Chapter X: Accounting for Other Not-for-Profit Entities

Content:
10.1 Characteristics of Non-governmental NFP organizations
10.2 Charities and societies law in Ethiopia
10.3 Financial reporting and accounting for NGOs
Summary

Objectives of the chapter:

After completing this chapter you should be able to:
 Identify other not-for-profit organizations and their features
 Explain the charities and societies law in Ethiopia
 Describe accounting for other not-for-profit organizations
 Prepare financial statements for other not-for-profit organizations
 Prepare closing entries from financial statements for NGOs

10.1 Characteristics of Non-governmental NFP organizations

The not-for-profit sector serves a critically important role by providing a vast community
services, including emergency and disaster assistance; health and human services; education
and research; furthering the arts, sciences, and human development; and protecting the
environment. Despite there are variety of Not for profit organizations, in this chapter focus is
given on NPOs referred to as voluntary health and welfare organizations (VHWO) or human
service organizations. These organizations receive contributions from the public at large and
provide health and welfare services for a nominal or no fee.

There are many other kinds of not-for-profit organizations, such as cemetery organizations,
civic organizations, fraternal organizations, labor unions, libraries, museums, cultural
institutions, performing arts organizations, political parties, private schools, professional and
trade associations, social and country clubs, research and scientific organizations, and
religious organizations.

Distinguishing between for profit, not- for-profit, and governmental/nongovernmental is

more useful. “Governmental” not- for-profit organizations may receive tax revenue or be
owned or controlled by a government but are not governments. Examples of entities that

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receive special tax revenue include libraries and transportation authorities. Governments
often control museums, cemeteries, development authorities, housing authorities, public
hospitals, public colleges and universities, and other public benefit corporations. Some such
organizations are reported as a department or unit of a general purpose government

The term Not-for -Profit Organizations refer to the organizations that are for used for the
welfare of the society and are set up as charitable institutions which function without any
profit motive. Their main aim is to provide service to a specific group or the public at large.
Normally, they do not manufacture, purchase or sell goods and may not have credit
transactions. Hence they need not maintain many books of account (as the trading concerns
do) and Trading and Profit and Loss Account. The funds raised by such organizations are
credited to capital fund or general fund. The major sources of their income usually are
subscriptions from their members, donations, grants-in-aid, income from investments, etc.

The main objective of keeping records in such organizations is to meet the statutory
requirement and help them in exercising control over utilization of their funds. They also
have to prepare the financial statements at the end of each accounting period (usually a
financial year) and ascertain their income and expenditure and the financial position, and
submit them to the statutory authority.

The main characteristics of such organizations are:

1. Such organizations are formed for providing service to a specific group or public at
large such as education, health care, recreation, sports and so on without any
consideration of caste, creed and color. Its sole aim is to provide service either free of
cost or at nominal cost, and not to earn profit.
2. These are organized as charitable trusts/societies and subscribers to such organization
are called members.

3. Their affairs are usually managed by a managing/executive committee elected by its

members.

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 4. The main sources of income of such organizations are: (i) subscriptions from
members, (ii) donations, (iii) legacies, (iv) grant-in-aid, (v) income from investments,
etc.

5. The funds raised by such organizations through various sources are credited to capital
fund or general fund.

6. The surplus generated in the form of excess of income over expenditure is not
distributed amongst the members. It is simply added in the capital fund.

7. The Not-for-Profit Organizations earn their reputation on the basis of their

contributions to the welfare of the society rather than on the customers’ or owners’
satisfaction.

8. The accounting information provided by such organizations is meant for the present
and potential contributors and to meet the statutory requirement

It is important to note that voluntary health and welfare organizations (VHWOs) have
different features compared to other non-profit organizations (ONPOs) in terms of their
purpose and voluntary nature. VHWOs are tax exempted organization with the basic
premises they are organized for the public benefit, supported largely by public contributions,
and operated on a not-for profit basis. Thus, the features that distinguish VHWOs from
(ONPOs) are:
1) Their purpose: to meet a community health, welfare, or other social service need.
2) Their voluntary nature: no fee is changed, of only a very small fee in proportion to
the services provided is charged; and
3) Their relationship to resource provider: provides resources are not the primary
recipient of services or benefits or a VHWO.
Some ONPOs may provide service similar to those provided by certain VHWOs. But ONPOs
finance the services with user charges or membership fees charged to the primary recipient of
the services.

The other non profit organizations addressed by statement of financial accounting standard
(SFAS) include all non-profit organizations except;

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 1) Hospitals, colleges and universities, state and local governments and voluntary health
and welfare organizations and
2) Those non profit organizations that operate essentially as business enterprises for the
direct economic benefit of their members or stockholders.
Example: Types of organizations that apply to non-profit organizations:

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 1) Cemetery organization
2) Civic organizations
3) Research and scientific organizations
4) Libraries
5) Museums
6) Political parities
7) Professional associations
8) Religious organization

10.2 Charities and societies law in Ethiopia

State and federal governments have oversight over NFPs because they grant legal existence
through not-for-profit incorporation laws, charitable trust laws, or limited liability companies and
also grant exemptions from taxes. Government regulates not for profit organizations in several
ways such as:

 Starting out by registering as a not-for-profit corporation, charitable trust, LLC

 Licensing for charitable solicitation or to operate a facility

 Annual compliance reporting

 Tax compliance (e.g., sales and use tax)

 Limit on political activity

According to Proclamation No. 621/2009, Proclamation to provide for the registration and
regulation of charities and societies, “Ethiopian Charities" or “Ethiopian Societies" shall mean
those Charities or Societies that are formed under the laws of Ethiopia, all of whose members are
Ethiopians, generate income from Ethiopia and wholly controlled by Ethiopians. However, they
may be deemed as Ethiopian Charities or Ethiopian Societies if they use not more than ten
percent of their funds which is received from foreign sources.

On the other hand, "Foreign Charities" shall mean those Charities that are formed under the laws
of foreign countries or which consist of members who are foreign nationals or are controlled by

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foreign nationals or receive funds from foreign sources. It is stated that “Mass-Based Societies”
shall include professional associations, women’s associations, youth associations and other
similar Ethiopian societies.

Costs and sources of income for charities and societies have been defined by the proclamation in
a nutshell. “Administrative costs” shall mean those costs incurred for emoluments, allowances,
benefits, purchasing goods and services, travelling and entertainments necessary for the
administrative activities of a Charity or society. Source of income is indicated as public
collections in general. It also include income from foreign sources. “Income from Foreign
source” means a donation or delivery or transfer made from foreign source of any article,
currency or security. Foreign sources include the government, agency or company of any foreign
country; international agency or any person in a foreign country.

Charities or Societies may, upon a written approval of the Agency, engage in income generating
activities that are incidental to the achievement of their purposes and the proceeds of which shall
not be distributed among the members or beneficiaries of the Charity or Society and are used to
further the purposes for which the Charity or Society was established. A Charity or a Society
that undertakes income generating activities shall keep separate books of account with respect to
such activities.

The proclamation established an agency called The Charities and Societies Agency with the
following powers and functions:

 to license, register, and supervise Charities and Societies in accordance with this
Proclamation;

 to encourage Charities and Societies to have better administration;

 collect, analyze and disseminate information that has connection with its powers and
functions;

 publish and distribute information about the registration of Charities and Societies in the
Gazette;

 organize consultative forum for governmental organs and Charities and Societies;

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  to make proposals to the Ministry on matters relating to meeting its objectives;

 take decisions, in cooperation with the concerned Sector Administrator, on the

application of Charities and Societies for registration and license;

 without prejudice to the provisions of Proclamation No. 334/2003 (as amended), to

exercise the powers of registration and authentication of documents with regard to
Charitable Endowments and Charitable Trusts;

 to collect fees for the services it renders in accordance with the rate to be approved by
the Government;

 to own property, enter into contract, sue and be sued in its own name;

 to delegate, when it deems necessary, the powers and functions given to it by this

Proclamation; and

 Carryout such other activities necessary for the attainment of its objectives.

When discussing the concept of charity, “A Charity” means an institution, which is established
exclusively for charitable purposes and gives benefit to the public. Charitable purposes are stated
as:

 the prevention or alleviation or relief of poverty or disaster

 the advancement of the economy and social development and environmental protection
or improvement;

 the advancement of animal welfare;

 the advancement of education;

 the advancement of health or the saving of lives;

 the advancement of the arts, culture, heritage or science;

 the advancement of amateur sport and the welfare of the youth;

 the relief of those in need by reason of age, disability, financial hardship or other
disadvantage;

 the advancement of capacity building on the basis of the country’s long term
development directions;

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  the advancement of human and democratic rights;

 the promotion of equality of nations, nationalities and peoples and that of gender and
religion;

 the promotion of the rights of the disabled and children’s rights;

 the promotion of conflict resolution or reconciliation;

 the promotion of the efficiency of the justice and law enforcement services; and

 Any other purposes as may be prescribed by directives of the Agency.

A Charity may be formed as (A) Charitable Endowment; (B) Charitable Institution; (C)
Charitable Trust; or (D) Charitable Society. A “Charitable Endowment” is an organization by
which a certain property is perpetually and irrevocably destined by donation or will or the order
of the Agency for a purpose that is solely charitable. A Charitable Institution is a Charity formed
by at least three persons exclusively for charitable purposes. The Provisions of this Proclamation
relating to the structure of Charitable Endowment shall apply, with the necessary adjustments, to
Charitable Institutions. A “Charitable Trust” is an organization by virtue of which specific
property is constituted solely for a charitable purpose to be administered by persons, the trustees,
in accordance with the instructions given by the instrument constituting the charitable trust. A
“Charitable Society” shall mean a Society which is established for charitable purposes. It may
have a form of charity committee. A “Charity Committee” is a collection of five or more natural
persons who have come together with the intent of soliciting money or other property from the
public for purposes that are charitable.

It very important to distinguish charities from societies as has been clearly set out in the
proclamation. Therefore, “Society” means an association of persons organized on non-profit
making and voluntary basis for the promotion of the rights and interests of its members and to
undertake other similar lawful purposes as well as to coordinate with institutions of similar
objectives. Societies shall acquire legal personality upon registration by the Agency.
Membership in a Society shall not be transferred or passed to third parties.

Rights and Obligations of Societies have been clearly sated by the Proclamation No. 621/2009 as
follows:

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  Any Society shall be open to a new member that fulfills the requirements of the Society.

 Any Society shall be managed by persons elected through the full participation of
members.

 Every member of any Society shall have equal and one vote.

 No Society may admit or dismiss members except as provided by its rules.

 The member of any Society whose membership is terminated shall have the right to be
heard by the executive organ before a final decision is made.

 Where the Society has Federal character and nomenclature, its work place and
composition of the members shall show the representation of at least five Regional States.

 Ethiopian mass-based organizations may actively participate in the process of

strengthening democratization and election, particularly in the process of conducting
educational seminars on current affairs, understanding the platforms of candidates,
observing the electoral process and cooperating with electoral organs.

 The rules of any Society shall be subject to amendment by the vote of a majority of
members.

 Any Society shall, upon its member’s request, disclose documents that show its
activities.

Accounting records of charities and societies

The Officers of a Charity or Society shall ensure that accounting records are kept in respect of
the Charity or Society which are sufficient to show and explain all the transactions and disclose
at any time. The accounting records shall, in particular, contain entries showing from day to day
all sums of money received and expended by the Charity or Society, and the matters in respect of
which the receipt and expenditure takes place; and record of the assets and liabilities of the
Charity or Society. Charities and Societies may not receive anonymous donations and shall at all
times keep records that clearly indicate the identity of donors.

Annual Statements of Accounts should be prepared by Charity or Society and it shall submit to
the Agency an annual statement of accounts prepared in accordance with acceptable standards.
Charities and Societies whose annual flow of funds does not exceed Birr 50,000, (fifty

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thousands) the statement of accounts may choose to prepare a receipts and payments account and
a statement of assets and liabilities. The Officers of a Charity or Society shall preserve any
statement of accounts and related documents for at least 5 years from the end of the financial
year.

Any Charity’s or Society’s account shall be examined annually by a Certified Auditor or internal
auditor or an auditor designated by the Agency. Any Charity or Society shall be audited by an
External Auditor where its annual gross income immediately preceding the specified budget year
is more than Birr 100,000 (hundred thousands). It should be noted that the officers of a Charity
or Society shall report to the Agency annually and upon request about all the bank accounts of
the Charity or Society with necessary particulars.

10.3 Financial reporting and Accounting for not for profit organizations
Governmental not-for-profit organizations should apply the standards established by the GASB
rather than the FASB’s standards applicable to nongovernmental NPOs. Hence, it should be
noted that more or less nongovernmental NPOS use standards issued by FASB or nowadays
IFRS.

FASB’s objectives of financial reporting for not-for-profit agencies are to provide information
useful in (1) making resource allocation decisions, (2) assessing services and ability to provide
services, (3) assessing management stewardship and performance, and (4) assessing economic
resources, obligations, net resources, and changes in them. More importantly, objectives of
financial reporting of any organization include accountability and transparency to stakeholders.
Stakeholders of NPOs that use not-for-profit financial statements include donors, grantors,
members, lenders, consumers, and others who provide resources to NPOs. FASB Statement No.
117 establishes standards for financial reporting that require, as a minimum, that NPOs present a
statement of financial position, a statement of activities, and a statement of cash flows that
present financial information for the entity as a whole.

NPOs have considerable flexibility in presenting financial information as long as it is useful and
understandable to the reader. Flexibility is made due to reclassification of temporarily restricted
support to unrestricted support in the year in which the donor stipulations were met. Besides,

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Reclassifications are made for (1) satisfaction of program or purpose restrictions, (2) satisfaction
of equipment acquisition restrictions, sometimes measured by depreciation expense, and (3)
satisfaction of time restrictions, either actual donor or implied restrictions.

Accounting and reporting for NGO endeavors have evolved largely in view of these key
differences from profit seeking enterprise. These are:
1. Objective: acquiring resources and expending them is a legal appropriation, as opposed to
seeking to increase its capital.
2. Control: substitution of statutory, fund, and budgetary controls in the absence of profit
regulator (control) device inherent in profit-seeking endeavors.
These factors (objectives and control) underlie the major difference between commercial and
NFP accounting. The primary consideration in this environment is upon compliance and then
accounting and reporting and auditing have developed principally as tools of compliance control
and demonstration.

The financial statements of not for profit organizations are:

1. Statement of financial position
2. Statement of activities
3. Statement of cash flows

1. Statement of financial position

Statement of financial position (similar to a business's balance sheet) reports the organization's
assets and liabilities. The difference between the assets and liabilities is reported as Net assets
instead of owner’s equity or stockholders’ equity in the case of business organizations. Therefore
the basic equation of the financial position is Assets equal to liabilities plus Net assets

The net assets section of a nonprofit's statement of financial position reports totals for each of the
following classifications:
1) Unrestricted net assets
2) Temporarily restricted net assets
3) Permanently restricted net assets

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These classifications are based on the restrictions made by the donors at the time of their
contributions.

Unrestricted Net Assets: If a donor does not specify a restriction on his or her contribution, the
amount received by the nonprofit is recorded as an asset and as unrestricted contribution
revenues. Unrestricted contribution revenues affect the assets section and the Net asset section
(like capital)

Temporarily Restricted Net Assets: If a not for profit organization receives a contribution that
has a donor-imposed restriction (other than to be held in perpetuity), the amount is usually
recorded as an asset and as temporarily restricted contribution revenues. Temporarily restricted
contribution revenues affect the asset section and temporarily restricted net assets to increase. If
a donor donates Birr 50,000 for the purchase of office equipments, the revenue will be
temporarily restricted for the intended purpose and recorded as temporarily restricted net asset.
If the mentioned office equipment is purchased at a price of Birr 51,000, the effect of the
transaction would be as follows:
A. To record the office equipment
Office equipment Dr 51,000
Cash Cr 51,000
B. To record the release of temporarily restricted net asset
Temporarily Restricted net asset Dr 50,000
Unrestricted (or designated) Net asset Cr 50,000

Permanently Restricted Net Assets: If a donor stipulates that the contribution must be held by
the not for profit organization in perpetuity (forever, not be used up), the amount is recorded as
an asset and as permanently restricted contribution revenues. Permanently restricted contribution
revenues increase the amount of permanently restricted net assets. Such permanent nature gifts
are also called endowments and are nonexpendable.

Endowments may take the form of pure or permanent endowments, term endowments, or quasi-
endowments. Term endowments are classified as temporarily restricted net assets because as the

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term expires, the assets can be used at the discretion of the NPO. Quasi-endowments or “funds
functioning as endowments” are those in which the board designates that funds be set aside;
however, since the board can reverse that decision, this form of endowment is classified as an
unrestricted net asset. Permanently restricted net assets may also be in the form of artwork, land,
or other assets that must be used for a certain purpose and may not be sold.

Information on temporarily and permanently restricted net assets can be reported on the face of
the statement of financial position or disclosed in the notes to the financial statements. If a
donor donates Birr 1,000,000 to be invested in long term investment and state to use the interest
or dividend for scholarship of Best students, then the principal donation is permanently restricted
net asset while the earned interest or dividend is temporarily restricted net asset until expended
for the intended purpose.

2. Statement of Activities
Proper naming of the report that shows the performance of not for profit organization,
considering their purpose, is statement of activities instead of income statement that is issued by
profit making business organizations.

The statement of activities reports revenue and expense amounts according to the three
classifications of net assets discussed above as major headings of the report. Statement of
activities reports on changes in all classes of net assets for a period of time. The changes may
occur in the form of revenues, gains, expenses, and losses. It is obvious that Net assets released
from restrictions decrease temporarily restricted net assets and increase unrestricted net assets, as
restrictions are met as per the request of the donor or sponsor. Finally, all expenses decrease
unrestricted net assets.
The statement of activities is an operating statement that presents, in aggregated fashion, all
changes in unrestricted net assets, temporarily restricted net assets, permanently restricted net
assets, and total net assets for the reporting period. These changes take the form of revenues,
gains, expenses, and losses.

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External financial statements must be prepared on the accrual accounting basis to be in
conformity with GAAP. In general, revenues and expenses should be reported at their gross
amounts. Although revenues are categorized into three classes (unrestricted revenue, temporarily
restricted revenue, and permanently restricted revenue), all expenses are reported as reductions
of unrestricted net assets. In addition, expenses must be reported by their functional classification
(e.g., program or supporting) either in this statement or in the notes to the financial statements.
Gains and losses on investments and other assets are reported as changes in unrestricted net
assets unless their use is temporarily or permanently restricted.

Revenues that may be listed on the statement of activities include Contributions, Membership
dues, Program fees, Fundraising events, Grants, Investment income, Gain on sale of investments,
and Reclassifications when net assets are released from restrictions (a negative amount in the
temporarily restricted column and a positive amount in the unrestricted column). The revenues
are recorded in the period they are earned under the accrual basis of accounting.

Expenses may be classified as Natural and functional expenses usually in VHWOs. The natural
expenses may include salaries, supplies, and depreciation. Functional expenses are again
classified as program and support major title. Program function expenses include those expense
related to adoption, counseling, and education. On the other hand, support function expenses,
consists of those expenses incurred in terms of management and general administration and fund
raising activities. Expenses are recognized in the period they are incurred (accrual basis) in
which they best match the related revenues.

Statement of cash flow

Not for profit organizations follow the same standard as for-profit entities when preparing the
statement of cash flows. Cash flows are reported as changes in operating, investing, and
financing activities as usual. And then, the indirect method or direct method (with reconciliation)
may be used for reporting cash flows from operating activities.

At time of preparing the report, unrestricted contributions and gifts are reported as part of
operating activities. However, restricted contributions given for long-term purposes are included

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with financing activities along with the related income. But noncash gifts or in-kind
contributions are disclosed as noncash investing and financing activities in a separate section.

Illustration of the Statement of Financial Position and the Statement of Activities

Assume that Hope Welfare Association is a welfare organization that renders counseling and
education service to the community. It is formed at the beginning of 2017. It receives its support
from the public at large, as well as from sponsoring organizations and individuals. The
association uses Net Asset section which has (1) unrestricted fund, (2) Temporarily restricted
fund, and (3) permanently restricted fund. At the end of the year 2017, the Association ledger
accounts show a balance of:
 Cash = Birr 12,000
 Accounts payable = Birr 9,000
 Net assets – unrestricted fund = Birr 3,000.

The following transactions were performed during the current period, 2018.
1. Citizens made Unrestricted pledges of Birr 130,000 in the current period out of which it
is expected Birr 15,000 would be uncollectible.
Entry to record pledges and estimated uncollectible
Contributions receivables 130,000
Allowance for uncollected contributions 15,000
Support contributions 115,000

2. Pledged amounts of Birr 110,000 were collected but contribution receivables of birr
12,000 was written off considering its collectability is very remote.
Entry to record collections and written off of pledges
Cash …………………………………………110,000
Allowance for uncollected contributions ………12,000
Contributions receivables………………………….. 122,000

3. The welfare association made investment of Birr 20,000 in government securities for use
as the available cash is not set to restricted fund.
Entry to record purchase of government securities

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 Investments ………………………………. 20,000
Cash …………………………………………….20,000

4. The Association received revenue from sponsoring organization that raised fund Birr
65,000. The sponsor incurred cost of Birr 5,000 to accomplish the fund raising and was
deductible from the raised fund.
Entry to record collection of raised fund by the sponsor
Cash …………………………………. 60,000
United-way fund raising costs………....5,000
Received from united Way……………………….65,000

5. The Association collected many books from donors and made a fund raising book sale.
During the event, Birr 12,000 was raised, despite direct costs to the event which amount
Birr 3,000 was incurred and paid.
A. Entry to record support from book sale
Cash …………………………………..12,000
Support-special events………………….12,000
B. Entry to record direct costs of book sale
Expenditures-fund raising ………………3,000
Cash …………………………………………3,000

6. Earned investments income of Birr 2000 during the year out of Birr 1500 was collected in
cash
Entry to record investment income
Cash …………………………………..1500
Accrued interest receivable …..………..500
Revenue –investment income …………..2000

7. Membership dues of Birr 2,500 were collected during the year

Entry to record receipt of membership dues
Cash ………………………………………….2,500

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 Revenues-membership dues …………………2,500

8. Services donated to the welfare association during the year were as follows:
a) A psychologist provides counseling to a number of street boys at no cost. The services
are valued at birr 3,000.
b) An attorney performs certain legal work for free the services are valued at Birr 600.
Entry to record receipt of donated services
Expenses-counseling services …………….3000
Expenses-administration............................. 600
Support-donated supplies ……………….3600

9. Supplies, with a market value of Birr 800 were donated to the Association by a local
NGO. They are used in the general operation of the organization.
Entry to record receipts of donated supplies
Expense –administration……………………800
Support-donated supplies ………………….800
10. Salaries and wages incurred during the year (including fringe benefits) are allocated as
follows: Administration……………………………….Birr 25,000
Counseling services…………………………..… 60,000
Education …………………………………….. 50,000
Fund raising …………………………………… 5,000
By year-end all salaries, wages, and fringe benefits have been paid.
Entry to record salaries, wages, and fringe benefits of the current period
Expenses-administration ……………………. 25,000
Expenses-counseling services……………….. 60,000
Expenses-education ………………………….. 50,000
Expenses-fund raising ………………………… 5,000
Cash ………………………………………………140,000
11. The welfare association incurred other expenses and were allocated as follows:
Contractual services
Counseling services Birr 10,000

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 Education 5,000 15,000
Supplies (all education) 10,000
Miscellaneous expenses:
Administration Birr 5,000
Counseling services 2,000
Education 3,000
Fund raising 1,000 11,000
Total Birr 36,000
All the above accrued expenses were paid in cash except accrual expense of Birr 4000.
Entry to record the above expenses
Expenses-administration 5,000
Expenses-counseling services 12,000
Expenses-education 18,000
Expenses-fund raising 1,000
Accounts payable 4,000
Cash 32,000
All the above journal entries will be posted to their respective ledger accounts so that
appropriate reports can be produced. Assuming posting process have been finalized and the
ledger accounts are with their up-to-date balance, the welfare association produces its annual
reports namely (1), Statement of financial position, (2) statement of activities, and (3) statement
of cash flows.

I. Statement of Activities
This report shows the performance of the organization during the accounting period. Sources of
revenue and expenses are classified under unrestricted fund, temporarily restricted fund, and
permanently restricted fund. Such classification indicates that any source of revenue, and the
expenses as well, are managed as per the order of the donor or contributors of the fund

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 Hope Welfare Association
Statement of Activities
For the year ended, 2018
Unrestricted Temporarily Permanently Total
restricted restricted
Revenues
 Support contribution 115,000 115,000
 Revenue from sponsors 65,000 65,000
 Support –special events 12,000 12,000
 Revenue –membership 2500 2500
 Support – donated supplies &services 4400 4400
 Revenue – investment income 2000 2000
Total revenue 200,900 200,900
Expenses:
Program service
Counseling services 75,000 75,000
Education 68,000 68,000
Support service
General and administrative expense 31,400 31,400
Fund raising costs 14,000 14,000
Total expenses 188,400 188,400
Change in Net Assets 12,500 12,500
Net Assets, beginning Jan.1, 2018 3,000 3,000
Net Assets, Ending, December, 31, 2018 15,500 15,500

II. Statement of financial position

Statement of financial position or balance sheet reports the financial status of the organization on
specific date. The assets as well as the liabilities may be classified as current and non-current.
However, each asset and liability may be arranged under the classification of unrestricted fund,
temporarily restricted fund, and permanently restricted fund to match with the sources of
revenue.

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 Hope Welfare Association
Statement of Financial Position
December 31, 2018
Assets Liabilities
Cash 3,000 Accounts payable 13,000
Contribution Receivable 8000
Less Allow. For uncollectible (3000) 5,000 Net Assets
Investments 20,000 Unrestricted 15,500
Accrued interest receivables 500 Temporarily restricted -
Total Assets 28,500 Total liabilities and capital 28,500

12. Year-end closing entries. All temporary accounts have been closed.
Entry to close revenue, support, expense and fund-raising cost accounts
Support-contributions ………………………………… 115,000
Support-special events ………………………………… 12,000
Support-donated services …………………………….. 3,600
Support-donated materials …………………………….. 800
Revenues-investment income …………………………. 2,000
Revenues-membership dues ……………………………. 2,500
Revenue -Received from united way ………………….65,000
Expenses-administration …………………………….……….31,400
Expenses-counseling services………………………………..75,000
Expenses-education raising ………………………………….68,000
Expenses fund raising…………………………………….……9,000
United way fund-raising costs ………………………….……..5,000
Fund balance-unrestricted ………………………………...12,000

Summary

Chapter end questions

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1. Explain how organizations in the not-for-profit sector differ from organizations in the
public sector or for-profit business sector. Provide an example of an entity in each sector.
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2. Which standards-setting bodies are assigned responsibility for establishing accounting

and financial reporting standards for not-for-profit organizations?
________________________________________________________________________
________________________________________________________________________
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3. What financial statements does FASB Statement No. 117 require NPOs to present?
________________________________________________________________________
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4. What are the three categories into which NPOs must classify their net assets?
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5. How does support differ from revenues from exchange transactions?

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6. Distinguish between program services expenses and supporting services expenses. Why s
it important that NPOs report expenses for program services separately from those for
supporting services?
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