Contents in Brief

Module 7
Topic
Description
Learning Objectives
Lesson
Learning Enhancement Materials
Additional Readings
Learning Activities
MODULE 7
TOPIC Accounting for Non-profit Organizations: Colleges and Universities

DESCRIPTION The module discusses the accounting concepts, principles and procedures
applicable to private non-profit colleges and universities, including peculiar
accounting practices of this type of non-profit organization.

LEARNING OBJECTIVES The student will be able to:

a. describe the operations of private non-profit colleges and universities
b. identify the different funds maintained by colleges and universities
c. discuss the peculiar account titles and other accounting terminologies used by
colleges and universities
d. prepare accounting entries to record transactions of colleges and universities

LESSON

PowerPoint slides in PDF file: Go to Module 7 file folder. See “NPO Colleges and Universities_ngovacc”

Notes:

What are private non-profit colleges and universities?

There are three classifications of educational institutions in the Philippines, (a) proprietary, (b) non-stock,
non-profit, and (c) government. The first two are private corporations – the proprietary educational
institution is a stock corporation duly registered with the Securities and Exchange Commission and is
organized for profit, subject to adhering to the rules and regulations attendant to its permit to operate,
while the other is a duly registered non-stock corporation engaged in the operation of a not-for profit
educational institution also subject to government regulatory rules and regulations based on the permit
granted to the institution. The last classification is covered by a specific law or legislation that created the
educational institution. Under the last classification are state colleges and universities such as the University
of the Philippines. Private non-profit colleges and universities, e.g. Asia Pacific College, fall within the second
classification and are the subject of this module. In the discussions that follow, the term university is used
collectively to refer to school, college, university or educational institution.

University Operations
University activities may be broadly classified as follows:
• Instructional – resident and extension instruction, organized research, public services and library
operation
• Auxiliary – operation of residence halls or dormitories, cafeterias or dining rooms, bookstore, health
clinic, athletic and cultural programs
• Administrative -registration and enrolment, staffing and promotion, business office operations,
educational plant operation and maintenance
Funds Used
A. Current funds (unrestricted and restricted) – resources to be employed in carrying out the primary
objectives of the university
B. Loan funds – resources available for loans to students
C. Agency funds – resources received but which belongs to others; usually recognized separately when
operations are involved and continuing, e.g. for pension and retirement, organization resources, student
deposits
D. Endowment and other similar funds – formed when resources are contributed by outside parties under
conditions that they not be spent and only the income produced by such resources can be used for the
university’s benefit
E. Annuity fund – established when resources are transferred to the university subject to the requirement
that specified payments be made to a designated beneficiary during his lifetime
F. Plant funds – resources related to the educational plant
• Unexpended – to be used for the acquisition of new plant or the replacement of existing plant
• Retirement of indebtedness – cash, securities, and other assets to be used for the retirement of
plant indebtedness
• Invested in plant – consist of individual property items that compose the educational plant

Accounting for Colleges and Universities

Basis of Accounting
In general, accounts are kept on accrual basis, to the fullest extent practicable. Income is reported when it
becomes due or when a bill has been rendered for it, and appropriate allowance is made for probable
losses.

Fund accounting is also widely practiced due to the large amount of restricted resources under the university’s
control. As explained by Prof. Ma. Violeta V. Vicente in her Advanced Accounting textbook,
“When fund accounting is used, the resources that are for financing the normal/general activities in
the operations of the organization are commonly called general or current fund. The receipts or
resources that are to be used in the activities such as publication of a periodic journal or construction
of a building are designated as special or restricted current fund. Each fund group 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 expenditures affect a fund balance, nominal
accounts are established to summarize them, and the nominal accounts are closed at the end of each
period; 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 position of each of the funds or fund groups maintained
and not for the entity as a whole.”

Sources of Receipts
A university collects tuition and other similar fees. It also receives gifts and various grants and may derive
income from endowments. In addition, the university may charge fees for auxiliary enterprises and other
services.
Revenue and Expense Classifications
A. Revenues
• Educational and general – student tuition and other school fees, gifts and grants, sales and services
relating to educational departments, income from organized activities relating to educational
departments, income from endowment fund, income from other sources
• Auxiliary enterprises – bookstore, dormitory, cafeteria
• Student aid

B. Expenses
• Educational and general – institutional support-general administration, student services/general
expenses, instruction and departmental research, academic support-organized activities relating to
educational departments, organized research, extension and public services, public support
(conferences, seminars), operation and maintenance of physical plant
• Auxiliary enterprises – bookstore, dormitory, cafeteria
• Student aid

Accounting Peculiarities
A. Unique account titles – see sample account titles used in university operations in Sample Account
Titles_university.pdf file in Learning Enhancement Materials page of this Module.

B. Peculiar accounting procedures

1. Scholarships and fellowships
• If granted freely –> treat as direct reduction of revenues from student tuition and fees
• If granted as compensation for services rendered –> treat as expense
2. Tuition fee refunds
• From class cancellations and other withdrawal of enrolment -> treat as direct reduction of
revenues from tuition and fees

Financial Statements
A complete set of general-purpose financial statements of a university is composed of the following:
• Statement of Financial Position – shows information on assets, liabilities and net assets
• Statement of Activities – shows information on revenues, expenses and changes in net assets for a
period
• Statement of Cash Flows – shows information relating to cash receipts and cash payments during a
period
• Notes to the Financial Statements
LEARNING ENHANCEMENT MATERIALS

1. Website article by Tax and Accounting Center, Inc.

https://taxacctgcenter.ph/types-of-educational-institutions-in-the-philippines/

See separate Classifications of Educational Institutions.pdf file saved in the Module 7 folder.

2. Sample account titles used by educational institution

See separate Sample Account Titles_university.pdf file saved in the Module 7 folder.

3. Sample audited financial statements – university

https://su.edu.ph/wp-content/uploads/2017/06/FS-2017.pdf

See separate Sample Audited Financial Statements-university.pdf file saved in the Module 7 folder.

4. 2019 Annual Report of Silliman University

https://su.edu.ph/wp-content/uploads/2017/06/Annual-Report-complete-with-cover.pdf

See separate 2019 Annual Report_silliman university.pdf file saved in the Module 7 folder.

5. Refer also to Learning Enhancement Materials Item 1 (Accounting Guide_NPO.pdf) and Item 2
(razek_ch12accountingfornpos.pdf) in the Module 6 folder.
ADDITIONAL READINGS

1. https://www.rappler.com/nation/234625-supreme-court-ruling-dls-college-st-benilde-tax-exempt

2. https://www.wonder.legal/ph/modele/articles-incorporation-non-stock-educational-corporation

3. https://education.stateuniversity.com/pages/1728/Accounting-Systems-in-Higher-Education.html
LEARNING ACTIVITIES

I. Word Hunt

Can you find the Non-profit School Accounting terms hidden in the grid below? Search horizontally,
vertically, diagonally, or even backwards to find the following hidden terms.

ACCRUAL BASIS ENDOWMENT INCOME FUND ACCOUNTING

GIFTS AND GRANT INSTRUCTIONAL LOAN FUND
NET ASSETS ORGANIZED RESEARCH PUBLIC SUPPORT
STATEMENT OF ACTIVITIES STUDENT AID TUITION FEES
2. Brief Exercise

APO College, assessed its students P1,100,000 for the current semester’s tuition and other school fees.
Additional information for the semester are shown below:
Student scholarships granted to academic scholars P100,000
Student scholarships granted to student assistants 75,000
Student scholarships granted to faculty members enrolled in
the post-graduate program 50,000
Student scholarships granted to faculty members’ dependents 60,000
Refunds for class cancellations and withdrawals of enrolment 20,000
Estimated uncollectible accounts 80,000

Required:
a. How much is the net revenue from tuition and other school fees?
b. Provide the corresponding journal entries.

3. Problems

PS 7-1. Shown below are transactions for a private, not-for-profit university.

a. Tuition and fees assessed total P10,000,000, 85% of which was collected by year-end; tuition
scholarships were granted for P800,000, and P400,000 was expected to be uncollectible.
b. Revenues collected from sales and services by the university bookstore were P1,000,000.
c. Salaries and wages were P5,000,000, P200,000 of which was for employees of the university
bookstore.
d. Financial aid funds of P500,000 were received from the SY Grant program; the funds were then
disbursed to the appropriate students.
e. Contributions of P250,000 were received; P50,000 was restricted for the athletic department and
P200,000 was unrestricted. An additional P25,000 was pledged to the athletic department by the
alumni.
f. Athletic equipment was purchased with P35,000 previously set aside for that purpose.

Required:
Prepare journal entries to record the above-mentioned transactions.

PS 7-2. The following data relate to DIBA University:

January 1, 2019
Total assets – General Fund P120,000
Special funds 28,000
Total liabilities – General Fund 35,000

Additional information during the year:

Excess of revenue over expenses (General Fund) P16,500
Cash transfers to special fund 10,000
Earnings on special funds 2,800

How much total of the fund balances should DIBA University report in its statement of financial position as
of December 31, 2019? Your computation should also show individual balances for each fund.