funds
Statement of Financial Position
June 30, 20B

ASSETS
Cash P 50,000
Due from restricted current funds 10,000
Pooled cash 317,500
Pooled investments:
Ordinary shares P 750,000
Bonds 900,000

23
 Unamortized bond premium   2,500 1,692,500
Lan
d 125,000
Buildings
Less: Accumulated depreciation P 175,000 165,000
Fund held by trustee   10,000 400,000
TOTAL ASSETS P 2,760,000
LIABILITIES AND NET ASSETS
Gains and losses on pooled investments
Net Assets:
Unrestricted
Endowment Fund A P 1,000,000
Endowment Fund B 750,000
Endowment Fund C 250,000
Endowment Fund F 400,000
Total P 2,400,000
Restricted:
Endowment Fund D 300,000
Principal temporarily functioning
as Endowment Fund E 50,000
Total 2,750,000
TOTAL LIABILITIES AND NET ASSETS P 2,760,000
NPO University
Endowment and Other Nonexpendable Funds
Statement of Changes in Equity
For the year ended June 30, 20B
Fund Fund Fund Fund Fund Fund
Total A B C D E F
Net Assets, beg -0- -0- -0- -0- -0- -0- -0-
Increase for the year:
Gifts or transfers establishing funds P2,710 P1,000 P715 P245 P300 P50 P400
Restatement of investment of
Endowment Funds A, B and C,
upon pooling of resources 40 35 5
Net assets, end P2,750 P1,000 P750 P250 P300 P50 P400
ANNUITY FUNDS
An annuity fund is formed when cash or other properties are transferred to the institution subject to
the requirement that specified payments be made to a designated beneficiary during his lifetime. The
payments to an annuitant may be variable amount or they may be fixed; they may be equal to the
income produced by the fund assets or they more or less than such amounts. Upon the death of an
annuitant, undistributed fund resources become available for use in accordance with the terms of the
annuity agreement.

24
 Annuity funds are sometimes included with the endowment funds for accounting and reporting
purposes. In the absence of limitations in the annuity agreements, assets may be pooled just as in the
case of endowment funds. Annuity fund balances are increased by gifts subject to annuity agreements,
gains on the sale of annuity fund assets, and annuity fund income; annuity fund balances are decreased
by losses on the sale of assets, payments to annuitants, and asset transfers.
Transactions related to annuity fund of NPO University and the entries to record these transactions
appear below.
1. Receipt of cash of P125,000 subject to condition that P5,000 per year be paid to the donor during his
lifetime, any balance available for educational and general purpose
Account Titles Debit Credit
Cash 125,000  
  Annuity net assets   125,000
2. Purchase of securities for P120,000 that includes accrued interest of P2,000
Account Titles Debit Credit
Investments 118,000  
Accrued interest 2,000  
  Cash   120,000
3. Collections of income for the year ended June 30, 20B, P9,500
Account Titles Debit Credit
Cash   9,500  
  Accrued interest   2,000
  Annuity net assets   7,500
4. Recognition of amount payable to annuitant, P5,000
Account Titles Debit Credit
Annuity net assets 5,000  
  Due to annuitant   5,000

5. Amount becoming available for educational and general purposes according to annuity agreement,
P2,500
Account Titles Debit Credit
Annuity net assets 2,500  
  Due to Unrestricted Current Fund   2,500
The receipt of annuity fund resources is recorded by charges to appropriate asset accounts and
credits to properly identified annuity fund balances. Investments in securities are recorded in the usual
manner. Earnings from investments as well as losses and gains in the sale of investments are usually
entered directly in the fund balance. Payment to an annuitant is recorded by a charge to the annuity
fund net assets and a credit to Cash. In this example, recognition of the amount payable to the
annuitant is recorded by a credit to a liability account; the liability account would be closed when
payment is made.
NPO University
Annuity Fund
Statement of Financial Position

25
 June 30, 20B
ASSETS
Cash 14,500
Investments 118,000
TOTAL ASSETS P 132,500
LIABILITIES AND NET
ASSETS
Due to annuitant 5,000
Due to unrestricted
current fund 2,500
Annuity net assets 125,000
TOTAL LIABILITIES AND
NET ASSETS P 50,750

NPO University
Annuity Fund
Statement of Changes in Equity
For the year ended June 30, 20B
Net assets, beg P -0-

Add: Increase from gift subject to annuity P 125,000

Increase form income for year   7,050   132,500
Total P 132,500
Less: Amount payable to annuitant for year P 5,000
Amount payable to unrestricted current fund   2,500 7,500
Net assets, end P 125,000

Plant Funds
Resources related to the educational plant may be divided into three groups: (1) resources that are
held for plant expansion and replacement, (2) resources that are held for retirement of long-term debt
incurred in the acquisition of the plant, and (3) the specific physical resources comprising the plant. This
division has suggested the use of three self-balancing groups of accounts from plant resources as (1)
Unexpended plant funds, (2) Retirement of indebtedness funds, and (3) Invested in plant.
Unexpended Plant Funds. This grouping consists of cash, securities, receivables and other assets
that are to be used for the acquisition of new plant or the replacement of existing plant. Present
obligations against these resources for construction in progress of for current plant acquisitions are
recognized on the unexpended plant fun books as liabilities. The difference between the assets and
liabilities is reported as the unexpended plant funds balance or net assets. This balance is commonly
divided into (1) the portion to be applied to plant additions and (2) the portion to be applied to renewals
and replacements.
Retirement of Indebtedness. This grouping consists of cash, securities, and other assets that are to
be used for the retirement of plant indebtedness. Fund accounts are balanced by a single fund balance
reporting total resources available for retirement of indebtedness.

26
 Invested in Plant. This grouping consists of the individual property items that compose the
educational plant. This grouping also carries any long-term indebtedness relating to plant acquisitions.
The difference between plant assets and related liabilities is reported as an investment in plant balance.
This balance is commonly divided to show the different sources of plant financing – gifts, current funds,
and endowment funds.
Transactions related to that Unrestricted Plant of NPO University and the entries to record these
transactions are as follows:

1. Receipt of cash gift to be used for plant acquisitions, P100,000

Account Titles Debit Credit
Cash 100,000
  Unexpended plant funds balance-plant addition 100,000
2. Payment of additions to buildings, P85,000
Account Titles Debit Credit
Unexpended plant funds balance-plant addition 85,000
  Cash 85,000
3. Issue of bonds to raise funds for construction of buildings, P1,500,000
Account Titles Debit Credit
Cash 1,500,000
  Unexpended plant funds balance-plant additions 1,500,000
4. Completion of buildings at contract price of P1,500,000
Account Titles Debit Credit
Unexpended plant funds balance-plant additions 1,500,000
  Contract payable 1,500,000
5. Payment of contract, P1,500,000
Account Titles Debit Credit
Contract payable 1,500,000
  Cash 1,500,000
6. Receipt of cash from unrestricted current fund for plant renewals and replacements in subsequent
periods, P30,000.
Account Titles Debit Credit
Cash 30,000
Unexpended plant funds balance-renewals and
  replacements 30,000
7. Purchase of securities, P30,000
Account Titles Debit Credit
Investments 30,000
  Cash 30,000
8. Collection of interest on investments, P750
Account Titles Debit Credit
Cash 750

27
   Unexpended plant funds balance-plant additions 750
Cash and other assets for plant additions or for renewals and replacements received from gifts
and grants, from transfers from current funds, or from the issue of long-term indebtedness are recorded
by debits to appropriate asset account balances and credits to unexpended plant fund balances that
designate the purpose to be served by the resources (see entries 1, 3, and 6). Expenditures for plant
expansion or for renewals and replacement are recorded by debits to unexpended plant funds balances
and credits to Cash or to payable balances (see entries 2 and 4). Investments in securities are recorded
in the usual manner. Earnings are recorded by debits to asset accounts and credits to appropriate
unexpended funds balances (see entry 8).
Transactions related to that Retirement on Indebtedness Plant Funds of NPO University and the
entries to record these transactions are reflected below.
1. Receipt of cash from unrestricted current for payment of mortgage instrument due, P25,000
Account Titles Debit Credit
Cash 25,000
  Retirement of indebtedness funds balance 25,000
2. Payment of mortgage installment due, P25,000
Account Titles Debit Credit
Retirement of indebtedness funds balance 25,000
  Cash 25,000
3. Receipt of cash gift to be used for payment of installments due on mortgage in 20C- 20E, P75,000
Account Titles Debit Credit
Cash 75,000
  Retirement of indebtedness funds balance 75,000
Resources that are specially provided for the retirement of long-term debt are recorded by debits to
appropriate asset accounts and credits to Retirement of indebtedness funds balance. Payments of long-
term debt are recorded by debits to the fund balances and credits to Cash.
Transactions related to that Invested in Plant Funds of NPO University and the entries to record these
transactions are reflected below.
1. Receipt of gift of land, buildings, and equipment for educational and general purpose valued at
P4,000,000; properties are subject to mortgage for P1,000,000.
Account Titles Debit Credit
Land 850,000
Improvements other than buildings 150,000
Buildings 2,500,000
Equipment 500,000
  Mortgage payable 1,000,000
  Investment in plant- from gifts 3,000,000
2. Addition to buildings financed by gifts reported in unexpended plant funds, P85,000
Account Titles Debit Credit
Buildings 85,000
  Investment in plant-from gifts 85,000

28
3. Issue of bonds to be used for construction of buildings, P1,500,000
Account Titles Debit Credit
Buildings to be acquired 1,500,000
  Bonds payable 1,500,000
4. Completion of buildings financed by bond issue
Account Titles Debit Credit
Buildings 1,500,000
  Buildings to be acquired 1,500,000
5. Payment by retirement of indebtedness funds of current installment due on mortgage, P25,000
Account Titles Debit Credit
Mortgage payable 25,000
  Investment in plant- from current funds 25,000
6. Acquisition by general current fund of equipment, P15,000
Account Titles Debit Credit
Equipment 15,000
  Investment in plant-from current funds 15,000
7. Acquisition by endowment fund of a dormitory valued at P300,000
Account Titles Debit Credit
Land 125,000
Buildings 175,000
  Investment in plant- from endowments 300,000
8. To record depreciation in buildings represented by endowment, P10,000
Account Titles Debit Credit
Investment in plant-endowments 10,000
  Accumulated depreciation 10,000
In order that the invested in plant group may report all of the properties owned by the institution, land
and buildings reported in an endowment fund are also reported here; asset accounts are debited and
Investment in plant – from endowments is credited. Depreciation on endowment fund properties that
was recognized in the endowment fund is also reported in the invested in plant group; the investment in
plant balance is debited and accumulated depreciation account is credit.
9. Retirement of equipment carried at P5,000
Account Titles Debit Credit
Investment in plant - from gifts 5,000  
  Equipment   5,000

Acquisitions of educational plant items are recorded by debits to appropriate asset accounts and
credits to investment in plant balances that designate the plant financing sources. The issue of bonds to
finance constructions is recorded by a debit to Buildings to be acquired and a credit to liability; the
proceeds from the bond issue are recorded in the unexpended plant funds books. Completion of the
construction is recorded by a debit to buildings and a credit to Buildings to be acquired. Retirement of a

29
plant item is recorded by a debit to the appropriate investment in plant balance and a credit to the asset
account.

NPO University
Plant Funds
Statement of Financial Position
June 30, 20B

ASSETS
Unexpended Plant Funds:
Cash P 15,750
Investments 30,000 P 45,750
Retirement of indebtedness funds:
Cash 75,000
Invested in Plant:
Land p 975,000
Improvements other than Buildings 150,000
4,260,00
Buildings P 0
Less: Accum depreciation 10,000 4,250,000
Equipment 510,000
Total P 5,885,000
Less: Items carried in Endowment
5,595,00
Funds 290,000 0
TOTAL ASSETS P 5,715,750
LIABILITIES AND NET ASSETS
Unexpended plant funds:
Balance-plant additions P 15,000
Balance-renewals and replacements 30,750 P 45,750
Retirement of indebtedness funds:
Balance 75,000
Invested in Plant:
Mortgage payable P 975,000
1,500,00
Bonds payable 0 P 2,475,000
Investment in plant-
3,080,00
From gifts P 0
From current funds 40,000 3,120,000 5,595,000
TOTAL LIABILITIES AND NET ASSETS P 5,715,750

30
 Observe that the credit balance summarizing the investment in plant from endowments is
subtracted from total assets rather than being reported as a fund balance item. This is done to cancel
the effects of reporting endowment fund properties both in endowment fund books and in plant fund
books.

AGENCY FUNDS

The educational institution frequently acts as an agent or trustee, holding certain assets on
behalf of others. When agency operations are simple and of limited duration both asset accounts and
accounts expressing the institution’s accountability to others may be carried in the general or current
fund. On the other hand, when operations are involved and continuing, an agency fund may be
recognized and special agency books established for the properties subject to agency control. Agency
funds may be established for pension and retirement resources, special organization resources, student
deposits, and tax withholding amounts. Accounting for the agency is the same as it would be for a
private business. Agency operations are discussed in a higher accounting subject.

HOSPITALS

Hospitals provide for depreciation, care and medical and surgical treatment of the sick or
injured. Rooms are provided and meals are supplied. Although major activities center about inpatients,
hospitals frequently render outpatient care and emergency services. Hospitals may also carry-on special
activities such as research and nurses training. They also operate a number of auxiliary enterprises such
as pharmacies for outpatients and cafeterias for staff members and visitors. Hospital operations call for
important administrative activities. The latter include: hospital staffing; registration of patients;
operation of the physical plant; food, laundry and housekeeping management; and budgeting,
accounting, billing and collecting.

The major source of hospital support is normally charges that are made to patients for services.
However, such charges frequently fail to cover the full cost of hospital operations, and significant sums
must be sought from contributions and grants from private, public and charitable sources.

Funds for the hospital

Accounting for hospitals are quite similar to that for educational institutions. The hospital, like
the educational institution, acquires revenues that must be applied to specific objectives; hence, a fund
approach is used in the recognition of resources. There are certain accounting differences, however,
that should be pointed out.

The hospital generally does not require variety of funds required by the educational institution.
A further different is found with respect to the operating summaries of the two units. For the
educational institution, revenue is compared with expenditures, a “modified accrual basis” was
employed and depreciation of the educational plant was generally ignored. In the case of hospitals, an
analysis and summary of operations that comes closer to that of private business is normally warranted.
Hospitals sell specific services. There is the expectation by patients, group purchasers of insurance

31
protection, and insurance companies selling hospital protection charges for services will bear a close
relationship to the costs of these services. Furthermore, although contributions may be available
suggest that hospital revenues should be set at levels that will provide for the ultimate replacements of
properties. In summarizing activities for the hospital unit, then, these factors suggest that revenues, be
compared with expenses, that a “full accrual basis” be employed, and that depreciation of hospital
properties be recognized in arriving at total operating costs.

There are four major fund groupings:

(1) General or current fund

(2) Temporary funds
(3) Endowment funds
(4) Plant funds

GENERAL/CURRENT FUND

The general/current fund of the hospital summarizes the current resources that are to be used
in meeting the obligations arising from general operations. Resources that can be applied without
restriction are reported here; expenditures for which specific funds have not been provided are financed
from these resources. The general fund of the hospital is the same in nature are function as the general
or current fund of the educational institution.

To illustrate the accounting for the general fund, transactions affecting the general fund of NPO
Hospital and the entries to record these transactions are listed below.

1. Charges for services to patients for year ended December 31, 20B, P580,000 of which P45,000 is still
due; adjustments and allowances of P60,000 apply to charges.
Account Titles Debit Credit
Cash 475,000  
Accounts receivable 45,000  
Free service and adjustments- contractual patients 40,000  
Free service and adjustments- general patients 16,500  
Courtesy and miscellaneous allowances 3,500  
  Earnings from routine service- inpatients   320,000
  Earnings from routine services- outpatients   50,000
  Earnings from special services   210,000
2. Other hospital revenues, P420,000 of which P10,000 is still due from temporary fund in
reimbursement of research expenses
Account Titles Debit Credit
Cash 410,000  
Due from temporary fund 10,000  
  General contributions, donations, legacies and bequests   180,000
  Grants from community chests, foundations   122,500
  Donated services and commodities   10,000
  Income transfers from temporary funds   57,500

32
   Miscellaneous revenues   50,000
3. Collections of interest and dividends in endowment funds securities, P85,000 of which P5,000 is due
from Endowment Fund #1 representing bond premium amortization
Account Titles Debit Credit
Cash 85,000
  Due from Endowment Fund #1 5,000
  Income from investments 80,000
4. Expenditures for hospital supplies. P200,000 of which P25,000 has not been paid
Account Titles Debit Credit
Inventory of supplies 200,000  
  Cash   175,000
  Vouchers payable   25,000
5. Hospital supplies charged put, P170,000
Account Titles Debit Credit
Administrative and general 5,000  
Household and property 10,000  
Professional care of patients 15,000  
Dietary 120,000  
Outpatient and emergency 5,000  
Other expenses 15,000  
  Inventory of supplies   170,000
6. Payment of hospital salaries and wages P490,000
Account Titles Debit Credit
Administrative and general 85,000  
Household and property 45,000  
Professional care of patients 220,000  
Dietary 60,000  
Outpatient and emergency 30,000  
Other expenses 50,000  
  Cash   490,000
7. Payment of hospital expenses other than salaries and wages
Account Titles Debit Credit
Administrative and general 20,000  
Household and property 10,000  
Professional care of patients 25,000  
Dietary 7,500  
Outpatient and emergency 2,500  
Other expenses 10,000  
  Cash   75,000
8. Payments of interest on mortgage, P60,000 and of installment due on mortgage carried as liability in
the plant funds, P50,000
Account Titles Debit Credit
Interest expense 60,000  
General fund balance 50,000  

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   Cash   110,000
9. Adjustments required on December 31, 20B: (a) allowance for uncollectible accounts, P2,500; (b)
accrued salaries and wages, P5,000; (c) charges for depreciation on properties carried as assets by
plant funds, P85,000; (d) to recognize amount to be paid to plant funds equal to depreciation on
properties.
Account Titles Debit Credit
Bad debts 2,500  
  Allowance for uncollectible accounts   2,500
     
administrative and general 1,000  
Household and property 250  
Professional care of patients 1,250  
Dietary 750  
Outpatient and emergency 250  
Other expenses 1,500  
  Cash   5,000
     
Depreciation 85,000  
  General/current fund balance   85,000
     
General/current fund balance 85,000  
  Due to plant funds   85,000
The transfer of cash to plant funds to finance the ultimate replacement of properties is
recorded by a debit to General Fund balance and a credit to Cash. In the example, recognition of
reimbursement due to plant funds is reported by a credit to a payable. The payable would be closed
when the cash is transferred.
10. To close general operating revenue and expense accounts at the end of the period
Account Titles Debit Credit
Earn from routine service-inpatients 320,000  
Earnings from routine services- outpatients 50,000  
Earnings from special services 210,000  
  General/current fund balance   222,500

  Free services and adjustments-contractual patients   40,000

  Free service and adjustments- general patients   16,500
  Courtesy and miscellaneous allowances   3,500
  Bad debts   2,500
  Administrative and general   111,000
  Household and property   65,250
  Professional care of patients   261,250
  Dietary   188,250
  Outpatient and emergency   37,750
  Other expenses   76,500
11. To close other revenue and expense accounts at the end of the period

34
 Account Titles Debit Credit
General contributions, donations, legacies and bequests 180,000  
Grants from community chests, foundations 122,500  
Donated services and commodities 10,000  
Income transfers from temporary funds 57,500  
Income from investments 80,000  
Miscellaneous revenues 50,000  
  Interest expense   60,000
  Depreciation   85,000
  General/current fund balance   355,000

NPO Hospital
General Funds
Statement of Financial Position
December 31, 20B
Assets
Cash P 120,000
Accounts receivable P 45,000
Less: Allowance for doubtful accounts 2,500 42,500
Due from temporary funds 10,000
Inventory of supplies 30,000
TOTAL ASSETS P 202,500
LIABILITIES AND NET ASSETS
Vouchers payable P 25,000
Due to Endowment Fund #1 5,000
Due to plant funds 85,000
Accrued salaries and wages 5,000
TOTAL LIABILITIES P 120,000
General 82,500
TOTAL LIABILITIES AND NET ASSTES P 202,500

NPO Hospital
General Funds
Statement of Activities
For the year ended December 31,20B
Gross revenues from services to patients:
Routine services-inpatients P 320,000
Routine services-outpatients 50,000
580,00
Special services (see schedule) 210,000 P 0
Deductions from gross revenues:

35
 Free service and adjustments- contractual patients P 40,000
Free service and adjustments- general patients 116,500
Courtesy and miscellaneous allowances 3,500
Bad debts 2,500 62,500
517,50
Net revenues from services to patients P 0
Salaries
&
Wages Others Total
Operating expenses: P 86,000 P 25,000 P 111,000
Administrative and general 45,250 20,000 65,250
Household and property 221,250 40,000 261,250
127,50
Professional care of patients (see schedule) 60,750 0 188,250
Dietary 30,250 7,500 37,750
Outpatient and emergency 51,500 25,000 76,500
245,00
Total P 495,000 P 0 P 740,000
Deficit from operations 222,500
Other revenue
180,00
General contributions, donations, legacies and bequests P 0
122,50
Grants from community chest, foundations 0
Donated services and commodities 10,000
Income transfers from temporary funds 57,500
Income from investments 80,000
Miscellaneous revenues 50,000 500,000
Total 277,500
Other expenses:
Interest expense P 60,000
Depreciation 85,000 145,000
Net income P 132,500

NPO Hospital
General Funds
Schedule of Gross Revenues from Special Services
For the year ended December 31, 20B
Operating rooms P 30,000
Delivery rooms 12,500
Anesthesiology 3,000
Radiology 8,000
Laboratory 40,000

36
 Pharmacy 106,000
Medical and surgical supplies 2,500
Emergency 8,000
Total P 210,000
NPO Hospital
General Funds
Schedule of Salaries and Wages for Professional Care of Patients
For the year ended December 31, 20B

Nursing services P 25,000

Medical and surgical services 90,000
Pharmacy 17,500
Medical library 15,000
Operating rooms 27,500
Delivery rooms 10,000
Department of anesthesiology 5,000
Department of radiology 12,500
Laboratory 18,750
Total P 221,250

NPO Hospital
General Funds
Statement of Changes in Equity
For the year ended December 31, 20B
Cash flows from operating activities:
Net income per statement of activities P 132,500
Add: Depreciation charge on properties reported in plant fund 85,000
Total P 217,500
(85,000
Transfer to plant fund )
(50,000
Payment of mortgage reported in plant fund )
Net cash flow from operating activities P 82,500
Net assets, beg -0-
Net assets, end P 82,500

In considering the presentation of hospital revenues for statement purposes, the following
classifications are used (1) gross revenues from patients, (2) deductions from revenues, and (3) revenue
sources. In considering operating expenses, it recognizes the following classifications: (1) administration
and general; (2) dietary; (3) household and property; (4) professional care of patients; (5) outpatient and
emergency and (6) other expenses.

37
TEMPORARY FUNDS

Temporary funds are composed of current resources that, while available for current purposes,
are subject to certain limitations in their use. For example, resources from gifts or grants and income
from endowment funds that can be spent only for specified purposes, such as research, a medical
library, or nurses training, would be reported as temporary funds. Temporary funds of the hospital,
then, are identical in nature and function to the restricted current funds of the educational institution.

Temporary funds transactions of NPO Hospital and the entries to summarize these transactions
are listed below.

1. Receipt of cash gift to be used for medical research, P10,000

Account Titles Debit Credit
Cash 100,000
  Temporary Fund A balance 100,000

2. Purchase of securities, P85,000

Account Titles Debit Credit
Temporary Investment- Fund A 85,000
  Cash 85,000

3. Receipt of cash gift to be used for books and journals for hospital patients, P10,000
Account Titles Debit Credit
Cash 10,000
Temporary Fund B balance 10,000
4. Sale of securities, book value, P25,000, for P23,500
Account Titles Debit Credit
Cash 23,500
Temporary Fund A balance 1,500
  Temporary Investment Fund A 25,000
5. Collection of interest and dividends
Account Titles Debit Credit
Cash 5,000
Temporary Fund A balance 5,000
6. Expenditures during year by general fund for research for research chargeable to Temporary Fund A,
P50,000; cash transferred to general fund, P40,000.
Account Titles Debit Credit
Temporary Fund A balance 50,000
  Cash 40,000
  Due to general fund 10,000
7. Payment of general fund for books and journals chargeable to Temporary Fund B balance, P7,500

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 Account Titles Debit Credit
Temporary Fund B balance 7,500
Cash 7,500
8. Adjustments required on December 31, 20B; accrued interest on securities, P250
Account Titles Debit Credit
Temporary Fund B balance 250
Cash 250

In the example the temporary funds books summarize two temporary funds, and a separate fund
balance are maintained to report the respective fund equities. It should be observed that changes in
temporary fund balances; when there are many changes and these are to be reported in special
operating statements, nominal accounts would be established to accumulate profit and loss detail.

NPO Hospital
Temporary Funds
Statement of Financial Position
December 31, 20B

ASSETS
Cash P 6,000
Temporary investments 60,000
Accrued interest on temporary
investments 250
TOTAL ASSETS P 66,250
LIABILITIES AND NET ASSETS
Due to general fund P 210,000
Fund balances: A P 53,750
B 2,500 56,250
TOTAL LIABILITIES AND NET ASSETS P 66,250

NPO Hospital
Temporary Funds
Statement of Changes in Equity
For the year ended December 31, 20B

Total Fund A Fund B

Balances, January 1, 20B - - -
Increases for year:
Gifts Establishing funds P 110,000 P 100,000 P 10,000
Income from dividends and interest 5,250 5,250 -
Total P 1,150,250 105,250 10,000
Decrease for year:

39
 Loss on sale of securities at less than book
value P 1,500 P 1,500
Charges in fulfillment of fund objectives 57,500 50,000 P 7,500
Total P 59,000 P 51,500 P 7,500
Balances, December 31, 20B P 56,250 P 53,750 P 2,500

ENDOWMENT FUNDS
Endowment funds for a hospital, like those for an educational unit, represent resources that
have been transferred under conditions that limit expenditures to the income that is produced by
such resources. Assets may be transferred directly to the hospital, or they may be transferred to a
trustee who administers them for the benefit of the institution.
An endowment may also be created by the action of the governing board of the hospital. Terms
of endowment may place no restrictions on the use of the endowment income, or they may specify
a particular purpose for which the income is to be used. In the absence of restrictions, endowment
income becomes available to the general fund; when there are restrictions, income is reported in a
temporary fund. Endowment funds transactions of NPO Hospital and the entries to summarize these
transactions are listed below

1. Receipt of bonds in establishment of Endowment Fund #1 as follows: Co. R bonds, face value
P500,000, market value on date of transfer, P550,000. Co. S bonds face value, P500,000, market
value on date of transfer, P470,000
Account Titles Debit Credit
Investments in bonds at face value (Endowment Fund #1) 1,000,000
Investments-unamortized bond premium (Endowment Fund #1) 50,000
  Investments-unamortized bond discount (Endowment Fund #1) 30,000
  Endowment Fund #1 balance 1,020,000
2. Receipt of cash in establishment of Endowment Fund #2, P250,000. Endowment income is to be
used for specified research projects.
Account Titles Debit Credit
Cash 250,000
  Endowment Fund #1 balance 250,000
3. Purchase of 1,000 shares of Co. T preference shares, P240,000
Account Titles Debit Credit
Investments in preference shares (Endowment Fund #2) 240,000
  Cash 240,000
4. Collection of interest by general/current fund that includes P5,000 reimbursable to Endowment
Fund #1 for bond premium amortization.
Account Titles Debit Credit
Due from general/current fund 5,000
  Investments- unamortized bond premium (Endowment Fund #1) 5,000
5. Sale of Co. S bonds at face value, P250,000

40
 Account Titles Debit Credit
Cash 250,000
Investments-unamortized bond discount(Endowment Fund #1) 15,000
  Investments- bonds at face value (Endowment Fund #1) 250,000
  Endowment Fund #1 balance 15,000

In the example, endowment funds books summarize two endowments, and separate
endowment fund balances summarize their respective fund equities. It should be observed in the
example that endowment fund income is reported directly in the fund that is entitled to such income.
When revenue and expenses are involved in a determination of net income, revenue and expenses can
be summarized in the endowment funds books; the fund net income, when determined, is then
transferred to the appropriate fund.

NPO Hospital
Endowment Funds
Statement of Financial Position
December 31, 20B
ASSETS
Cas
h P 260,000
Due from general fund 5,000
Investments:
Preference shares (Endowment Fund #2) P 240,000
Bonds at face value (Endowment Fund #1) 750,000
Unamortized bond premium 45,000
(15,000 1,020,00
Unamortized bond discount ) 0
1,285,00
TOTAL ASSETS P 0
LIABILITIES AND NET ASSETS
Fund balances:
Endowment Fund #1- for general 1,035,00
purposes P 0
Endowment Fund #2- for restricted
purposes 250,000
1,285,50
TOTAL LIABILITIES AND NET ASSETS P 0

NPO Hospital
Endowment Funds
Statement of Changes in Equity
For the year ended December 31, 20B

41
 Total Fund #1 Fund #2
Balances, January 1, 20B - - -
Increases for year:
1,270,00
Gifts establishing funds P 0 P 1,020,000 P 250,000
Gain on sale of securities at more than book value 15,000 15,000 -
1,285,00
Balances, December 31, 20B P 0 P 1,035,000 P 250,000

PLANT FUNDS
Hospital plant resources may be divided into two groups (1) physical resources comprising the
hospital properties, and (2) cash and other assets that are available for the improvement and the
replacement of the hospital properties. Although the two asset groups are recognized, hospitals would
nevertheless combine these within a single plant funds category. When there are claims against plant
fund resources in connection with original financing of properties, construction in progress, or current
property acquisitions, such obligations would be recognized in the plant funds. Funds are balanced by
two plant fund balances: (1) Investment in Plant and (2) Reserve for Plant Improvement and Expansion

Transactions affecting the plant funds of NPO Hospital and the entries to record these transactions are
shown below:
1. Acquisition of land construction of hospital financed by gifts of cash, P1,500,000 and cash raised
through a mortgage, P1,000,000
2. Receipt of gifts of cash of P50,000 and securities valued at P100,000 for plant improvement and
replacements
3. Acquisition of equipment, P30,000
4. Payment by general fund of mortgage installment, P50,000
5. Adjustments required on December 31, 20B: (a) accrued interest on investments, P1,500; (b)
depreciation on plant assets for year, P85,000; (c) amount recoverable from general fund equal to
depreciation on plant assets.

Alternative approaches have been suggested for analyzing and recording plant funds transactions of
the hospital. Probably the best approach would recognize two self-balancing sets of accounts, one
summarizing the existing physical plant and the other summarizing resources that are held for plant
improvement and replacement. With such an approach, the analysis of transactions affecting hospital
plant assets, liabilities, and fund balances or net assets is the same as the employed for the educational
unit. However, the entries relating to existing plant and to improvement and replacement resources are
made in self-balancing form within a single set of books instead of in separate sets of books as in the
case of the educational unit.

In applying the above, the acquisition of hospital properties is recorded by debits to asset accounts
and credits to an investment in plant balance; the recognition of a liability in connection with the
acquisition of properties would reduce the credit to investment in plant balance (see entry 1). The

42
acquisition of assets that are to be used for plant improvement and replacement is recorded by debits
to asset accounts and credits to Reserve for plant improvement and replacement. Two entries are
required when an addition or an improvement is made through plant fund expenditures: (1) Reserve for
plant improvements and replacements is debited and Cash is credited; (2) an asset account is debited
and Investment in plant is credited (see entry 3). When the expenditure represents an asset that is
retired and the related investment in plant balance.

NPO Hospital
Plant Funds
Statement of Financial Position
December 31, 20B
ASSETS
Invested in plant assets:
Land P 250,000
1,750,00
Buildings P 0
Less: Accumulated 1,715,00
depreciation 35,000 0
Equipment P 530,000
Less: Accumulated
depreciation 50,000 480,000
2,445,00
Total P 0

For plant improvements and

replacements:
Cash P 20,000
Due from general fund 85,000
Investments 100,000
Accrued interest on
investments 1,500 206,500
2,651,50
TOTAL ASSETS P 0
LIABILITIES AND NET ASSETS
Invested in plant:
Mortgage payable P 950,000
1,495,00
Investment in plant 0
2,445,00
Total P 0
Reserve for plant improvement
and replacements 206,500
TOTAL LIABILITIES AND NET 2,651,50
ASSETS P 0

43
COOPERATIVES
Cooperatives are normally formed to serve the entire membership. Their basic objectives are
viability, growth, and service to members. The need for cooperatives, whether single-purpose, dual or
multi-purpose has been felt especially in the countryside as early as late 50s. a single – purpose
cooperative is best illustrated by one doing mainly loaning activities to its members. Members give their
contributions in the form of fixed deposits and therefore the main income of the cooperative is interest
on loans.
A credit cooperative is financial organization owned and operated by its members with the
following objectives: 10 to encourage savings among its members; 20 to create pool of such savings
from which loans for productive or provident purposes may be granted to its members; and 3) to
provide related services to its members to maximize the benefits from such loans. (Article 111, R.A.
6938)

Current accounting policies and procedures adopted by credit cooperatives were used as basis in the
development of this manual. Key officers of cooperatives were interviewed and financial statements and
relevant reference materials were gathered from organizations doing capacity building for cooperatives.

As a general, rule, a good accounting system includes the following:

1. A well-conceived chart of accounts and general ledger system.
2. Clearly laid out procedures for keeping accounting records accurate and up to date.
3. Skilled personnel, whose primary responsibility is to track, update and report financial
information.
4. A sound system for monitoring loan disbursements, collections and
5. deposit transactions.
6. Appropriate accounting safeguards and controls to provide reasonable assurances that
accounting records are complete and accurate.

CONCEPTS AND GENERAL PRINCIPLES

The basic concepts and general principles fundamental to the detailed accounting principles and
standards for cooperatives are listed and described below:
1. Separate Enterprise
Each cooperative is a separate business enterprise requiring the maintenance of comprehensive
accounting records and financial reporting practices to provide meaningful information to members,
officers, directors and the audit committee of the cooperative, government agencies (such as the
Cooperative Development Authority), the apex organizations, and other interested third parties.
2. “Going Concern” Concept
Each credit cooperative should normally maintain its accounts as a “going concern” on the basis
that its operations will continue indefinitely. Therefore, assets and liabilities should present the
reasonable value of the cooperative as a “going concern” and should not be based on liquidation values.
Whenever unusual circumstances indicate limited life for a cooperative, e.g., if the cooperative
liquidates, the “” going concern” concept will no longer apply. As a result, appropriate adjustments
should be made to realistically state assets and liabilities and recognize appropriate revenues and

44
expenses. These adjustments may include, for example, a re-evaluation of the loan portfolio to
recognize probable losses on loans, an evaluation of the realizable value of property and equipment in
liquidation, possible adjustments required in carrying value of deferred charges and deferred credits,
and others.
3. Monetary Basis of Accounting
Financial statements in the Philippines are expressed in terms of Philippine peso (Php), hence,
accounts of credit cooperatives should be stated in terms of the peso amounts involved at the time the
transactions occur. The recording of each transaction in terms of peso units provides the best possible
indicator of its relative impact on the overall operations of the credit cooperatives. It also permits
identification of the amount of assets, liabilities, equity, revenues and expenses represented by the
transaction.
4. Consistency in Accounting Practice from Period to Period
Consistent accounting practices should be followed by each cooperative from one accounting
period to the next. Should a material change in accounting treatment occur, the facts must be disclosed
in the financial statements, including the peso effect upon the Statement of Financial Condition and the
changes in net surplus for the period. For example, if a credit cooperative converts from accrual or cash
basis to modified cash basis system of a accounting, it should make a complete reversion at one time
and report the conversion in the financial statements of the current period.
5. Timely recognition in Accounting Records
Accounting transactions should be recorded on a timely basis so that all material information
applicable to each accounting period will be shown in the records. To properly recognize in
accounting records and financial reports the reasonable value of assets, liabilities, equity,, revenues
and expenses, each credit cooperative should make provision for losses that may be sustained in the
collection or conversion of loans and other assets by charges against current operations.
6. Materiality
Material facts relating to the credit cooperative’s activity must be recognized in the accounts of
the said cooperative and reported in its financial statements. A statement, fact, or item is material
id, giving full consideration to the surrounding circumstances as they exist at the time, it is of such a
nature that its disclosure, or the method of treating it, would likely influence or “make a difference”
in the judgment and conduct of a reasonable person. The accumulation of many small items, each of
which in itself would not be “material”, would be “material” if the overall effect would tend to
influence the judgment and conduct of a reasonable person.
7. Principle of Disclosure
This accounting principle requires that the members of the cooperative and other users of the
financial statements should be informed of the material and relevant information about the economic
and financial affairs of the cooperative. This can be done either in the financial statements or in the
notes that accompany the statements or supplementary schedules and other representations. Full
disclosure requires reporting of all facts that can make a difference in the decision of the users and that
the accounting information reported must be understandable and not susceptible to misinterpretation.
Such disclosure makes the financial statements more relevant and useful and less subject to
misinterpretation.

45
 Adequate information to be disclosed in the financial statements may not be presented in detail
provided important and relevant facts are revealed and made clear. For example, if the cooperative is
facing a legal suit and is liable to pay a large sum of money, this information should be disclosed. Or, if
the loan receivable has been pledged as collateral in obtaining a loan, the financial statements would be
inadequate without disclosure if this information, the full-disclosure principle requires the financial
report to give more emphasis to substance over form. This means that the substance should not be
made less clear or hidden by using mechanics, rules and jargon of accounting.
There are, however, limits to the amount of disclosure that can be made in financial statements
or in the accompanying notes. As minimum information, the following should generally be disclosed:
a. Accounting methods used in preparing the financial statements;
b. Changes in the use of accounting methods during the current period;
c. Terms of major borrowing arrangements;
d. Existence of large contingent liabilities;
e. Major proposed asset acquisitions;
f. Contractual provisions relating to leasing arrangements and employee pension and bonus plan;
g. Significant events affecting financial position, including major contracts for sale of services and
pending legislation which may affect significantly the operations of the cooperative;
h. Other materials and significant events which will occur after the end of the accounting period and
before the financial statements are released and which are relevant to the user.
Disclosure through footnotes should not, however, take the place of good accounting practices in
preparing the financial statements, the accounting record is the primary source of information made
available to the readers, hence, accurate recording is a must. However, there are events that are not
disclosed in the accounting records but should be disclosed in preparing the financial statements. Hence,
there is a need for supplementary information through footnotes or accompanying notes. The key point
to keep in mind is that the supplementary information should be relevant to the user.
8. Principle of Conservatism
Each credit cooperative should maintain its accounting records on a conservative basis. It should
make reasonable provisions in the accounts for probable losses on assets and for the settlement of
liabilities. IT should not materially overstate nor understate its assets, liabilities, revenues or expenses.
9. Accounting Basis
The prescribed accounting basis to be used in the credit cooperative is the Modified Cash Basis.
This is a combination of the cash basis of accounting and the accrual basis of accounting. Under the
modified cash basis, the accounting is based on actual receipts and disbursements of the credit
cooperative except that provisions should be made to reflect:
a. Liabilities which are not paid when due;
b. Unpaid interest on share capital and patronage refunds applicable to the accounting period;
c. Deferred credits and charges that are applicable to future periods;
d. Estimated losses on loans outstanding and other risk assets; and
e. The depreciation of property and equipment.
Other two accounting bases are:
a. Cash basis- Revenue is recorded and accounted for when actually collected and expenses are
accounted for when actually paid.

46
 b. Accrual basis- The accrual basis of accounting provides the most complete and informative
record of the financial activities of the cooperatives. Under the accrual basis of accounting, the
credit cooperative records revenue when earned and expenses and liabilities as they are
incurred regardless of the timing of the actual receipt or payment. It is recognized, however,
that a requirement that all cooperatives adopt the full accrual basis of accounting would pose
a high degree of difficulties in its adoption by any small cooperatives. A danger in adopting the
accrual basis of accounting is the treatment of the declaration of interest on share capital and
patronage refund on the basis of income while some of it is still uncollected.
10. Accounting Safeguards and Control
Each credit cooperative should adopt appropriate accounting safeguards and controls to provide its
members and the general public reasonable assurance that accounting records are complete and
accurate.
11. Accounting Period
The accounting period shall be a 12-month period starting January 1 and ending December 31, as
commonly practiced.

FINANCIAL STATEMENTS
Financial statements are the means by which the information accumulated and processed in
financial accounting is periodically communicated to those who use it. They are designed to serve the
needs of variety of users, particularly owners and creditors. Through the financial accounting process,
the myriad and complex effects of the economic activities of a cooperative are accumulated, analyzed,
quantified, classified, recorded, summarized and reported as information of two basic types: a)financial
condition, which relates to appoint in time, and b) financial operations, which relate to a period of time.
Notes to the statements, which may explain headings, captions or amounts in the statements or present
information that cannot be expressed in terms of money and those descriptions of accounting policies
are integral part of the statements.
A. Statement of Financial Condition (balance sheet) presents three major categories: a) assets, b)
liabilities, and c) equity, the difference between the total assets and total liabilities. The
statement of financial condition at any date presents an indication in conformity with generally
accepted accounting principles of the financial status of the cooperative at a particular point in
time.
B. Statement of Operation (Statement of Net Surplus) for a period presents the revenues,
expenses, gains, losses, and net surplus (net loss) recognized during the period and thereby
presents an indication in conformity with generally accepted accounting principles of the results
of the cooperative’s service-directed activities during the period. The information presented in
the statement of operation is usually considered the most important information provided by
financial accounting because the net surplus is a paramount concern to those interested in
economic activities of the cooperative.
C. Statement of Cash Flows is a formal statement summarizing all operating, investing and
financing activities of a cooperative. In simple language, the statement of cash flows provided
information about cash receipts and cash payments of a cooperative during a period.
D. Related schedules such as:

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 ● Bank reconciliation
● Aging of loans receivables
● Property and equipment
● Members’ loans receivables, savings/time deposits, subscribed and paid-up share capital
● Investments
● Accounts payable
● Loans payable
● Uses of:
a) Reserve fund
b) Optional fund
c) Education and training fund
-Apex -Local

ACCOUNTS PECULIAR TO A COOPERATIVE

As shown on the balance sheet of a credit cooperative, Reserve fund such as Optional Fund and
General Reserve Fund are accounts not commonly found in trading/manufacturing business. Interest on
fixed deposits and patronage refund are amounts due to members for deposits made and share in the
cooperative’s yearly net surplus, respectively. The latter is distributed to the members as approved by
the board of directors. Additional data such as summary of fixed deposits and loan receivable showing
comparative figures in total amounts and number of members serviced; loans granted and members
availing and the total amounts per month for the entire year; proposed budget showing comparative
figures between approved last year and actual amount spent; analysis of the General Reserve Fund and
Optional Fund and such other schedules that will satisfy the needs of the members are submitted with
the financial statements.
As may be observed, Revolving Fund as well as Change Fund are not commonly found in ordinary
single-purpose cooperative or in merchandising/manufacturing companies. Cash advances are either for
operations or to be given as such to officers and employees. These accounts and other unfamiliar ones
used by a multi-purpose cooperative are described below.

Revolving fund is an amount set up to meet immediate cash operating requirements while Change fund
is set up to take care of loose change in the store.
Advances to officers and employees account is debited for duly approved advances to officers and
employees other than for operations purposes as distinguished from cash advance for operations which
is given to an officer, employee, supplier, or contractor in relation to the normal business operations as
indicated in the Request for Cash Advance. The board of directors should define a policy to govern the
granting and liquidation of such advances. Due from officers and employees is an account debited for
shortages and other losses sue to the fault/negligence of accountable officers and employees.
Investment in Cooperative refers to lone-term investment in other cooperatives in the form of stock
and bonds. This investment should be duly authorized and approved by the general assembly.
Interest on share capital payable is credited for the amount allocated for interest on share capital
payable to members, set aside in accordance with the by-laws; while Patronage refund payable is

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credited for the amount allocated by the board of directors for patronage refund from the cooperative’s
yearly net surplus.
CETF- due to Apex Organization is credited for ½ of the amount allocated for Education and Training
set up from net surplus. Revolving capital payable is credited for the deferment of interest on capital
and patronage refunds payable to members.
General Reserve fund is credited for at least 10% of the cooperative’s yearly net surplus;
Cooperative Education and Training Fund is credited for ½ of the amount allocated Education and
Training fund from net surplus; Optional fund is credited for the amount allocated for land and building,
community development and any other necessary fund the total of which may not exceed 10% of net
surplus as prescribed in the cooperative code.

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