Accounting Guide For Non-Profit Organization PDF

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Accounting Guide
for Non-P
Non-Profits
rofits
from the Financial Accounting Standards

for Non-Profit Organizations Project
Published by the
Asia Pacific Philanthropy Consortium

Rm. 208 CSPPA Bldg. Ateneo De Manila University
Loyola Heights, 1108 Quezon City, Philippines
Tel. (63-2) 426 6001 ext 4645
Fax. (63-2) 426 1427
Web. www.asianphilanthropy.org
with funding support from the
APPC encourages the use of this Accounting Guide for Non-Profits,

even without permission, but with due acknowledgement.
We encourage sharing this with others to copy and to use.
Your comments and suggestions on how to further improve this manual will be
most appreciated. Please send them to appcpost@yahoo.com
Printed in the Philippines
Accounting Guide
for Non-Profits
2006
TABLE OF CONTENTS
PART I. Fundamental Concepts
2. Framework........................................................................................................
Scope............................................................................................................
Users and their Information Needs ...........................................................
Objectives of Financial Reporting..............................................................
Basis of Accounting.....................................................................................
1. Introduction and Rationale ..............................................................................
Qualitative Characteristics of Financial Statements ............................... 11
Accounting Elements.................................................................................. 12
Recognition and Measurements.................................................................. 13
3. The Accounting Equation................................................................................. 14
4. The Accounting Cycle....................................................................................... 16
5. Accrual Basis Guidelines................................................................................ 18
PART II. Financial Reporting and Chart of Accounts
6. Financial Reports and Disclosures................................................................... 24
7. Chart of Accounts ............................................................................................. 46
PART III. Specific Accounts
8. Cash and Cash Equivalents.............................................................................. 60
Cash on hand and in banks ........................................................................ 60
Petty cash fund/Revolving fund ................................................................. 63
Foreign currency accounts.......................................................................... 63
9. Receivables ........................................................................................................ 66
Contributions receivable ............................................................................ 66
Accounts receivable..................................................................................... 67
Advances and Other receivables ................................................................ 67
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10. Inventories ........................................................................................................ 71

11. Investments....................................................................................................... 73
12. Property & equipment and depreciation ......................................................... 75
13. Liabilities........................................................................................................... 80
Deferred grant/support .............................................................................. 80
Accounts payable ........................................................................................ 80
Other liabilities ........................................................................................... 81
Long-term liabilities ................................................................................... 81
14. Agency Transactions/Funds Held in Trust ..................................................... 83
15. Provisions and Contingencies .......................................................................... 84
16. Contributions and Income................................................................................ 85
Grant and Donations .................................................................................. 85
Unrestricted ................................................................................................ 85
Restricted (two options) ............................................................................. 86
Contributions in Kind ................................................................................ 87
Membership fees ......................................................................................... 88
17. Expenses............................................................................................................ 93
18. Gains and Losses............................................................................................... 98
PART IV. Other Relevant Aspects of NPO Accounting
19. Consolidated Financial Statements ................................................................. 100
20. Fund Accounting............................................................................................... 105
21. Other Applicable Standards ............................................................................. 118
APPENDICES
I. Co-Authors/Contributors ................................................................................. 120
II. Project Steering Committee Members and
Country Consultation Convenors .................................................................... 121
III. First Regional Workshop Participants ............................................................ 124
January 2005
IV. Training Design Workshop Participants ......................................................... 134
February 2006
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V. APPC Board of Directors ................................................................................. 141
FOREWORD
When APPC first held its conference on Governance, Organizational Effectiveness
and the Nonprofit Sector in Manila on September 2003, we began an effort to set
minimum financial accounting standards to guide Nonprofit organizations in the
region. With this Accounting Guide, we mark the end of a process of consultation,
dialogue and the exchange of ideas between and among the different societies who
participated in it. We are proud to share the results of this process and the many
learnings that it has brought to fore.
We started planning the 2003 APPC Conference with a decidedly philanthropic
approach, and one that we had framed as a question: How do we improve nonprofit
governance to ultimately bring in more philanthropic resources for nonprofit work in
the region? How could NPOs be encouraged to look at strategic options in working
together to respond to concerns of legitimacy, effectiveness, transparency and
accountability within the sector? In the end, our goal was to build a more responsible
NPO sector in the various societies, and in the region as a whole.
The post-conference project Developing Financial Accounting Standards for NPOs
in Asia has shown us a concrete way forward in responding to these challenges. The
project demonstrated how key actors in the seven participating societies (Bangladesh,
China, India, Indonesia, Pakistan, the Philippines and Thailand. Hong Kong, SAR,
China joined the first workshop-consultation, and contributed its knowledge of NPO
accounting systems) worked together to sift through the accounting issues and practices
in their respective societal contexts to determine how NPOs can best achieve the
goals of accountability and transparency. At the end of the process, they were able to
come up with this Accounting Guide, which participants recommended that APPC
forward to the International Accounting Standards Board (IASB), with a request to
begin a process of setting international standards for the NPO sector, a sector that
has as yet not been seen as a sector by itself. It is thus with great pride, as well as
great hope, that we transmit this Accounting Guide, with the corresponding Issues
Paper, which lays out what the accounting issues are for each of the participating
societies to the International Accounting Standards Board. We hope that the IASB
will heed our call to begin this process, which we believe will determine, and thereafter
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enforce, global standards that will promote transparency and accountability for a
sector whose influence and visibility are growing all over the world.
Interestingly, back in 2003, APPC had initially refrained from recommending a
specific model for any aspect of transparency and accountability of NPOs. However,
as a result of the process we have described above, APPC now recommends this
Accounting Guide as a model, at least for the major aspect of internal nonprofit
governance, or the financial accounting standards. This development could only have
been made possible with the successful consultative processes undertaken by our
partners in the different participating societies; the leadership of our dynamic Project
Steering Committee; the assistance of our partner, the Association of Foundations in
the Philippines, our fiscal agent for this project; and the trust and confidence of our
invaluable donor partner, the Ford Foundation.
In June 2004, we began this project with consultation sessions in each of the
different participating societies, which involved studying a model developed by the
Indian Institute of Chartered Accountants, which had been brought to our attention
by Sunil Mor of Indias Azim Premji Foundation. These national level consultations,
which involved various sectors such as government regulatory bodies, chartered
accountancy bodies, nonprofit sector leaders, their finance officers as well as members
of the auditing profession, brought to the fore the contexts in which nonprofit
organizations in these societies operated and subsequently helped us develop
recommendations which were then brought to a regional consultative conference.
The project took a life of its own immediately after this first regional consultative
conference, where the 40-member participant body reached some understanding on
the actual effort or programs being undertaken per society and the direction each one
was headed. The body also agreed to produce an Issues Paper that identified the critical
concerns vis-a-vis nonprofit accounting in the participating societies, along with the
bodys recommendations on their disposition. A second round of national-level
consultations and consensus building followed per society, focusing on what minimum
standards for NPO accounting could be derived from the what was discussed in the
first regional consultation.
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The development of the Issues Paper was carefully managed. It was initially
developed by a consultant, Eribert Padilla (Accountants for NGO Concerns,
Philippines) following agreements made in the regional conference. Where there were
major points of contention among different societies, it was agreed that the majority
position would be taken, so as to be able to come up with minimum consensus positions.
The draft of the Issues Paper was then circulated to two Steering Committee members,
considered the experts in the group: Sanjay Agarwal of India and Lu Jianqiao of
China, for their comments. These comments were integrated before the Issues Paper
was released to the 40-member body who then subjected the Paper to careful validation
in country consultation process. The feedback provided to the consultant finalized
the Issues Paper.
The development of this Accounting Guide for NPOs was deemed to be the next
critical step in the project, and APPC worked with a pool of consultants to ensure that
it would be useful as well as relevant to NPOs in the region. This Guide was used as
the primary training reference for the last major stage of the project, the training of
trainers in the seven participating societies, in a Training Design Workshop held in
Bangkok, Thailand in February 2006. The training design was crafted by the team of
Sanjay Agarwal of AccountAid, India, using the Issues Paper and the Accounting Guide
developed by the project. The trainers goal would be to disseminate the Guide and its
principles for wider application among nonprofit organizations in each society.
In the end, we see that what this project has created is a committed network of
collaborators among different organizations on accounting standards. It is also a
resounding confirmation of the NPO sectors desire to strengthen ongoing efforts
towards financial accountability and continued legitimacy.
Our sincere gratitude goes to many individuals and their organizations who have
given inspiration and leadership in this project: Suzanne Siskel and Sushma Rahman
of Ford Foundation, who encouraged us to develop this initiative; the Project Steering
Committee members Iftekhar Zaman and Amita Dey of Bangladesh Freedom
Foundation, Lu Jianqiao of the Ministry of Finance in Beijing, Sanjay Agarwal of
Sanjay Aditya and Associates, Rustam Ibrahim of LP3ES, Syed Mohammad Ahmad
of Pakistan Centre for Philanthropy, Gil Salazar of the Philippines Business for Social
Progress, and Gawin Chutima of the Thai Fund Foundation who guided this project
to completion with a tremendous sense of responsibility. We especially thank Sanjay
for sharing with us the depth of his experience in promoting accounting standards
and for taking this project in perspective and moving it forward with the Committee!
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We also express our thanks to Eribert Padilla for developing the Issues Paper and
leading the pool of consultants for the Accounting Manual. In addition to these, he
also undertook the planning of the Philippine country consultations with Fely Soledad
of the Philippine Council for NGO Certification. We are most grateful too, to Nurul
Wahab of Bangladesh, Suresh Kejriwal of India, and Pansa Tajaroensuk of Thailand
for helping to convene the second round of country consultations and who have
promised to move the project forward in each of their societies.
To the Board of APPC who participated in the workshops and encouraged us along,
we thank themSukich Udindu of Thailand, Iftekhar Zaman of Transparency
International Bangladesh, and former APPC Council member, Paiboon
Wattanasiritham. We acknowledge as well the keen interest of the rest of the APPC
Board, currently led by Darwin Chen of Hong Kong, who followed the progress of the
project over two years! The APPC staff must be recognized as well for their steady
coordination and execution of project requirementsTina V. Pavia, Jeanette Bandiola
and Alessandra Ferreria.
We hope this Accounting Guide lives up to its promise, as the people behind it are
among the most dedicated professionals in the region. APPC has been privileged to
have worked with them the past two years. We now challenge the wider circle of
accountants in more organizations in more societies to use the Accounting Guide and
share their own learnings to an even wider audience.
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Maria Aurora F. Tolentino

CHIEF EXECUTIVE
MESSAGE FROM THE APPC CHAIR

It is my pleasure, as the Chair of the Asia Pacific Philanthropy Consortium, to
launch the Accounting Guide for Non-Profits, the outcome of our Financial Accounting
Standards for Non-Profit Organizations Project, which we launched two years ago.
This project began as a response to the need that was expressed by the different
sectors in most of the societies in Asia and the Pacific for more transparent and
accountable governance for the non-profit sector. Since then, it has taken some twists
and turns along the way, and what we envisioned to be a relatively small project might
end up being the forerunner of a global call for increased financial accountability for
the non-profit sector, especially if the International Accounting Standards Board (IASB)
agrees to open a project to determine the financial accounting standards for the sector
globally.
What we have at this time are groups of people from government, from the nonprofit
sector and from the chartered accountancy profession who have participated in the
various activities we undertook for this project, and who believe that it is in the best
interest of the sector to be more accountable. They are willing to help others in the
sector to be able to do this, through training and through the use of this Accounting
Guide.
While the final set of global Accounting Standards for the sector will be determined
in the future, we hope that this proves useful to the sector itself, as it tries to hold
itself to the standards other sectors are held by. Ultimately, the Non-Profit Sector
itself will be the gainers, as we prove that we are worthy stewards of the investments
made by other sectors, including the general public, in the work of helping others that
we do.
We welcome your feedback and comments and wish to thank all the participants
to this project, our Board of Directors, and the Ford Foundation, who made this
possible.
With best wishes,
Darwin Chen
CHAIR, BOARD OF DIRECTORS
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I
FUNDAMENTAL CONCEPTS
1. INTRODUCTION
1.1 NPOs: Definition, characteristics and scope.1
Traditionally, definitions of the nonprofit sector, also referred to as civil society, third
sector, NGO sector, social economy, voluntary sector, and social sector, have
revolved around three aspects: its sources of economic support, its legal status and its
purposes.
According to the first set of definitions, an NPO is an organization whose primary source
of revenue is made up of contributions from the private sector, differentiating it from
those who are supported by market transactions or government resources.
The second set of definitions places an organizations legal personality as the defining
characteristic of NPOs, which are then identified as organizations that are exempt from
some, if not all, of a countrys taxes.
The third and last set of definitions emphasize the purposes that an organization chooses
to pursue, stressing that an NPO is one that promotes the public good, encourages
empowerment and participation, or seeks to address the structural roots of poverty and
distress.
However, Salamon, Sokolowski and List, in the book, Global Civil Society: Dimensions
of the Nonprofit Sector, point out that these definitions are insufficient insofar as
providing a holistic view of the NPO sector.
Focusing on sources of revenue, they say, downplays other features that NPOs may
share, such as their use of volunteers, their social missions and their not-for-profit
character, while emphasizing legal personality is made difficult to apply comparatively
by the significant differences that exist between each countrys legal structure. Lastly,
while purpose definitions may be the most appealing of the three, Salamon, Sokolowski
and List say that they are too subjective, as the idea of what constitutes public
purpose, may vary across countries and sectors. In addition to the fact that it is difficult
to determine whether or not a particular organization is actually pursuing their declared
Accounting Guide for Non-Profits
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Taken from Salamon, Sokolowski et al. Global Civil Society: Dimensions of the Nonprofit Sector.
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purpose, they also point out that this raises the possibility of making any NPOs pursuit
of public purposes true by definition, making such claims difficult to disprove.
Given these limitations surrounding traditional definitions, 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.
This fivefold definition encompasses organizations both formal and informal, religious
and secular, those with paid staff and those staffed entirely by volunteers and
organizations performing expressive functions (i.e., advocacy, cultural expression,
community organizing, environmental protection, human rights, religion, representation
of interests, and political expression) as well as those performing service functions (i.e.,
provision of health, education and welfare services). This description does not take into
account individual forms of citizen action such as voting or writing to legislators, but it
embraces most organized forms, including social movements and community-based
cooperatives serving solidarity objectives. Government agencies, private businesses,
commercial cooperatives and mutuals have been deliberately excluded.
Scope
SECTION 1 Introduction
This Accounting Guide shall apply to organizations that meet all the Unique
Characteristics of an NPO and any or all of the Additional Characteristics as described
above. For other organizations or entities, they should apply the accounting standards
set for business enterprises or public sector.
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PART I Fundamental Concepts
Because of the nature of their operations, some NPOs, such as schools and hospitals,
can be considered to be similar to commercial concerns for the purpose of applicability
of accounting standards for NPOs.
Exemption from Applicability of the Accounting Guide
There is a wide spectrum of NPOs in terms of size, level of operation, operating fund,
and number of personnel. Smaller NPOs may not be able to have the resources and
capability to adopt some of the prescribed guidelines.
It is recommended and encouraged that this guide applies to all NPOs. The adoption of
this guide, will lead to a significant improvement in the quality of general purpose
financial reporting by NPOs. This, in turn, is likely to lead to better informed assessments
of the resource allocation decisions made by NPOs, thereby increasing transparency
and accountability. However, where local laws allow exemptions from following standards,
small organizations may be exempted until they are capable to follow the standards and
guidelines. Furthermore, this Accounting Guide acknowledges the right of national
standard-setting bodies to establish accounting standards and guidelines for financial
reporting in their jurisdictions. It may assist such standard-setting bodies in the
development of new standards or in the revision of existing standards in order to
contribute to greater comparability.
It is important to note that there is a need for small NPOs to undergo capacity-building
activities for them to follow the standards and guidelines. The standards and guidelines
are not merely technical requirements but more importantly, are tools to efficiently and
effectively manage NPOs.
1.2 The Role of the NPOs in Society

According to Boutros-Ghali in 1995, Non-governmental organizations are a basic
element in the representation of the modern world. And their participation in
international organizations is in a way a guarantee of the latters political legitimacy
From the stand point of global democratization, we need the participation of international
public opinion and the mobilizing powers of non-governmental organizations.
The World Bank also describes non-government organizations (NPOs) as:
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include many groups and institutions that are entirely or largely independent
of government and that have primarily humanitarian or cooperative rather than
commercial objectives. They are private agencies in industrial countries that
support international development; indigenous groups organized regionally or
nationally; and member-groups in villages. NPOs include charitable and religious
associations that mobilize private funds for development, distribute food and family
planning services and promote community organization. They also include
independent cooperatives, community associations, water-user societies, womens
groups and pastoral associations. Citizen groups that raise awareness and influence
policy are also NPOs
Today, the increasing role of NPOs in society is more pronounced, from relief services
(logistics management) to development services (strategic management) to arts and
culture. They also contribute in creating a more inter-dependent global community.
1.3 NPO Stakeholders

STAKEHOLDERS
1. Members/Beneficiaries
2. Governing Board
3. Management/Staff
4. Donors
5. Government
6. Volunteers
7. General Public
EXPECTATIONS(Social and Economic)

1. Services, ROI, Social Justice
2. Prestige, Self-reliance
3. Better career
4. Attainment of the purpose/s of funds
Compliance with agreements
5. Regulation
Partnership in Development
6. Contribution to the development of specific concerns
7. Contribution to the development of society, in general
1.4 NPO Governance and Accountability

For NPOs to fulfill their goals and objectives as well as to realize stakeholders
expectations efficiently and effectively, they must be governed by the principles of
Fairness, Accountability, and Transparency. Fairness - rights of stakeholders should
be observed and respected; Accountability - Board and management should be
answerable on their performance to stakeholders; Transparency - timely, accurate
and sufficient information must be disclosed.
The foremost responsibility for NPOs is to be accountable to the needs and
aspirations of the community it is working with since serving community interests is
the stated primary goal of most NPOs. In practice, these communities lack mechanisms
for holding NPOs accountable. Unlike donors, communities cannot withdraw their
funding; unlike governments, they cannot impose conditionalities.
NPOs are also accountable to its donors, who may be both external (for example,
governments, foundations, or other NPOs) and internal (members who contribute
smaller amounts). The simplest level of responsibility is that of spending money for
the purpose to which it has been designated.
Lastly, NPOs are also accountable to its organization. They are responsible to
their stated mission, governing board, management and staff, partners, and to the
NPO community as a whole.
Financial accounting in NPOs, the topic of this guide, hopes to contribute

significantly to helping NPOs increase their capacity to express accountability to their
different stakeholders.
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1.5. Rationale
NPOs as a Sector
The UNDP2 describes NPOs as the third sector, the first and second being the
government and private sectors. This is in recognition of the distinct characteristics of
NPOs from other forms of organization especially from the commercial ones. Several
studies reveal that NPOs contribute significantly to the development of society and the
economy.
In many countries, accounting pronouncements cater to the needs of commercial
organizations. Although fundamental accounting principles apply to any type of
organization, appropriate standards and guidelines for NPOs are needed to fit the
specifications and peculiarities of these organizations. Basic differences between
commercial organizations and NPOs include the following:
1) NPOs do not operate primarily for profit but for specific needs of a community,
group, organization or its membership.
2) Most of NPOs revenues come from funds contributed, donated, granted or given
as other forms of support. Revenues from income generating activities, if any, are
eventually plowed back to program operations.
Unlike in the business community where an exchange transaction occurs, in nonprofit organizations, resource providers do not expect to receive either repayment
or economic benefits proportionate to the resources provided. There is no defined
ownership interest that can be sold, transformed or redeemed or that convey
entitlements to a share to a residual distribution of resources in the event that
the organization is dissolved.
The Need for Financial Accounting Standards & Guidelines for NPOs
To date, comprehensive guidelines on accounting issues unique to NPOs have yet to be
developed at the international level. Some pronouncements made by standards-setting
bodies covering NPOs have been developed in the United States and recently in China.
Likewise in India, the Technical Guide on Accounting and Auditing on NPOs was issued
by the Institute of Chartered Accountants of India. Also, the Proposed Financial
Accounting Standards for NPOs in the Philippines is being reviewed by the Accounting
Standards Council of the Philippines. However, many countries are either practicing de
facto standards for NPOs or applying current pronouncements in their respective
countries to NPOs which may or may not be totally apt to the nature of these
3) NPOs have the responsibility to account for these funds designated for a specific
purpose for a specified period of time. The nature of the revenues received requires
ensuring that separate types of funds are properly tracked and reported.
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UNDP = United Nations Development Programme
organizations. Although all accounting applications are based on the same set of
principles, the importance of adopting the specifications and particularities of the NPO
community, as a sector, is paramount for uniform interpretation and analysis of financial
reports. The resultant diversity of accounting practices has provided the ingredients
for the need to standardize accounting practices.
APPC has conducted various consultations and conferences in and among eight Asian
societies with the general objective of proposing a set of Financial Accounting Standards
for NPOs in the region. The consultations and conferences were attended by NPO
representatives, government officials, accountants & auditors. The initial outcome of
these processes was an Issues Paper on the proposed financial accounting standards,
from which this subsequent Accounting Guide was created to provide concrete guidelines
in the accounting of NPO transactions.
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2. FRAMEWORK
2.1 Users and their Information Needs as applied to NPOs
EXTERNAL USERS
a. Donors/Grantors/Funding Agencies
- Degree of attainment of development objectives as indicated in financial
statements and reports.
- Degree of compliance with agreed amount and manner of using funds.
- Degree of compliance with prescribed financial accounting and reporting system
and procedures
b. Creditors (Banks/Financing Institutions)
- Information on ability to pay as indicated by ratios of solvency, liquidity, and
stability as well as status of their security.
c. Government Agencies
- Compliance with laws, government rules and regulations, payment of taxes (if
any) and reportorial requirements
d. General Public
- Effect of the activities of NPOs to the community and society in general
INTERNAL USERS
e. Members
- Information on how fees, donations, grants, and proceeds from fundraising
activities were used.
- Other information needs such as managerial remuneration, use of assets,
management efficiency, etc.
f. Management Team
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- Board of directors/trustees for policy-making, strategic decision-making, and

fulfilling its trusteeship/stewardship role.
8
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- Executive Director for operational decision-making

- Program/project managers for project/program-related decision making
2.2 Objectives of Financial Reporting

The primary objective of financial reporting by NPOs is to provide information
about the financial position, performance, and cash flows of the organization that is
useful, and indeed, necessary, for a wide range of users to engage in informed decision
making.
Financial reporting prepared for this purpose meets the common needs of most
users. However, financial reporting does not provide all the information that users
may need to make decisions since they mostly portray the financial effects of past
events.
Financial reporting also shows the results of the stewardship of management for
the resources entrusted to it. Those users who wish to assess the stewardship or
accountability of management do so in order that they may make sound decisions.
The financial reports of NPOs should compliment other non-financial, performance
reports.
The financial reporting is the means by which the information gathered and
presented in financial accounting is regularly communicated to those who use it.
2.3 Basis of Accounting

Description
The basis of accounting affects the timing of recognition of income and expenses.
When a cash basis of accounting is used, income is recognized once it is received while
expense is recognized once it is
paid. On the other hand, using an
Basis of Accounting Recognition of Income Recognition of Expense
accrual basis means that income
Cash Basis
When cash is actually
When cash is actually paid
is recognized when it is earned,
received
even when it has not yet been
received, and expenses are
Accrual Basis
When income is earned When an expense is
recognized when they are
pertaining to the period incurred pertaining to the
period even when not yet
incurred even when they have
actually paid
not yet actually been paid.
The basis of accounting used, as discussed and summarized above, affects the
presentation of the financial statements of the organization.
SECTION 2 Framework
In cash basis, a transaction is recorded only when actual cash has been received or
spent. Basically, only the movement of cash can constitute a transaction. Under this
basis of accounting, funds are recognized as receipts for the period if these are actually
received within the current year. Expenses actually paid for in the current year are
recognized for the period. This is regardless of whether the receipts or expenses pertain
only to the current year, prior to or beyond it. This may result in an over/
understatement of the net asset that make up a specific period.
In accrual basis, revenues and related assets are recognized when earned rather
than when received while expenses are recognized when incurred rather than when
paid. There is recognition of receivables and payables built up within a specific period.
The Recommended Basis of Accounting for NPOs
After extensive deliberations in the consultations and conferences, it was decided
that the Accrual Basis should be adopted by NPOs as this basis is considered to be
more accurate aside from the preferred basis of the respective national accounting
standards-setting bodies. The use of the accrual basis of accounting helps present
more fairly and accurately the financial status of NPOs. It was also seen to be required
if an organization wanted to measure the cost of a project or activity or when
comparative statements are required to be prepared. It was also pointed out that the
accrual basis of accounting facilitates the use of the budget as part of control techniques.
(A separate discussion and illustration of the application of Accrual
Basis to NPOs is presented in Chapter 5)
An option for small NPOs (where there is an insignificant difference between cash
and accrual bases), is to combine the simplicity of the cash basis and the accuracy of
the accrual basis, i.e., cash basis in the interim and accrue transactions that need to
be accrued when preparing periodic general-purpose financial reports. Thus, the
financial reports are still presented in accrual form. The accounting standards setting
body of each country has to define the qualifications of small NPOs.
Donor-specific financial reports, being specific-purpose financial reports, may be
presented using the cash basis upon the agreement between the NPO and the donor.
As in the case of other specific-purpose reports, reconciliation between the specific
reports prepared in cash basis and the general-purpose reports prepared in accrual
basis, is necessary when required.
Exemption
In some countries, cash basis of accounting is allowed or required by local laws for
NPOs. In such cases, NPOs may use the cash basis.
2.4 Assumption of Going-Concern
10 | Accounting Guide for Non-Profits
The financial statements are normally prepared on the assumption that an NPO
is a going concern, and will continue to be in operation for the foreseeable future. It is
thus assumed that the NPO has neither the intention nor the need to liquidate or
scale back its operations; if such an intention or need exists, the financial statements
may have to be prepared using a different basis, in which case, this basis should be
disclosed.
There are instances where an NPO is established ad hoc or its existence is limited
to a specific period. In this case, the management of an ad hoc NPO should properly
disclose its nature and terms of existence, as well as the implications of its ad hoc
nature on its financial statements.
2.5 Qualitative Characteristics of Financial Statements

These are the attributes that make the information in financial statements useful
to various NPO stakeholders, who are the users of the information. An essential quality
of the information provided is its understandability by users.
a. Relevance. Information has the quality of relevance when it influences the
decisions of users by helping them evaluate past, present or future events or
confirming, or correcting their past evaluations.
1. Materiality. Information is material if its omission or misstatement could
influence the decision of users taken on the basis of the financial statements.
2. Timeliness. Accounting information must be available on time when needed if
it is to influence decisions. Lack of timeliness reduces relevance.
b. Reliability. Information is reliable when it is free from material error and bias
and can be depended upon by users to embody faithfully the representation
contained therein.
1. Faithful Representation. To be reliable, information must represent faithfully
the transactions and other events that it either purports to represent or could
reasonably be expected to represent.
2. Substance over form. Transactions and other events are accounted for and
presented in accordance with their substance and not merely their legal form.
3. Neutrality. Information must be free from bias. Financial statements are not
neutral if, by selection or presentation of information, they influence the making
of a decision or judgment in order to achieve a predetermined result or outcome.
4. Prudence. Some degree of caution in the exercise of the judgments needed in
making the estimates required under conditions of uncertainty, such that assets
or revenues are not overstated and liabilities or expenses are not understated.
5. Completeness. Information must be complete within the bounds of materiality.
Omission may cause information to be false or misleading and thus unreliable
and deficient in terms of its relevance.
SECTION 2 Framework
c. Comparability. Users must be able to compare the financial statements through

time in order to identify trends in its financial position and performance.
| 11
Balance between Qualitative Characteristics
d. Understandability. An essential quality of the information provided in financial

statements is that it is readily understandable by users.
Fair Presentation
In practice, a balancing, or trade-off, between qualitative characteristics is often

necessary. Generally, the aim is to achieve an appropriate balance among the
characteristics in order to meet the objective of financial statements. The relative
importance of the characteristics in different cases is a matter of professional judgment.
2.6 Accounting Elements

Financial Position. The elements directly related to the measurement of financial
position are an organizations assets, liabilities, and equity.
Financial statements are frequently described as a fair presentation of an

organizations financial position, performance, and changes in financial position.
Although this framework does not deal directly with such concepts, the application of
the principal qualitative characteristics and of appropriate accounting standards
normally results in financial statements that convey what is generally understood as
presenting fairly such information.
a. Asset is a resource controlled by the organization as a result of past transactions

or events and from which future economic benefits or service potential are expected
to flow to the organization.
b. Liability is a present obligation of the organization arising from past transactions

or events, the settlement of which is expected to result in an outflow of resources
from the organization embodying economic benefits or service potential.
c. Equity is the residual interest in the assets after deducting all its liabilities. In
business enterprises, equity represents the net ownership of the enterprise.
NPOs do not have specific owners, thus the remaining value of its assets does not
go to its members. Assets and their residual values are intended for specific
purposes; therefore, it is not appropriate to use the term equity in reference to
NPOs.
In place of equity, NPOs use the term Net Assets to emphasize the
outstanding value in the statement of financial position (assets less liabilities).
The US GAAP,3 Chinese GAAP and IPSAS4 use Net Assets; however, IPSAS 1.6
also states that other terms may be used in place of net assets/equity, provided
3
GAAP = Generally Accepted Accounting Principles
IPSAS = International Public Sector Accounting Standards
that their meaning is clear. In this regard, the respective national accounting
standards-setting body may define the appropriate term in the specific country.
Many NPOs prefer to use the term fund balance to describe the balance of a
fund, defined as a sum set aside for specific purpose, as of any given date.
Performance. The elements directly related to measurement of financial performance
are revenue and expenses.
d. Revenue is the total inflow of economic benefits or service potential during the
reporting period when those inflows result in an increase in Net Assets.
e. Expenses are decreases in economic benefits or service potential during the
reporting period in the form of outflows or consumptions of assets or incurrence
of liabilities that result in decreases in Net Assets.
2.7 Recognition and Measurement

Recognition is the process of incorporating in the financial statements an item
that meets the definition of an element. An item that meets the definition of an element
should be recognized if:
a. It is probable that any future economic benefit or service potential associated
with the item will flow to or from the organization;
b. The item has a cost or value that can be measured with reliability.
Measurement is the process of determining the monetary amounts at which the
elements of the financial statements are to be recognized and carried in the financial
statements. A number of different measurement bases are employed to different
degrees and in varying combinations in financial statements:
a. Historical cost. Pertains the original cost of an asset to an entity.
b. Fair value. The amount for which an asset may be exchanged or a liability settled,
between knowledgeable, willing parties in an arms length transaction.
c. Replacement cost. The amount it will cost to replace an asset at current prices.
d. Net realizable value. This refers to the net monetary gain of a transaction, i.e.,
the selling price of an asset less expenses.
SECTION 2 Framework
e. Value-in-use. Represents the market value of an asset that reflects a value to a

particular user, recognizing the extent to which the property contributes to that
entity.
| 13
3. THE ACCOUNTING EQUATION

The equation is based on the causal relationship principle and expressed as Each
resource has a source. Thus:
ASSETS = SOURCES
An asset is anything owned by the organization that has value. Sources may be
categorized according to whether these were derived from external or internal sources,
i.e., liabilities or equity. In NPOs, there is no equity in the real sense since there are
no specific owners. The residual amount is then called Net Assets. Thus, the
fundamental accounting equation is expressed in NPOs as:
A = L + NA
Asset = Liabilities + Net Assets
Net Assets has two nominal accounts, namely, Revenue/Support/Income that add
up to the net assets and Expenses that are deducted from the net assets.
Based on the equation, the five major accounts are: assets, liabilities, net assets
(also known as real accounts), revenue/income/support, and expense (also called
nominal accounts). All financial transactions are analyzed through the fundamental
accounting equation:
Debit is represented in the left side of the equation, while Credit is in the right
side of the equation.
In increasing format (when the variables are positive), the equation expressed
in Debit and Credit is:
A = L + NA
A = L + NA
Debit
Credit
14
In decreasing format (when the variables are negative or transposed), the equation
expressed in Debit and Credit is:
SECTION 3 The Accounting Equation
[- L] + [-NA] = [-A]
Credit
It is very important to express the equation in increasing and decreasing forms

because in real life, the variables (A, L, NA) may increase or decrease for every
transaction. Hence, assets, liabilities, and net assets always consist of left and right
sides or what we call the T-accounts. Combining the two equation formats (increasing
and decreasing) above, we come up with the rules of Debit and Credit, as follows:
Debit
Debit
Credit
Assets
Debit
Credit
Liabilities
Debit
Credit
Net Assets
Income
For every transaction, the fundamental accounting equation is used. Therefore,

the rule can be re-stated as For every transaction, total debits must equal total
credits.
Important Note
Expenses
We would like to emphasize that the objective of accounting is not simply to have
a balanced equation, but to have a proper analysis of transactions. A balanced equation
is the result of proper analysis. In other words, balancing becomes automatic, if the
analysis is correct.
| 15
4. THE ACCOUNTING CYCLE

Accounting starts with an event or transaction and ends in the preparation and
interpretation of the financial reports. The phases from the recognition to report
preparation are as follows:
4.1 Source Documents

Source documents are prepared to provide evidence of each transaction. The basic
rule here is a document is prepared for every transaction at the time the transaction
occurs.
Transaction
Document
for CASH RECEIVED
OFFICIAL RECEIPT
(accompanied by validated deposit slip)
for CASH DISBURSED
CASH VOUCHER (accompanied by invoice/request

for payment/cash advance form) and the check stub.
In the case of petty cash disbursements,
the Petty Cash Voucher is the source document.
for OTHER TRANSACTIONS
JOURNAL VOUCHER
(accompanied by supporting documents)
The types of transactions and the representing documents are the basic
requirements for NPOs. Other documents may be necessary if the transactions of a
specific NPO become more complex such that there are more transaction types than
the items enumerated above.
4.2 Journalizing
Transactions are recorded in the book of original entry called the Journal. The
process of recording is termed Journalizing. A transaction must be analyzed in its
debit and credit elements before it is recorded in the books of accounts. Journalizing
16
begins with the source document. The information in it tells the bookkeeper all that
is needed for the entry.
The basic rule here is every source document should be recorded in the appropriate
journal on a daily basis or on a frequency which the NPO determines to be efficient.
Following the categories of the transactions above, the primary books of original
entry are:
SECTION 4 The Accounting Cycle
Journal
OFFICIAL RECEIPT
Cash Receipts Book
CASH VOUCHER
Cash Disbursements Book
JOURNAL VOUCHER
General Journal
4.3 Posting
Posting is the procedure of transferring entries from the journal to the general
ledgers and subsidiary ledgers. Posting should be done on a regular (daily or monthly)
basis, depending on the volume and frequency of transactions. The ledger is an account
form where all accounts taken together as one group are recorded.
4.4 Trial Balance

When all journalizing and posting have been completed at the end of the period,
the Bookkeeper checks the accuracy of that work. A list is made of all ledger accounts
and their balances; this is called Trial Balance.
4.5 Financial Statements

Financial statements are prepared to summarize the financial operation of the
organization. This information allows the management to see how financially efficient
the organization has been, to compare one period with prior periods, and to determine
future courses of action. Financial statements may be communicated to other interested
parties such as the Board of Directors, members of the organization, donors,
government, etc.
Document
(Financial Statements are described and illustrated in Chapter 6)
| 17
5. ACCRUAL BASIS Guidelines

This discussion on accrual basis is being presented separately in recognition of the fact that
many NPOs keep their records on a Cash Basis but record accrual entries at the end of each
reporting period to convert these records to an accrual basis. These accrual entries are
recorded because financial statements will be distorted if unpaid bills or obligations
actually incurred and uncollected income at the end of a period are not recorded.
Small non-profit organizations want to keep their records as basic as possible by
implementing a system that combines the simplicity of cash basis bookkeeping and the
advantage of accrual basis reporting.
5.1 Moving from the Cash Basis to the Accrual Basis

If an NPO follows the Cash Basis, it is encouraged to voluntarily disclose accrualbased information, although its core financial statements will nonetheless be prepared
under the cash basis of accounting. An entity in the process of moving from cash
accounting to accrual accounting may wish to include particular accrual-based
disclosures during this process. The status and location of additional information (for
example, in the notes to the financial statements or in a separate supplementary section
of the financial report) will depend on the characteristics of the information (for
example, reliability and completeness) and any legislation or regulations governing
financial reporting within a country.
5.2 Accrual of Revenues

Revenues are recognized when they are earned regardless of when the cash is
actually collected. Revenues must also be realized, meaning that the organization
must, at some time in the future, be able to convert any receivables resulting from
revenue recognition.
Accrual of Grants and Donations
Accounting for grants and donations is a major concern of NPOs with regard to
the accrual basis. NPOs record a donors unconditional commitment to contribute as
18
revenue (and receivable), provided that the contribution is realizable and enforceable.
Grants and donations may be accrued subject to the following conditions:
completed contract; and
fulfillment of conditions/agreements previously set forth
In many occasions, grants received (or a portion thereof) are intended for other
periods other than the period that these are received. It may be that a grant remittance
is intended to cover previous period activities or that it is intended for the next period/s.
5.3 Accrual of Expenses

Expenses recorded on the accrual basis of accounting follow three basic principles:
First, some expenses are recognized when they are matched to the revenue
which they generate.
For example, if an NPO sells an item, the costs and expenses related to that item
is recognized at the same time as the revenue from the sale is recorded.
Second, some expenses are recognized in the fiscal year or accounting period in
which they are used by the organization. These types of expenses are recognized when
the organization has an obligation to pay the expense, which will generally correspond
to the period in which the organization receives the benefit of the expense.
For example, rental expenses should be recognized in the month or period in which
the NPO occupied the rented premises. Another example is personnel cost which is
recognized in the period the employees rendered their services. The same applies to
utility expenses such as electricity, telephone, water, etc. which are paid on a monthly
or regular basis.
Third, some expenses are the result of a systematic allocation of costs to accounting
periods.
Depreciation expense related to the depreciation of fixed assets is the classic
example of this type.
5.4 Accrual Basis and Liquidation of Cash Advances

One of the common problems in NPO accounting is the untimely liquidation of
cash advances. When the accrual basis is used, it is paramount that liquidations should
be prompt or immediately after the activity. Liquidation submitted very late defeats
the benefits of the accrual basis described above.
Important Note:
SECTION 5 Accrual Basis Guidelines
As part of the accounting system, transactions to be accrued at the end of the

reporting period should be documented in the NPOs accounting manual. This will
| 19
serve as a guide in the preparation of necessary accounting documents and records

for accrual purposes. In considering the accrual basis of accounting, the time of the
actual cash receipt or cash disbursement does NOT determine in which accounting
period a revenue or expense is recorded. Rather, the principles described above guide
the recognition of revenue or expense regardless of when the actual cash is collected
or disbursed.
Among others, the following items are considered when preparing accrual entries:
Accrued Revenues/Income
Periodic Costs/End of the Month or Period
a. Salaries and related costs
b. Rentals
c. Utilities
d. Retainer fees and other periodic expenses
Portion of Prepaid Expenses consumed for the period (Prepaid expenses are
treated as assets)
a. Consumed portion of supplies, inventories, prepaid tickets, etc.
b. Completed portion of prepaid contracts
c. Amortization of other prepaid expenses
Recognition of expense or asset and related liability based on consumed or
completed portion of an obligation.
Provisions
a. Depreciation, impairment and amortization
b. Provision for doubtful accounts

c. Unrealized gains or losses such as foreign exchange gain or loss as a result
of changes in the foreign currency balances as of balance sheet date
| 21
PRACTICAL EXAMPLES and PRO-FORMA ENTRIES
SECTION 5 Accrual Basis Guidelines
Credit
Accrued Revenues/Income
1 ____________ receivable
______________ income
100,000
100,000
Debit
To accrue _______earned from __________ for the period
2 Deferred Grant (liability)

Grant (as revenue)
500,000
500,000
(all other accrual of revenues, income, contributions follow this

entry format, recognizing the specific revenue and the
corresponding receivable)
To recognize the portion of grant received that is intended for the

period.
Periodic Costs/End of the Month or Period

3 Salaries expense
SSS employers contribution
HDMF employers contribution
PHIC employers contribution
Withholding tax payable-compensation
SSS payable
HDMF payable
PHIC payable
Cash
100,000
7,000
4,000
3,000
15,000
14,000
8,000
6,000
71,000
(this entry assumes that grant received was originally credited to

Deferred Grant (a liability account) because the amount was
intended for several periods
4 Retirement Benefit expense

Accrued expenses
20,000
20,000
To record payroll expenses and set-up liabilities to government

arising from the payroll.
5 Rent expense
10,000
Accrued expenses
10,000
To accrue rent for the month of December.

6 Power, light and water
Accrued expenses
To accrue retirement benefit expense for the period.
To accrue electricity and water charges for the month of

December.
8,000
8,000
Credit
Debit
5,500
7 Professional fee
Accrued expenses
To accrue retainers fee for the month of December.
Consumed Portion of Pre-paid Expenses (the following entry
assumes that pre-paid expenses were treated as asset when this
was paid in advance)
5,500
40,000
40,000
To record consumed portion of prepaid

______ expense for the period.
Recognition of Expense or Asset and Related Liability Based on
Consumed or Completed Portion of an Obligation
8 _________ expense
Prepaid expenses
20,000
20,000
To accrue interest incurred on Loans payable for the period.
9 Interest expense
Interest payable
50,000
50,000
To recognize completed portion of ______ expense or asset

during the period.
10 ________________ (Expense or Asset)

Accounts payable
Provisions
20,000
20,000
To record depreciation of properties for the period.
11 Depreciation expense
Accumulated depreciation
10,000
Allowance for bad debts
10,000
To record provision for bad debts.
12 Bad debts
13 Cash (foreign currency)

Foreign exchange gain
To re-value foreign currency balance based on the current rate as
of end of the period.
5,000
5,000
| 23
FINANCIAL REPORTING
AND
CHART OF ACCOUNTS
II
6. FINANCIAL REPORTS and DISCLOSURES

IAS5 1 pertains to Framework/Presentation. It includes the basic financial statements
or the general-purpose financial statements that an organization should prepare
Balance Sheet, Income Statement, Changes in Equity, Cash Flow Statement, and
Disclosures.
The proposed accounting standards for NPOs and this Accounting Guide attempt to
attain uniformity in the presentation and interpretation of the financial statements of
NPOs. This will also help in properly comparing reports of similar organizations for the
purpose of analyzing financial statements.
This Guide focuses on the general-purpose financial statements, as specific purpose
financial statements may differ based on the concerns of each individual NPO. The
general-purpose financial statements include the following:
a. Balance Sheet or Statement of Financial Position. This statement presents

the financial position of the organization at a certain date. It may be used as a
tool to evaluate the resource controlled, solvency, liquidity and stability of the
Organizations financial standing.
For NPOs, Net Assets is the equivalent of Equity.
Net Assets is divided into Unrestricted and Restricted. Restrictions may be imposed
by the donor or by legal requirements.
Unrestricted Net Assets represent the resources of an NPO that are not controlled
by the donor or limited by legal requirements.
Restricted Net Assets are those whose use is limited by either a time restriction or
a purpose restriction. A time restriction requires that the resources be used during
a certain period of time. Sometimes time restrictions specify that the resources
cannot be used until after a specific point in time. A purpose restriction, as its
name suggests, requires that resources be used for a specific purpose, such as a
specific program/project of the organization.
5
IAS = International Accounting Standards

24
b. Statement of Activities or Performance Statement. This financial statement

reports on the sum all support & revenue received and expenses disbursed for a
given period. It measures how financial resources were derived and utilized.
Changes in Net Assets. The changes in Net Assets may not be very complicated
for NPOs. This may be reflected in the Statement of Financial Position or in the
Statement of Activities.
Option 1: In the Statement of Financial Position

under Net Assets
SECTION 6 Financial Reports and Disclosures
NET ASSETS
Beginning Balance
Add(Deduct): Net Excess(Deficit) for the period
(from the Statement of Activities)
Option 2: In the Statement of Activities

after Net Excess (Deficit)
Ending Balance
c. Cash Flow Statement. The statement of cash flows provides a summary of

available cash and its use during the accounting period. It also shows the
information about methods of financing activities and use and investment of
resources during the period. (This statement can be called Statement of Receipts
and Payments if the cash basis is allowed and used.)
It classifies cash flows according to whether they stem from operating, investing,
or financing activities and provides definitions of each category.
Operating Activities
The Operating Activities reflect all cash transactions that are not classified as
either investing or financing activities.
Cash inflows from operating activities include:
Grants
Contributions (other than long-term restricted contributions)
Receipts from the sales of goods or services
Cash outflows for operating activities include:
Disbursements made for program/project activities
NET EXCESS (DEFICIT) FOR THE PERIOD

Add: Net Asset Beginning
NET ASSET Ending (forwarded to the Statement of Financial Position)
Disbursements to employees, vendors, and contractors
| 25
PART II Financial Reporting and Chart of Accounts
Payments of taxes, if any

Grants made by the organization to other organization, if any
Investing Activities
Investing activities include acquiring and disposing of debt and equity investments,
making and collecting loans, and acquiring and disposing of property, plant, and
equipment.
Cash inflows from investing activities include:
Sales of property, plant, and equipment
Collections on loans
Cash outflows for investing activities include:
Purchase of property, plant, and equipment
Disbursements of loans
Financing activities
Financing activities include borrowing money and repaying amounts borrowed,
and obtaining and paying for other resources obtained from creditors using longterm credit. This category would also include cash received for contributions from
donors that is restricted for long-term purposes for which the restrictions have
yet been satisfied and the cash is still being held.
Cash inflows from financing activities include:
Receipts of contributions from donors that are restricted for long-term
purposes
Interest and dividends restricted for long-term use
Short-and long-term borrowings
Cash outflows for financing activities include:
Repayment of short-and long-term debt
Repayment of capital leases
Methods of Presenting Statement of Cash Flows
Statement of cash flows can be presented using one of two methods: the direct
method or the indirect method. The direct method reports actual receipts and
disbursements for each item of cash inflows and outflows. The indirect method
begins with the result of operating activities reported in the statement activities
and then adjusts this amount to convert it to a cash receipts/disbursements basis.
Most NPOs use the direct method, while auditors prefer the indirect method.
The sample company, LEAD Foundation, used the Indirect Method (see page 32);
while a sample presentation of the Direct Method can be found in page 45.
Non-Cash Activities as Supplementary Information

While the title is Statement of Cash Flows, the statement is required to report
non-cash transactions as well. The cash flow statement should include non-cash
investing and financing activities either by narrative or by including a schedul, of
non-cash transactions as part of the Statement of Cash Flows.
d. Notes to Financial Statements and Supporting Schedules.
Disclosures. The minimum disclosure requirements include the following:
- Nature and purpose of the organization, including the domicile and legal form
of the organization
- Description of funds/projects/services
- Number of members of the governing board/body, general assembly/membership
and employees and changes during the reporting period.
- Basis of preparation of the financial statements
- Accounting policies to be disclosed will assist users in understanding the way in
which transactions and events are reflected in the financial statements
- Major donors/sources of funds and explanation to the restricted assets imposed
by the resource providers
- Recipients of material donations given, if any.
- Related party transactions, if any (discussed separately in 4.8)
- Explanation to significant impairments of assets
- Liens on assets and other restrictions
- Explanation to main items of the financial statements and their changes .
- Explanation of agency transactions/pass-through accounts/ funds-held-in-trust
- Contingencies, commitments, and other financial disclosure
- Non-adjustment events incurred after balance sheet date
- Non-financial disclosures relevant to the financial statements
- All other necessary disclosure. Note: the presence or absence of an explanatory
note may alter the readers interpretation of financial information.
Additional Disclosures for Income-Generating Activities.
- Nature and description of the commercial activities.
- Particulars of income and expenses of the commercial activities.

- For NPOs engaged in microfinance activities: Portfolio Report, Loan Aging and
Key Ratio Analysis.
| 27
Some Supporting Schedules and Statements Prepared by NPOs include

the following:
1. Bank Reconciliation Statement wherein all cash in bank balances are reconciled
with the bank records monthly or as the need arises.
2. Daily Cash Position Report which is prepared for cash in bank, cash on hand and
petty cash/revolving funds at the end of the day to provide information on receipts
and payments as well the amount of cash still available for use the following day.
3. Various Assets and Liabilities Schedules, or listings, to support the balances
reflected in the financial statements.
4. Ageing of Receivables and Payables
5. Schedule of Grants Received
Sample Financial Statements & Disclosures
LEAD FOUNDATION, INC.

(a non-stock, non-profit corporation)
STATEMENTS OF FINANCIAL POSITION

December 31, 2004 and 2003
2004
2003
2, 3
xxxxxxxxx
xxxxxxxxx
2, 42
2, 6
5
xxxxxxxxxxxxx
xxxxxxxx
xxxxxxxxx
xxxxxxxxxxxxx
xxxxxxxx
xxxxxxxx
xxxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxx
Total non-current assets
xxxxxxxxx
xxxxxxxxx
Total assets
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxx
Total non-current liabilities
xxxxxxxxx
xxxxxxxx
Total liabilities
xxxxxxxxx
xxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxx
Total net assets
xxxxxxxxx
xxxxxxxxx
Total liabilities and net assets
xxxxxxxxx
xxxxxxxxx
Notes
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Farm inventories and office supplies
Investments, current portion
Prepayments and other current assets
Total current assets
NON-CURRENT ASSETS
Investments, net of current portion
Property and equipment, net
Other non-current assets
2, 6
2, 7
2, 8
ASSETS
CURRENT LIABILITIES
Payables and accrued expenses
Deferred support, current portion
Funds held in trust
2, 9
10
2
Total current liabilities

NON-CURRENT LIABILITIES
Small enterprise fund facility
Deferred support & income, net of current portion
10
NET ASSETS
Unrestricted
Restricted
11
LIABILITIES AND NET ASSETS
(see accompanying notes to financial statements)
| 29

(a non-stock, non-profit corporation)
STATEMENTS OF ACTIVITIES
for the years ended December 31, 2004 and 2003
2003
Unrestricted Restricted
2004
Notes Unrestricted Restricted
2
xxxxxxxx
xxxxxxxx
xxxxxxxx
xxxxxxxx
xxxxxxxx xxxxxxxx
xxxxxxx xxxxxxxxx
xxxxxx
xxxxxx
Xxxxxxx xxxxxxxxx
2
2
xxxxxxx
xxxxxxx
xxxxxxxx
xxxxxxxx
2, 12
xxxxxxx
xxxxxxxx
xxxxxxx
xxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxx xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxx
-
xxxxxxxx xxxxxxxxx
xxxxxxxx xxxxxxxxx
xxxxxxxx
xxxxxxxx
-
xxxxxxxxx
-
xxxxxxx
xxxxxxxx
xxxxxxxxxxx
xxxxxxx
Total support
Income
Investment income
Income from small enterprise
facility trust fund, net
Other income, net
Total income
Total revenues
REVENUES
Support
Membership donations
Grants and other contributions
xxxxxxxx
xxxxxxxx
Total expenditures
xxxxxxx xxxxxxxxx
EXPENSES
2
Program/Project Expenses
_____ program/project
_____ program/project
General and administrative expenses
13
Fund-raising expenses
Other expenses
Provision for losses on loans receivables
Unrealized loss in market value of
6
investments, net
xxxxxxxxxx
Excess of support and income over

expenditures for the year
(see accompanying notes to financial statements)
xxxxxxxx

(A non-stock, non-profit corporation)
STATEMENTS OF CHANGES IN NET ASSETS

2004
2003
UNRESTRICTED
January 1
Net transfer to restricted
xxxxxxx
xxxxxxx
xxxxxxxx
(xxxxxxxx)
xxxxxxx
(xxxxxxx)
xxxxxxxx
xxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxxx
xxxxxxxx
xxxxxxxxx
Note
RESTRICTED
January 1
Net transfer from unrestricted
11
December 31
Total net assets
December 31
(See accompanying notes to financial statement)
NOTE:
For simplification purposes, this statement can be incorporated in

the statement of financial position or in the statement of activities.
| 31

(A non-stock, non-profit corporation)
STATEMENTS OF CASH FLOWS

Notes
2004
xxxxxxxx
xxxxxxxx
xxxxxxx
xxxxxx
xxxxxxx
(xxxxxxx)
(xxxxxx)
(xxxxx)
(xxxxxxxx)
xxxxxxx
xxxxxxx
xxxxxx
xxxxxxx
xxxxxxx
(xxxxxxx)
(xxxxx)
(xxxxxxxx)
xxxxxxx
(xxxxxxxx)
(xxxxxxxx)
xxxxxxx
xxxxxxx
(xxxxxxx)
xxxxxxx
(xxxxxx)
xxxxxx
(xxxxxxx)
(xxxxxxx)
(xxxxxxx)
(xxxxxxx)
(xxxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
xxxxxx
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxx)
xxxxx
xxxxxxxx
(xxxxxxx)
xxxxxxxx
xxxxxxxx
(xxxxxx)
xxxxx
xxxxxxxx
(xxxxxxx)
xxxxxxxx
(xxxxxxx)
xxxxxxx
xxxxxx
(xxxxxxxx)
xxxxxx
xxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
12
Net cash used before changes in working capital

Changes in assets and liabilities:
Receivables
Office supplies
Other current assets
Payables and accrued expenses
Deferred grant/support
Interest paid
Net cash used in operating activities
CASH FLOWS FROM OPERATING ACTIVITIES

Excess of support and income over expenditures
for the year
Adjustments for:
Return to donor
Depreciation and amortization
Provision for possible losses on loans receivable
Amortization of unamortized fees and interest
Unrealized loss in market value of investments
Unrealized foreign exchange gain
Gain on sale of property and equipment
Dividend income
Interest income
Interest expense
2003
CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment
Proceeds from sale of property and equipment
Increase (decrease) in investments
Increase (decrease) in small enterprise facility trust fund
Increase in other assets
Dividend income received
Interest received
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITY

Increase (decrease) in deferred revenues
Increase (decrease) in funds held in trust
EFFECTS OF EXCHANGE RATE CHANGES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
January 1
December 31
3
(See accompanying notes to financial statement)

(A Non-stock, Non-profit Corporation)
SAMPLE NOTES TO FINANCIAL STATEMENTS

December 31, 2004
1. CORPORATE INFORMATION
LEAD Foundation was founded in 2002 by a group of concerned citizens to
________________________________________________________________________________________________________________________________________
The Foundations activities are funded from donations appropriated by members contributions
and grants from local and foreign sources. Other funds are sourced through co-financing and
cooperative agreements and brokering.
The registered office of the LEAD Foundation is located at the__________________.
The Foundation had ___ and ___ employees as of December 31, 2004 and 2003, respectively.
The financial statements of the Foundation for the year ended December 31, 2004, was authorized
for issue by the Foundations Executive Committee, acting for and in behalf of the Board of Trustees,
on __________.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation of Financial Statements
The financial statements have been prepared in accordance with generally accepted accounting
principles.
The financial statements have been prepared on a historical cost basis.
The accounting policies have been consistently applied by the Foundation and are consistent with those
used in the previous year, except for the adoption of new accounting standards as stated below.
Adoption of New Accounting Standards
In 2004, the Foundation adopted the following International Accounting Standards (IAS) effective
for periods beginning on or after January 1, 2003, that are relevant to the Foundation:
IAS 10
Events After the Balance Sheet Date
IAS 37
Provisions, Contingent Liabilities and

Contingent Assets
(With Comparative Figures for 2003)
The Foundations adoption of these new accounting standards did not have any material effects
on the financial statements, hence, did not result in any adjustments to the financial statements of
the current and prior years.
| 33
In 2003 and prior years, the Foundation adopted the new pronouncements that became effective
in those years.
The following new accounting standards will be effective subsequent to calendar year 2004 are
applicable to the Foundation:
IAS 12, Income Taxes. This new standard, which becomes effective for periods beginning
on or after January 1, 2004, prescribes the accounting treatment for current and future tax
consequences of the future recovery or settlement of the carrying amount of assets or
liabilities that are recognized in the balance sheet of an entity and transactions and other
events of the current period that are recognized in the entitys financial statements. The
Foundation will adopt IAS 12 starting January 1, 2005 as required, and is currently evaluating
the impact of the adoption of IAS 12 on the Foundations financial statements.
IAS 17, Leases. This new standard prescribes the accounting policies and disclosures to be
applied to finance and operating leases. A finance lease is a lease that transfers substantially
all the risks and rewards incident to ownership of an asset. IAS 17 requires a lessee to
recognize finance leases as assets and liabilities in its balance sheet. As of December 31,
2004, the Foundation has existing leases covering certain office premises that are presently
accounted for as operating leases. Based on the initial evaluation of the Foundation, such
leases will not qualify as finance leases under IAS 17. Hence, the Foundation believes that
its adoption of IAS 17, in the year 2005, will not have material effects on the Foundations
financial statements.
Impact of New Accounting Standards Effective in 2004
The Foundation adopts the following applicable revised and new accounting standards effective
January 1, 2005:
IAS 1, Presentation of Financial Statement
IAS 8, Accounting Policies
IAS 16, Property, Plant and Equipment
IAS 17, Leases
IAS 19, Employee Benefits
IAS 21, The Effects of Changes in Foreign Exchange Rates
IAS 36, Impairment of Assets
IAS 39, Financial Instruments: Recognition and Measurement
New Accounting Standards Effective in 2005
The adoption of the above revised IAS will not result in substantial changes in the Foundations
accounting policies.
International Financial Reporting Standards

IFRS 1 First time Adoption of International Financial Reporting Standards
In general, IFRS 1 requires an entity adopting IFRSs for the first time (a first-time adopter) to
comply with each IFRS that has come into effect at the reporting date for its first IFRS financial
statements. IFRS 1 requires that a first-time adopter prepare an opening IFRS statement of assets,
liabilities and head office account at the date of transition to IFRSs (the beginning of the earliest
period for which it presents full comparative information under IFRSs in its first IFRS financial
statements). IFRS 1 grants limited exemptions from these requirements in specific areas where
the cost of complying with them would also likely to exceed the benefits to users of financial
statements. IFRS 1 also prohibits retrospective application of IFRSs in some areas, particularly
where retrospective application would require judgments by management about past conditions
after the outcome of a particular transaction is already known. Further, IFRS 1 requires disclosures
that explain how the transition from previous GAAP to IFRSs affected the entitys reported financial
position, activities and cash flows.
The impact of the adoption of the above accounting Standard could not be reasonably estimated
as of December 31, 2004.
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly
liquid investments readily convertible to known amounts of cash and which are subject to
insignificant risk of changes in value.
Receivables
Receivables are stated at net realizable value based on review of all outstanding accounts at
balance sheet date. Bad debts are written off in the year they are identified.
Farm inventories and supplies
These are valued at the lower of cost or net realizable value. Cost is determined using specific
identification method for farm inventories and first-in, first-out method for supplies. Net realizable
value is the estimated selling price in the ordinary course of business, less estimated costs
necessary to make the sale.
Growing crops
Costs related to planting materials and growing crops are capitalized and recorded as property
and equipment account in the balance sheets and are being amortized over the total estimated
useful lives of 15 to 20 years (see Note 7).
| 35
Costs related to breeders are capitalized and recorded as property and equipment account in the
balance sheets and are being amortized over the total estimated useful lives of 15 to 25 years (see Note 7).
Breeders
Costs related to livestock are capitalized and recorded as property and equipment account in the
balance sheets and are being amortized over the total estimated useful lives of 10 to 15 years (see Note 7).
Livestock
Property and equipment are stated at cost less accumulated depreciation and amortization and
any impairment in value. The cost of an asset comprises its purchase price and directly attributable
costs of bringing the asset to working condition for its intended use. Expenditures for additions,
major improvements and renewals are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred. When assets are sold, retired or otherwise disposed of, their cost
and related accumulated depreciation and amortization and impairment losses are removed from
the accounts and any resulting gain or loss is charged to current operations.
Property and equipment acquired for a project through restricted contributions are recorded as
grants expenses. A corollary entry is prepared to recognize it as Foundations asset with
corresponding credit to Restricted Net Asset (Property and Equipment Fund) unless specified that
only upon completion shall the ownership of the asset be vested to the Foundation.
Depreciation is computed on the straight-line basis over the estimated useful lives of the assets
as follows:
Property and Equipment
5 years
25 years
3-10 years
5 years
25 years
Amortization of building improvements is computed based on the estimated useful lives of the
assets, or the remaining life of the building, whichever is shorter.
Fully depreciated and amortized assets are retained in the accounts until they are no longer in use
and no further charge for depreciation and amortization is made with respect to those assets.
Land improvements
Building and improvements
Furniture, fixtures and other equipment
Transportation equipment
Hatchery facilities and other properties
Investments
Investments are initially recorded at cost at the time of acquisition, which is generally measured
by the purchase price of the security, or the fair value of the asset given up or the security received
in the exchange and other costs directly related to the acquisition. Subsequent to acquisition, the
carrying values of the investments are determined as follows:
Investment in trust funds These are carried at the lower of its aggregate cost, including
accumulated realized earnings, or market value at balance sheet date. The excess of aggregate
cost over market value is accounted for as valuation allowance and is charged to operations.
Investments in bonds and other interest-bearing instruments are carried at cost adjusted for
discount or premium through periodic amortization charges or credits to income, less any
needed provision for permanent impairment in value.
Investment in shares of stock of a subsidiary company This is accounted for at cost since
the subsidiary company has not been operational since its incorporation on March 30,
1992. The Foundation will shift to equity method of accounting for this investment once the
investee company becomes operational.
Impairment of Assets
The carrying values of property and equipment and investments are reviewed for impairment
when events or changes in circumstances indicate that their carrying values may not be recoverable.
If any such indication exists and where the carrying values exceed the estimated recoverable
amount, the assets or cash generating units are written down to their recoverable amount. The
recoverable amount of property and equipment and investments is the greater of net selling price
and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of time value
of money and the risks specific to the asset. Impairment losses are recognized in the statement of
support, income and expenditures.
If there is any indication at the balance sheet date that an impairment loss recognized for an asset
in prior years may no longer exist or may have decreased, the Foundation estimates the recoverable
amount of that asset and the carrying amount of the asset is adjusted to the recoverable amount
resulting in the reversal of the impairment loss.
Revenue and Expense Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Foundation and the revenue can be reliably measured. The following specific recognition criteria
must also be met before revenue is recognized:
Revenue from restricted support is recognized upon fulfillment of the donor-imposed
conditions attached to the support and/or to the extent that expenses are incurred. Revenue
from unrestricted support is recognized upon receipt of the support and expenses are reported
when incurred. Restricted support for which restrictions and conditions have not yet been
met, are classified as deferred support. At project completion date, any excess funds in
deferred support are to be returned to the donors unless otherwise agreed by both parties to
be retained by the Foundation and therefore credited to unrestricted support.
Investment income, which primarily consists of interest and other income, are recognized
as they accrue (taking into account the effective yield on the asset).
Program/Project expenses and other expenses are recognized when incurred.
| 37
The Foundation has a defined benefit pension plan covering all regular full time employees. The
pension plan is tax-qualified, noncontributory and administered by a trustee. The cost of providing
benefits under the plan is determined using the projected unit credit actuarial valuation method,
which utilizes the normal cost, actuarial accrued liability and unfunded actuarial liability concepts.
Past service cost and actuarial gains and losses are recognized over the expected remaining
working lives of the employees covered by the plan.
Pension Costs
The accounting records of the Foundation are maintained in local currency. Foreign currency
transactions during the year are translated into local currency at exchange rates which approximate
those prevailing on transaction dates. Foreign currency monetary assets and liabilities at the
balance sheet date are translated into local currency at exchange rates which approximate those
prevailing on that date. Exchange gains and losses are charged to current operations.
Foreign Currency Transactions
Borrowing costs relating to small enterprise fund facility are recognized as expenses in the period
in which they are incurred.
Borrowing Costs
Provisions are recognized when the Foundation has present obligation (whether legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the
current best estimate.
3. CASH AND CASH EQUIVALENTS
This account is broken down as follows:
2004
Restricted
Cash
Unrestricted:
Cash
Short-term placements
__________________________
xx,xxx,xxx
__________________________
xx,xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
2003
__________________________
xx,xxx,xxx
__________________________
x,xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
Provisions
Restricted cash represents available funds for projects undertaken under grants and support with
donor-imposed restrictions.
Cash accounts with the banks generally earn interest at rates based on daily bank deposit rates.
Short-term placements have an average maturity of 15 days and effective annual interest rates
ranging from 5% to 7% in 2003.
4. RECEIVABLES
This account consists of:
Accounts/Loans Receivables
Contribution Receivables (from donors)
Advances to officers and employees
Others
__________________________
__________________________
__________________________
__________________________
__________________________
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx)
x,xxx,xxx
__________________________
__________________________
__________________________
5. OTHER CURRENT ASSETS

This account is broken down as follows:
2004
x,xxx,xxx
xxx,xxx
x,xxx,xxx
Input Tax
Others
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
6. INVESTMENTS
The details of this account follows:
2003
x,xxx,xxx
xx,xxx
x,xxx,xxx
__________________________
2003
__________________________
Allowance for doubtful accounts
2004
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
x,xxx,xxx)
xx,xxx,xxx
__________________________
Trustee-managed funds
Time deposit
Investment in shares of stock of
a subsidiary company
Allowance for decline in value
x,xxx,xxx
xxx,xxx,xxx
x,xxx,xxx)
xxx,xxx,xxx
__________________________
2004
xxx,xxx,xxx
xx,xxx,xxx
__________________________
__________________________
x,xxx,xxx
xxx,xxx,xxx
x,xxx,xxx)
xxx,xxx,xxx
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
2003
xxx,xxx,xxx
xx,xxx,xxx
__________________________
Trustee-managed funds are composed of investments in securities and other debt instruments
administered by certain banks.
| 39
7. PROPERTY AND EQUIPMENT

A reconciliation of the carrying amounts at the beginning and end of 2004 and the gross carrying
amounts and the accumulated depreciation and amortization of property and equipment are shown
below:
Furniture,
Fixtures and
Land and
Building and
Improvements Improvements
Hatchery
Facilities
and Other Transportation
Equipment
Equipment
and Other Construction

Properties in Progress
Total
Time deposit represents a dollar-denominated placement with a certain bank that will mature in
2024 with an option to put in 2006 and has an effective annual interest rate of 9.5% in 2004 and
2003.
Balance at January 1, 2004
net of accumulated
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
xx,xxx
x,xxx,xxx
xx,xxx
x,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
xx,xxx)
( xx,xxx)
x,xxx,xxx
(x,xxx,xxx)
( xx,xxx)
(____________________
x,xxx,xxx)
(____________________
x,xxx,xxx)
____________________
Disposals
Additions
depreciation and amortization
Reclassifications
Depreciation and amortization

____________________
( xxx,xxx)
(x,xxx,xxx)
____________________
____________________
(x,xxx,xxx)
__________________
charges for the year
Balance at December 31,2004,
net of accumulated
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
xx,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
( x,xxx,xxx)
(____________________
xx,xxx,xxx)
(____________________
xx,xxx,xxx)
____________________
xx,xxx,xxx
__________________
__________________
depreciation and amortization
January 1, 2004
Cost xx,xxx,xxx
and amortization
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
( x,xxx,xxx)
x,xxx,xxx
( x,xxx,xxx)
____________________
x,xxx,xxx
- (xx,xxx,xxx)
__________________
____________________
x,xxx,xxx
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
xx,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
( x,xxx,xxx)
(____________________
xx,xxx,xxx)
(____________________
xx,xxx,xxx)
____________________
xx,xxx,xxx
__________________
__________________
Net carrying amount
____________________
December 31, 2004
Cost xx,xxx,xxx
and amortization
Net carrying amount
____________________
xx,xxx,xxx
____________________
____________________
x,xxx,xxx
____________________
____________________
x,xxx,xxx
____________________
____________________
( x,xxx,xxx)
x,xxx,xxx
____________________
____________________
( x,xxx,xxx)
____________________
x,xxx,xxx
____________________
____________________
- (xx,xxx,xxx)
__________________
____________________
x,xxx,xxx
____________________
____________________
xx,xxx,xxx
__________________
__________________
Property and equipment which are fully depreciated and are still in use amounted to xx.x million
and x.x million in 2004 and 2003, respectively.
In 2004, the Foundation retired furniture, fixtures and other equipment with a total cost of x,xxx,xxx
and accumulated depreciation of x,xxx,xxx. The resulting loss on retirement was charged against
the Other Income - Net account in the 2004 statement of activities.
Depreciation and amortization charges amounting to x,xxx,xxx and x,xxx,xxx in 2004 and 2003,
respectively, were offset against the Other Income - Farm Expenses - Net (see Note 13).
In 2004 and 2003, the Foundation acquired property and equipment amounting to x,xxx,xxx and
x,xxx,xxx, respectively, through donations.
8. OTHER NON-CURRENT ASSETS
This account consists of:
2004
Loans Receivable net of current portion:

Unrestricted
Restricted (see Note 4)
Staff training and development
and other funds (see Note 10)
Refundable deposits
Land held for sale
Others
2003
__________________________
__________________________
x,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
xx,xxx,xxx
__________________________
__________________________
__________________________
__________________________
x,xxx,xxx
xxx,xxx
xxx,xxx
x,xxx,xxx
x,xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xx,xxx,xxx
( xx,xxx,xxx)
xx,xxx,xxx
__________________________
xx,xxx,xxx
(xx,xxx,xxx)
x,xxx,xxx
__________________________
xx,xxx,xxx
__________________________
__________________________
x,xxx,xxx
__________________________
__________________________
Loans receivables are charged an annual interest ranging from 3% to 18% to cover the administrative
costs of servicing the projects.
When loans to project proponents from restricted funds are subsequently collected without the
donor-imposed restrictions, the same are recorded as unrestricted grants and other contributions.
Reflows of loans without donor-imposed restrictions are generally used to support similar programs
for which the original grants to the Foundation were intended.
| 41
9. PAYABLES AND ACCRUED EXPENSES

The components of payables and accrued expenses follow:
Accounts payable
Accrued expenses
Payable to regulatory agencies
Others
2003
__________________________
xx,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
xxx,xxx
xx,xxx,xxx
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
10. DEFERRED SUPPORT/RESTRICTED FUND

Deferred support represents support received applicable to succeeding years, certain details of
which are on the attached Schedule 1 of donors ranked on the basis of restricted funds received
for the year ended December 31, 2004. The funds are to be used only for the specific projects and
in compliance with the terms and conditions of the support. Of the total deferred support, xx,xxx,xxx
and xx,xxx,xxx had already been appropriated by the Board as of December 31, 2004 and 2003,
respectively, and are already committed for release to specific projects.
In general, unused funds at the end of the project are returned to the donors unless otherwise
agreed. Certain funds and reflows, therefore, of completed projects may be transferred to
unrestricted grants and other contributions upon approval of the Board.
11. DESIGNATED RESTRICTED NET ASSETS
The designated net assets is broken down as follows:
2004
__________________________
Reserve for
Project
Completion
Reserve for
Training
Unpaid Advances to
Committed
Project
Grants Proponents
xxx,xxx,xxx
xx,xxx,xxx
xx,xxx,xxx
x,xxx,xxx
xxx,xxx,xxx
x,xxx,xxx
-
x,xxx,xxx
( x,xxx,xxx)
-
xx,xxx,xxx
( xx,xxx,xxx)
-
(xx,xxx)
xx,xxx,xxx
(xx,xxx,xxx)
( xx,xxx)
( xxx,xxx)
( xxx,xxx)
xxx,xxx,xxx
( xxx,xxx,xxx)
( xx,xxx,xxx)
( xxx,xxx)
-
( xxx,xxx)
-
Total
Balance at beginning
of year
Reserve for
Future
Projects
Designations for the year:

Approved
Disbursed
Collected
Closure of savings of
completed projects
Reversal of prior years

appropriations
Reclassifications
_____________________
_____________________
_____________________
_____________________
_____________________
_____________________
Balance at end
of year
xxx,xxx,xxx
_____________________
_____________________
_____________________
_____________________
_____________________
_____________________
xx,xxx,xxx
_____________________
_____________________
x,xxx,xxx
_____________________
_____________________
xxx,xxx,xxx
_____________________
_____________________
The Board approves designation of reserve for future projects annually. The fund and its earnings
can be made available to deserving projects.
In 2004, the reserve for project completion and reserve for training were consolidated into reserve
for future projects.
12. OTHER INCOME - NET
The components of this account follow:
Foreign currency gains

Rental of facilities - net
Contracts net
Interest income from banks
Dividend income
Recoveries on decline in
value of investment
Miscellaneous - net
Farm expenses net
2003
__________________________
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xxx,xxx
xx,xxx
x,xxx,xxx
x,xxx,xxx
xxx,xxx
xx,xxx
xxx,xxx
( x,xxx,xxx)
x,xxx,xxx
x,xxx,xxx
xxx,xxx
( x,xxx,xxx)
xx,xxx,xxx
13. GENERAL AND ADMINISTRATIVE EXPENSES

The General and Administrative Expenses of the Foundation are the following:
2004
__________________________
2004
Salaries and wages

Employees welfare
Transportation and travel
Light and water
Security and janitorial
Postage, telephone and cable
Repairs and maintenance
Office supplies
Property insurance
Taxes and licenses
Dues and assessments
Professional fee
Miscellaneous
2003
__________________________
__________________________
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xx,xxx
xx,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
x,xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xxx,xxx
xx,xxx
xx,xxx
xx,xxx,xxx
| 43
14. RETIREMENT PLAN

The Foundation maintains a trustee-managed and non-contributory retirement plan, which took
effect in January 1, ____, covering all of its regular full-time employees. The normal retirement
age is 60 with a minimum of 10 years of credited service. The plan also provides for an early
retirement at age 50 with a minimum of 10 years of credited service and late retirement after age
60, both subject to the approval of the Foundations Board. Normal retirement benefit is an amount
equivalent to 150% of the final monthly covered compensation (average monthly basic salary
during the last 12 months of credited service) for every year of credited service. Total retirement
benefit expense shown as part of the Project Expenses and General and Administrative Expenses
accounts in the statement of activities, amounted to x.x million and x.x million in 2004 and 2003,
respectively.
Based on the latest actuarial valuation report as of March 31, 2004, the fair value of the plan
assets exceeds the actuarial present value of retirement benefits, based on the assumed rate of
return of 7.9%, by about 0.xx million. Actuarial valuations are made every two years to update the
retirement benefit costs and the amount of contributions.
The annual contribution to the retirement plan covers the current service costs and the amortization
of the past service cost.
15. TAX EXEMPTION
The Foundation, as a non-stock, non-profit corporation, organized and operated exclusively for
research and scientific purposes, is exempt from income tax. However, income derived from its
properties, real or personal, or from any of its activities conducted for profit regardless of the
disposition made of such income, is subject to tax.
As required by the IAS 12, Accounting for Income Taxes, the Foundation is supposed to recognize
deferred income tax assets for the tax effects of temporary differences brought about by net loss
carry over, provision for doubtful accounts and probable loan losses and the unrealized foreign
exchange gain and/or losses on the Foundations incidental taxable activities. However, since the
Foundation does not expect to be in a taxable position in the future relative to its incidental taxable
activities, recognition of the deferred income tax assets in the books has not been made in the
accounts for the years ended December 31, 2004 and 2003.
EXAMPLE OF CASH FLOW STATEMENT USING THE DIRECT METHOD

ESP Institute
Statement of Cash Flows
for the fiscal year ended June 30, 2xxx
Cash flows from operating activities:
Cash received from service recipients
Cash received from donors
Cash collected on contributions receivable
Interest and dividends received
Interest paid
Cash paid to employees and suppliers
Donations given
Net cash provided by operating activities
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
xxxxxxxxx
Cash flows from investing activities:

Purchases of equipment
Proceeds from sale of investments
Investments made
Net cash used by investing activities
(xxxxxxxx)
xxxxxxxxx
(xxxxxxxx)
(xxxxxxxx)
Cash flows from financing activities:

Proceeds from contributions restricted for:
Investment in endowment
Investment in plant
Investment subject to annuity agreements
Other financing activities:
Interest and dividends restricted for reinvestment
Payments on notes payable
Payments on long-term debt
Net cash used by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalent at end of year
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
Reconciliation of change in net assets to net cash provided

By operating activities:
Change in net assets
Adjustments to reconcile change in net assets to net cash
Used by operating activities:
Depreciation
Actuarial loss on annuity obligations
Increase in accounts and interest receivable
Decrease in contribution receivable
Decrease in accounts payable
Decrease in grants payable
Contributions restricted for long-term investment
Interest and dividends restricted for long-term investment
Net unrealized and realized gains on long-term investment
Net cash provided by operating activities
xxxxxxxxx
xxxxxxxxx
(xxxxxxxx)
xxxxxxxxx
xxxxxxxxx
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
(xxxxxxxx)
Supplemental data for non-cash investing and financing activities:

Gift of equipment
xxxxxxxxx
xxxxxxxxx
| 45
7. CHART OF ACCOUNTS
The Chart of Accounts is designed to have a uniform classification and interpretation of
financial transactions. It facilitates the recording and summarizing of transactions and
the preparation of financial reports.
Every organization has a unique chart of accounts based on the nature of its operation,
organizational structure, and flow of operations. However, the major account categories
of an NPO are:
Assets
Current Assets
Non-current Assets
Other Assets
Liabilities
Current Liabilities
Non-current Liabilities
Other Liabilities
Net Assets
Restricted
Unrestricted
Revenues
Support
Grant and Donations
Unrestricted
Restricted
Membership Fees and Contributions
Income
Financial Income
Other Income
Expenses
Program/Project expenses
Administrative Expenses
General expenses
Human resource development (includes Training Expenses)
Fund-raising expenses
* The details of each category shall be filled up by the respective NPOs.

46
| 47
Important Note
The Chart of Accounts is a form of organizational policy, and therefore, everyone in the
NPO should be acquainted with it. It is the backbone of an NPOs accounting of its
financial transactions.
Sample Chart of Accounts

For the purpose of presenting an example, below is a sample chart of accounts of ABC
Foundation.
ABC FOUNDATION, INC.

CHART OF ACCOUNTS
SECTION 7 Chart of Accounts
ACCOUNT
NUMBER
ACCOUNT NAME
1-00-000 ASSETS
1-10-000
CURRENT ASSETS
1-10-100
1-10-110
Cash on hand
1-10-120
Cash in bank
1-10-121
Cash in bank - XY Bank C/S
1-10-122
Cash in bank - MNO Bank C/S
1-10-130
Revolving fund - Head Office
1-10-140
Revolving fund-Regional Office
1-10-160
Short-term investments
1-10-200
Receivables
1-10-210
Contributions Receivable
1-10-220
Accounts Receivable
1-10-221
1-10-230
Other receivables
1-10-231
Advances to officers & staff
1-10-233
Advances to partner NPOs
1-10-236
Accounts Receivable-others
1-10-237
Accrued income
1-10-238
Accrued interest receivable-investments
1-10-239
Accrued interest receivable-proponents
1-10-300
Prepayments and other current assets
1-10-311
Prepayments
1-10-312
Deferred assets
1-10-313
Deferred tax credit
1-10-400
Farm Inventory and supplies
1-10-500
NON-CURRENT ASSETS
1-10-510
Long-term Investments-ABC Bank
1-10-520
Long-term Investments-AUBank
1-20-000
Property & Equipment
ACCOUNT
CLASSIFICATION
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Current Assets
Non-Current Assets
Non-Current Assets
Non-Current Assets
Non-current Assets
W/ SL
(Y/N)
N
N
N
N
N
N
N
N
N
N
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
N
Y
N
N
Y
N
N
N
N
1-20-100
1-20-110
1-20-111
1-20-200
1-20-201
1-20-210
1-20-211
1-20-300
1-20-301
1-20-310
1-20-311
1-20-400
1-20-401
1-20-410
1-20-411
1-20-500
1-20-501
1-20-510
1-20-511
1-10-600
1-10-501
2-00-000
2-10-000
2-10-110
2-10-120
2-10-130
2-10-210
2-10-310
2-10-320
2-20-000
2-20-110
2-20-120
3-00-000
3-20-000
3-20-100
3-20-200
3-10-000
3-10-100
3-10-200
3-10-300
3-10-300
4-00-000
4-10-000
4-20-000
Land
Land improvements
Accum. depreciation- land improvements
Building
Accumulated depreciation - building
Building improvements
Accumulated depreciation - building improvements
Office equipment - HO
Accumulated depreciation - office equipment - HO
Office equipment - RO
Accumulated depreciation - office equipment - RO
Furnitures & fixtures - HO
Accumulated depreciation - furniture & fixtures - HO
Furnitures & fixtures - RO
Accumulated depreciation - furniture & fixtures - RO
Transportation equipment - HO
Accumulated depreciation - transpo equipment - HO
Transportation equipment - RO
Accumulated depreciation - transpo equipment - RO
OTHER ASSETS
Refundable deposits
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Accounts payable - partners
Accounts payable - staff
Accrued expenses
Withholding tax payable
Deferred support, current
NON-CURRENT LIABILITIES
Long-term loans payable
Deferred support, net of current
NET ASSETS
UNRESTRICTED NET ASSET
_________ fund
_________ fund
RESTRICTED NET ASSET
_________ fund
_________ fund
_________ fund
Property & Equipment Fund
REVENUES
Grants & Donations
Membership fees and contributions
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Non-current Assets
Other Assets
Other Assets
Current Liabilities
Current Liabilities
Current Liabilities
Current Liabilities
Current Liabilities
Current Liabilities
Current Liabilities
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
Y
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Unrestricted Net Assets N
Restricted Net Assets
N
N
N
N
N
N
Support
Y
Support
Y
4-30-000
4-30-110
4-30-111
4-30-112
4-30-120
4-50-100
4-50-110
4-50-120
5-00-000
5-20-000
5-20-100
5-20-110
5-20-130
5-20-150
5-20-200
5-20-210
5-20-220
5-20-230
5-20-240
5-20-250
6-30-000
6-30-100
6-30-101
6-30-102
6-30-103
6-30-104
6-30-200
6-30-201
6-30-202
6-30-203
6-30-204
6-30-205
6-30-206
6-30-207
6-30-208
6-30-209
6-30-210
6-30-211
6-30-212
6-30-213
6-30-213
6-30-215
6-30-215
6-30-300
7-40-000
Financial Income
Income
Income from Peso Investments
Income from peso investments-ABC Bank
Income from Peso investments-AUBank
Income from Dollar Investments
Other Income
Income from past due accounts
Miscellaneous income
EXPENSES
PROGRAMS & PROJECTS
PROJECT DEVELOPMENT AND MONITORING (PDME)
PDME - Writeshops and Orientations
PDME - Project Appraisals
PDME - Project Monitoring
PROJECT SUPPORT EXPENSES
Technical Assistance (PSTA)
Development Communication (PSDC)
Research and Development (PSRD)
Project Audits
Institutional Support (IS)
GENERAL AND ADMINISTRATIVE EXPENSES
Admin Personnel expenses
Salaries and wages
VL credits
Retirement plan contributions
Life insurance premium contributions
Operating expenses
Professional fees
Light and power
Office rental
Communications
Office supplies
Water
Property insurance and registration
Repairs and maintenance
Fuel and oil
Depreciation expense
Doubtful accounts expense
Bank service charges
Legal fees
Taxes and licenses
Transportation and travel
Miscellaneous
Human Resource Development
FUND RAISING EXPENSES
Income
Income
Income
Income
Income
Income
Income
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
Project expenses
N
Y
Y
N
N
Y
Y
N
N
N
Y
Y
Y
N
Y
N
N
Y
N
Admin expenses
Admin expenses
Admin expenses
Admin expenses
Admin expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
Admin Expenses
HRD
Fund Raising Costs
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
N
Y
| 49
Below are descriptions of significant commonly-used NPO accounts which will serve as
a guide and starting point in preparing more detailed charts of accounts of a specific
NPO. As discussed earlier, an NPO should define its comprehensive chart of accounts.
Description of Commonly-Used Accounts
ACCOUNT TITLE AND DESCRIPTION
CASH AND CASH EQUIVALENTS

Cash comprises cash on hand, petty cash funds as well as local or foreign currency
deposits in banks that are immediately available for use in the current operations.
Cash On Hand
This account represents undeposited cash and check collections. It is good practice to
deposit collections/amounts received intact the following day. The deposit of the cash
and check collections could be done simultaneously with other banking transactions.
Petty Cash Fund
This account represents cash set aside for paying incidental expenses. The size of the
fund should be sufficient for at least two weeks requirements. The fund shall be initially
set at a fixed amount and subsequently increased or decreased depending on the needs
of organization.
This account is debited for the amount set up when the fund is established and for any
subsequent increase in the size of the fund. A credit to this account is made when the
amount of fund is decreased.
The maximum amount that can be paid out of the fund is set. Disbursements exceeding
the set limit should be made through checks. Replenishments of the fund are made
through checks and should be made weekly or as soon as the actual balance becomes
low.
Cash in Bank
This account is credited for all collections/amounts deposited and other transactions
credited by the bank. It is debited for all check disbursements or withdrawals and debit
memos from the bank. A separate bank account should be set up for each program as
required by donors.
ASSETS
At the end of each month, cash in bank balance per general ledger is reconsidered with
the balance shown in the bank statements or savings account passbooks.
Cash equivalents
This account represents funds available for current operational requirements, which
are temporarily invested with financing institutions on a short-term arrangement. These
short-term highly liquid investments are readily convertible to cash with maturities of
three months or less.
RECEIVABLES
Receivables are generally defined as claims held against others for future receipt of
money, goods or services.
Receivables arise when adopting the accrual method of accounting. This is significant
to NPOs because the collection from these transactions provides funding for programs
and services. There are two basic considerations in recognizing receivables of this nature:
first, a receivable (and the related revenue) should be recognized when the NPO actually
earns the revenue and the right to receive the money; second, that the receivables are
ultimately collectible, i.e., enforceable on the part of the NPO.
Receivables are valued at the outstanding balance at which they are to be collected. The
amount is reduced by an estimated allowance for doubtful accounts determined based
on net realizable value of the receivables.
Other receivables include cash advances for operating expenses, salary loans, and other
advances to officers and staff. This category also includes advances to individuals or
organizations that are not intended for the normal operations of the NPO.
Because these receivables come from the operational fund of the NPO, intended for the
delivery of programs and services, these are expected to be collected or can be an offset
to other activity costs. No allowance for doubtful accounts is recognized for this type of
receivables.
Advances to Officers and Employees
The Advances to Officers and Employees account represents cash and other forms of
advances (like telephone bills etc.) to the officers and employees, subject to liquidation
or payroll deductions.
Accounts Receivable-Others
This represents claims arising out of advances by the program to other programs for
which it expects reimbursement.
Loans Receivable-Term Loan
These are loans made to borrowers beyond one year but not exceeding 3 years, inclusive
of the 6 month grace period on principal payment. Payments (Principal and Interest) of
these loans are amortized on a monthly, quarterly or semi-annual basis. Interest is
computed based on the diminishing balance.
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Loans Receivable- Bridge Financing

These are short-term loans made to borrowers for a maximum period of six (6) months
with no grace period. Payment (Principal and Interest) is made on time, upon maturity.
Loans Receivable-Credit Line
These are loans made to borrowers for a maximum period of one (1) year during which
period loan draw downs are made. Draw downs are revolving and can be paid depending
on the borrowers request or capacity to pay over a chosen term period, i.e., 30 days, 60
days, 90 days, etc., but which should not exceed the term of the credit line.
Allowance for Doubtful Accounts
To cover possible losses due to default in payment of loans, a portion of the outstanding
balance shall be provided with allowance for doubtful accounts at year-end. The allowance
provision shall be based on the age of the amount that remains unpaid.
Allowance for doubtful accounts shall be provided in an amount equal to the total
receivables reasonably estimated to be doubtful of collection. The amount of allowance
should be based on past experiences and on continuing review of receivable aging reports
and other relevant factors.
INVENTORY
Inventory comprises materials or supplies to be consumed in the process of rendering
services. These may be manufactured or donated goods for distribution to beneficiaries.
Inventories will be recognized as assets if the future economic benefits associated with
the inventory will flow to the organization and the cost can be reliably measured.
Inventories held for distribution are to be valued based on historical cost; while
inventories held for production, should stated based on fair value.
PREPAID EXPENSES
Prepaid Expenses account represents expenditures, often recurring, paid in advance
for benefits yet to be received such as insurance, rent, interest and others. The account
is debited for the portion of expenses paid in the current month but which applies to the
succeeding months. Credit to this account is made for the portion of the expenses that
has expired.
INVESTMENTS
Investments are assets not directly identified with the operating activities of the NPO.
Investments are expected to provide the revenues needed for operations over the long
term. Investments may be classified either as temporary investments or long-term
investments. Short-term investments imply that the investments may be converted to
cash within a relatively short period and that they are funds available for current
operations. Long-term investments are acquired in accordance with financial policies
looking to the accumulation of funds.
Investments acquired with the intention of disposing the same after one year or less
from the acquisition are to be classified as current investments. Investments classified
as current, as distinguished from cash equivalents are those that are acquired with
original maturities of more than three months but not exceeding one year.
Investments acquired with the intention of keeping the same for more than a year from
the acquisition date are to be classified as long-term investments.
PROPERTY AND EQUIPMENT
Property and Equipment are tangible assets with an estimated useful life beyond one
year, used in the conduct of the business and not intended for sale in the ordinary
course of business. Assets of this nature include:
a. property not ordinarily subject to depreciation such as land used for office sites;
b. property subject to depreciation or amortization such as buildings, office and
transportation equipment, furniture and fixtures, and improvement to leased facilities.
Each class of assets is debited for additional acquisitions made and credited for disposals,
retirements or write-offs. Acquisition of property and equipment is recorded using the
asset method.
Property and equipment may be acquired through purchase, construction, grant or
donation. Property and equipment acquired from a restricted grant or donation will be
recognized as an asset at its net book value, when ownership is passed on with a
corresponding credit to Property and Equipment Fund. In case the ownership of the
property remains with the donor until the fulfillment of certain requirements, a
disclosure in the financial statements of these possessed but not owned assets should be
made in the financial statements.
ACCUMULATED DEPRECIATION
Depreciation is the cost of using up the future economic benefit or service potential of
fixed assets.
Except for non-exhaustible assets such as land and art collections, all fixed assets are
depreciated on a rational and systematic basis over the life of the asset.
Depreciation may be physical or functional. Physical depreciation is related to a
depreciable assets wear and tear and deterioration over a period. Functional depreciation
arises from obsolescence or inadequacy of the asset to perform efficiently.
All property and equipment, except land, are subject to a depreciation allowance. The method
and rate of depreciation to be used should be applied consistently from year to year.
Depreciation allowance is credited to the related accumulated depreciation of the capital

assets. This account is debited for amounts previously provided for on assets sold,
disposed, retired or written-off.
| 53
Current liability is used principally to designate obligations whose liquidation is

reasonably expected to require the use of existing resources properly classified as current
assets or the creation of another current liability.
Long-term liability represents the portion of any long-term obligation maturing or
scheduled to mature after an uninterrupted period extending beyond one year from the
date of the statement of financial position.
Accounts Payable-Trade
The Accounts Payable-Trade account represents the total of unpaid bills due to suppliers
and others at the end of each month for support, services and/or materials received but
not yet paid for.
This account is credited for purchases of materials, supplies and equipment on credit,
or for services received which remain unpaid at the end of each month and debited for
payments made and discounts granted by suppliers.
Accounts Payable-Employees
Employees Payables account includes unpaid salaries and bonuses, vacation leave credits
incurred during the year.
Accrued Expenses
The Accrued Expenses account represents estimated amounts due for services and/or
supplies/materials already received but which remain unpaid for at the end of the month
or at year end, such as salaries and wages, rent and interest, which are credited to this
account. Subsequent payments or reversal of previous liability set up in the preceding
month are debited to this account.
Advances from Officers/Employees
The Advances from Officers account represents cash or other forms of advances made
by the officers/employees.
This account is credited for the amount advanced by the officers/employees and debited
for any payment made to them.
Other Current Liabilities
LIABILITES
Other payables include other liabilities incurred which amount are readily determined
from available documents, i.e., billings, amounts withheld from employees, or other
parties for taxes and for contributions to pension funds. It also includes other liabilities
that cannot be properly classified under other specific current liabilities account
groupings in the chart of accounts.
Deferred Revenue/Support
This account is credited when cash is received prior to either having earned the revenue
or the right to keep the revenue. It is debited when earned and the corresponding credit
to revenue or support is made.
Funds Held in Trust
This refers to funds held in trust for various project proponents provided by donors in
which the NPO is only the custodian of the funds, and has no control over its use.
Funds-held-in-trust occurs when an entity-the donor- deposits an amount, that is
intended for a specified beneficiary, to the recipient NPOs bank account. The NPO is
not the donee and therefore, this account should be treated as a liability.
However, if the donor explicitly grants the recipient organization variance power or if
the recipient organization and the specified beneficiary are financially interrelated
organizations, the recipient organization should recognize the amount as a contribution
received. NPOs are financially interrelated if (a) one organization has the ability to
influence the operating and financial decisions of the other and (b) one organization
has an ongoing economic interest in the Net Asset of the other.
Unrestricted Funds or General Funds

This is used to record activities that are supported by resources over which the NPO
has discretionary control and the principal sources of which are donations from donors,
membership dues, and unrestricted investment/interest, income. Its use is not restricted
even though their use may be limited in other respects, such as by contract or by board
designation. Any excess of revenues over expenditures forms part of the Unrestricted
Net Asset.
Restricted Funds
This is used to record the Foundations activities which are supported by resources
whose use is limited to specific operations by donors. The principal sources of restricted
funds are contributions from donors, contracts, grants, endowment income and other
sources where resource providers stipulate the specific operating purposes for which
the resources have to be used. Its economic benefits neither expire with the passage of
time nor can be removed by the organization.
NET ASSETS
Restricted Funds may be Temporarily Restricted Funds or Permanently Restricted

Funds. The former is limited by either a donor-imposed time period or purpose
restrictions while the latter has to be maintained in perpetuity or permanently as
instructed by the donor as in the case of an endowment fund.
| 55
Property and Equipment Fund

This is used to record Property and Equipment acquired from restricted funds. The
cost of acquisition is deducted from the grant and a corollary entry is recorded recognizing
the property and equipment as assets with a credit to Property and Equipment Fund (a
net asset account).
Revenues represent actual or expected cash inflows (or the equivalent) that have occurred
or will materialize as a result of the entitys ongoing central or major operations during
the period
Each source of revenue generally refers to an inflow that is distinct from all others.
Grants
This refers to funds (or equivalent) given by donors for a specific program/project with
certain conditions relating to the operating activities of the NPO.
Grants, including non-monetary grants, valued at fair value, should not be recognized
until there is reasonable assurance that:
a. the NPO will comply with the conditions attaching to them; and
b. the grants will be received.
Mere receipt of the grant is not conclusive evidence that the conditions attached to the
grant have been or will be fulfilled.
Grants should be recognized as revenue or support over the periods necessary to match
them with the related costs or expenses incurred for the purpose for which they are
intended.
Donations
This refers to unrestricted contributions in cash or in kind or services from donors to be
used in accomplishing the purposes for which the NPO has been created or organized
and over which the Board has discretionary control.
Non-Cash Donations/Contributions
Contributed services should be recognized in the financial statements if the services
received meet these criteria:
Create or enhance the value of an activity
REVENUES
Required specialized skills are provided by individuals or organizations possessing

those skills and would typically be purchased if not provided by way of donation.
Non-cash assets received by NPOs should be recorded as contributions at their fair

market value, at the time the service or asset is received, in the same way that cash
contributions are recorded.
Other Income
This account represents income earned from sources other than from operations.
Examples include interest from savings accounts and other money market placements
or investments, gain on sale of fixed assets and foreign exchange gain or losses and
other miscellaneous items.
A. Functional reporting, as its name implies, describes the activity for which the
NPO incurs an expense. Expenses may be classified per function, as follows:
1. Program/Project Expense
2. Administrative Expenses, further classified as:
a. General expenses
b. Human resource development
3. Fund raising expenses
Program/Project Expenses
This refers to all program implementation costs or those expenses relating to program/
project service activities that result in services (or goods) being given to beneficiaries or
members that fulfill the basic mission of the NPO. There can be more than one category
of program services.
Program/Project Support Activities Expenses
This pertains to expenses incurred for activities necessary to support or assist program
implementation which include capability building, information management, policy
advocacy, networking of project proponents, partnership building, investment promotion,
project development, assessment, approval, monitoring, and evaluation; and provision
of technical assistance for NPOs/POs, among others.
General expenses relate to activities such as oversight management, general record
keeping, office maintenance, and similar expenses.
EXPENSES
Human resource development pertains to expenses incurred for the purpose of developing
and consolidating the NPOs board of trustees, management, and staff such as those
expenses incurred for staff training and development.
| 57
Fund raising Expenses

These are expenses incurred in encouraging donors to support the NPO.
Important Note
Personnel and other costs traceable to a specific program should be classified as Program
Expenses while administrative personnel and overhead costs are part of Administrative
Expenses.
B. Natural classification of expenses, as distinguished from functional classification,
indicates the type of expenses incurred by an NPO, such as salaries, rent, electricity,
depreciation. While functional classification reflects the activity (function) for
which the NPO incurred the expenses, natural classification indicates the type
(nature) of the expense that is incurred.
Expenses should be recorded and reported using the functional and natural
classification of expense where the latter becomes a sub-category of the former.
GAINS OR LOSSES
Revenues of NPOs increase their Net Assets, expenses decrease Net Assets. All other
transactions that increase or decrease the net assets of an NPO are referred to as gains
or losses, respectively. Gains and losses are auxiliary to the NPOs revenues and expenses.
In presenting gains and losses, the Net Basis should be used, i.e., only the net gain or
loss arising from a single set of transactions is presented. Gains and losses from foreign
exchange are presented as either net gain or loss.
JOINT COSTS
These are expenses incurred by an NPO for activities involving two or more different
programs and support services. Cost allocation is proper if the purpose, audience and
content criteria are met that indicate that the joint activity included two or more
programs or support services. Allocation of costs may use any of the following methods
but should be applied consistently for the same type of transaction:
a. Physical units method, which allocates costs based on the physical materials that
make up the joint cost.
b. Relative direct method, which allocates joint costs in relation to the direct costs
of each of the activities.
c. Stand alone cost method, which allocates joint costs to each component of the
joint activity on a ratio that estimates the costs that would have been incurred
had each activity been performed separately.
| 59
III
SPECIFIC ACCOUNTS
8. CASH AND CASH EQUIVALENTS

8.1 Description
Cash and cash equivalents are defined as cash on hand, deposits in banks and shortterm highly liquid instruments readily convertible to known amounts of cash and which
are subject to insignificant risks of changes in value. Cash equivalents are temporary
investments, usually in the form of time deposits in banks and other financial institutions
with original maturity of three months or less from date of acquisition, which NPOs
places very temporarily, while awaiting proper disbursement to fund approved projects.
Cash on hand accounts consist of currency, coins or negotiable instruments such as
bank checks or postal money orders, in the custody of the cashier. This may consist of
receipts of donations or collection of receivables or advances, in the form of cash or
check, received awaiting deposit. This account should be treated as temporary account
and should be zeroed-out regularly when the cash on hand items are deposited. Because
of the vulnerability of cash to theft or misappropriation, the NPO should adopt a policy
to minimize cash on hand and to deposit receipts or collections regularly or upon reaching
a pre-defined amount.
Cash in bank accounts consist of deposits, either in savings or checking accounts, in
banks which have been identified by the Board of Trustees as the NPOs depository
banks. Grants and donations or funds from various funders or donors, or collections of
receivables or advances should be deposited in specific bank accounts for easier
identification and monitoring. The NPO should also identify a bank account from which
disbursements can be withdrawn by check, and replenishment done through transfers
from depository banks. Restricted funds should also be segregated from unrestricted
funds.
8.2 Cash Transaction Cycle

a. Receipt of cash or check from donors, funding agencies or collections of receivables
or advances
b. Deposit to bank accounts

60
c. Disbursement for expenses or release of funds to agencies or beneficiaries for

approved projects
d. Liquidation by agencies or by beneficiaries and receipt of excess funding
Sample entries for different types of cash receipts and disbursements and other cash
transactions:
1. Receipt of grant
Cash in bank PDB SA # 110
Grant from ABC
100,000
100,000
To record first remittance from ABC
2. Collection of donations
Cash on hand
Donations
1,000
1,000
To record collection of donation
3. Collection of receivables
Cash on hand
Receivable resigned employee
500
500
To record collection of receivable from a resigned employee
4. Collection of excess from operational advances upon liquidation

Cash in bank PDB CA # 111
Transportation expense
Meals expense
Advances for liquidation - MPS
1,000
350
750
2,000
To record receipt of excess cash upon liquidation of

advances by MPS for his visit to BBI project.
5. Receipt of excess funds from training project

Training expense
Training fund
1,900
8,100
10,000
To record receipt of excess funds from training project.
6. Deposit of cash on hand for collections received late in the previous day
Cash on hand
SECTION 8 Cash and Cash Equivalents
To close cash on hand balance of previous

day and to record deposit in bank.
1,500
1,500
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PART III Specific Accounts
7. Sample semi-monthly expenses, such as payroll

Salaries and wages
45,000
SSS and Medicare premiums expense
5,000
SSS and Medicare premiums payable
HDMF premiums payable
52,000
4,500
2,500
1,000
To record payroll charges for the first half of the month.
8. Transfer of funds from savings to current account

Cash in bank PDB CA #111
Cash in bank PDB SA #110
47,000
47,000
To record transfer of funds from savings to current account with PDB.
9. Recording of interest income

Interest income
500
500
To record interest income for the month based on the bank reconciliation made.
10. Recognition of foreign exchange gain or loss

Cash in bank PDB DSA #112
Important Notes:
Cash Disbursements
Disbursements made by an NPO should be made in accordance with a budget or
annual workplan. In addition, they should undergo a process involving the
preparation of a voucher, properly supported by invoices, contracts and other
documents, and approved for payment by authorized officers. The voucher should
also indicate the accounts to be charged as specified in the budget or workplan. A
check is then prepared and approved and signed by officers or signatories
authorized in a resolution by the Board of Trustees.
Bank Reconciliation
Foreign exchange gain
Maintaining bank accounts entails monthly reconciliation of the NPOs book

balance with the bank balance as reflected in the passbook in the case of a savings
account, and in the bank statement in the case of the checking account. The bank
sends monthly bank statements together with the paid checks. To reconcile,
deposits and fund transfers and withdrawals in the bank statements should be
compared with the deposit and withdrawal slips, debit and credit memos from the
bank and entries in the cash receipts and cash disbursements books. Open items
should be summarized in a bank reconciliation statement, and followed up in the
following month. Long outstanding items should be the subject of further scrutiny.
8.3 Petty Cash Fund/ Revolving Fund

Small disbursements not paid by checks are paid using petty cash funds or revolving
funds. The NPO should determine what day-to-day, small expenses are incurred, the
amounts and frequency of incurrence to form a basis for establishing the so-called petty
cash or revolving fund. The purpose is to enable the NPO to meet these operational
expenses without going through the rigors of check preparation. The fund should be
just enough, not too small that replenishment has to happen very often, but not too big
that it allows such fund to lie idle for long enough to invite unauthorized borrowings by
the custodian or anyone close to him.
Expenses should be authorized by the immediate superior of the requesting party and
should be presented with the supporting documents in amounts not to exceed a certain
pre-defined level. The fund to be established shall remain fixed in the books. It shall be
replenished upon reaching a minimum level with the presentation of a summary of
expenses submitted to the custodian for payment together with the supporting
documents. The total amount of the expenses and the cash left with the custodian should
always equal the amount of the petty cash/ revolving fund. Details of the expenses shall
be recorded and the supporting documents shall be properly stamped PAID to prevent
double payment.
1. Upon establishment of the fund
Petty cash fund
3,000
3,000
To record establishment of a petty cash fund.
2. Upon replenishment
(enumerate various specific expenses)
2,700
2,700
To record replenishment of petty cash fund and various expenses.
8.4 Foreign Currency Accounts and

Foreign Exchange Transactions
Not all funds or donations or grants that an NPO receives are in local currency, in fact,
because NPOs usually receive funding from foreign sources, these are usually in the
form of foreign currencies i.e., US Dollars, Euro, or Japanese Yen. This requires the
opening and maintenance of foreign currency accounts in the NPOs depository banks.
In addition, the NPO also has to comply with the provisions of IAS 21, The Effects of
Changes in Foreign Exchange Rates. This Standard is applied in accounting for
transactions and balances in foreign currencies, in translating the results and financial
position of foreign operations that can possibly be included in an NPOs financial
statements by consolidation, proportionate consolidation or the equity method, and in
translating an NPOs results and financial position into a presentation currency.
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Presentation currency would mean the currency in which the financial statements are
presented.
Definition of foreign currency transaction
A foreign currency transaction is a transaction that is denominated or requires settlement
in a foreign currency, including transactions arising when an entity, or an NPO, buys or
sells goods or services whose price is denominated in a foreign currency; or borrows or
lends funds when the amounts payable or receivable are denominated in a foreign
currency; or otherwise acquires or disposes of assets, or incurs or settles liabilities,
denominated in foreign currency.
______________________________________________________________________________
ILLUSTRATION
______________________________________________________________________________
Missioni Foundation, an Italian group formed to assist agricultural research in
Asia, grants Southern Philippines Research, Inc. (SPRI) US$1,000 donation on April 4,
2005. Upon receipt of the donation, SPRI opens and maintains its dollar-denominated
savings account with its bank, but has to record it in its books of accounts in Philippine
Peso. And when it withdraws dollars or its money in foreign currency, and converts it
into Philippine Peso, SPRI has to follow certain accounting rules emanating from IAS 21.
In the case cited above, a foreign currency transaction occurs when SPRI receives
donation in US dollars, How to recognize it in its books shall be answered in the following
discussion.
a. Initial Recognition
A foreign currency transaction shall be recorded, on initial recognition in the
functional currency, by applying to the foreign currency amount the spot exchange rate
between the functional currency (Philippine Peso) and the foreign currency (US Dollar)
at the date of transaction (April 4, 2005).
Journal entries
April 4

Grants
56,000
56,000
b. Suppose SPRI withdraws US $200 on April 6, 2005 on which the spot exchange
rate is P55.80 to a US dollar, it will make the following entry:
April 6

11,160
To record US$1,000 grant from Missioni assuming

that the spot exchange rate is P56 to a US dollar.
To record withdrawal of US $200 at P55.80 exchange rate.
11,160
c. Supposing SPRI allots P8,000 for a research project and spends the Peso balance
for operations, it makes another entry:
April 7
Project Expense
Administrative Expense
8,000
3,160
11,160
d. Reporting at balance sheet date

There is no problem with the dollar depository bank at month-end, it will reflect
in the SPRIs passbook the dollar value of its deposit, which is US $800. But in its books
of accounts and financial statements, SPRI should state foreign currency monetary
items, which include cash, at the closing rate and recognize a foreign exchange gain or loss
for the exchange difference between the initial recognition rate and the closing rate.
Let us say, the closing rate is P56.10 as of April 30, 2005, SPRI shall translate its
US $800, which is equivalent to P44,880, SPRI compares it with the general ledger
balance of its dollar-denominated savings account and recognizes a difference of P40 as
foreign exchange gain.
The following entry should be made:
April 30

Unrealized foreign exchange gain
40
40
To record project and administrative expenses.
Thus, the initial financial statements should look like the following:
To recognize unrealized foreign exchange gain.
Current Assets
P44,880
Net Asset
P44,880
SPRI
Statement of Activities
For the Month Ended April 30, 2005
Revenues
Grants
Unrealized Foreign Exchange Gain
P56,000
40
Expenses
Project Expenses
Excess of Revenue over Expenses
(8,000)
(3,160)
P44,880
SPRI
Balance Sheet
April 30, 2005
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9. RECEIVABLES
9.1 Description
A receivable is recognized first, when the NPO actually earns the revenue, the grant or
donation, and the right to receive the money; and second, when the receivables are
ultimately collectible or enforceable on the part of the NPO. The recognition of a
receivable is recorded in the general journal and in the receivable subsidiary ledgers,
while collection is recorded in the cash receipts book.
Receivables are stated at the net realizable value, or the amount certain of collection.
Management should continually assess collectibility and determine possible losses from
non-collection of unpaid receivable.
9.2 Contributions Receivable

An NPO recognizes the certainty of a grant or donation based on the commitment of
the donor and the fulfillment by the NPO of the conditions set by the donor and sets up
a receivable. Receivable is collected either totally or partially. The NPO continually
assesses the collectibility of the unpaid receivable, and determines whether it should
set up a provision for doubtful accounts or not.
Practical Example:
On March 15, 2005, Evita Peron Foundation (EPF) committed through a contract,
to donate to Ilocos Agricultural Research, Inc. (IARI), P10,000 to be credited to IARIs
bank account with PDB at the end of the month.
March 15
Contribution receivable
Grant
10,000
10,000
On March 31, IARI checked its balances with PDB and found out that P8,000 was
credited to its savings account
March 31

Contributions receivable
8,000
8,000
To record receivable from EPF
To record collection of receivable from EPF.

66
IARI received no further notice from EPF that it would fulfill its commitment. On
June 30, 2005, the Board of Trustees of IARI decided to recognize the probability that
it may no longer collect the balance of P2,000 and advised management to set up an
allowance for that amount.
June 30
Provision for doubtful accounts

2,000
2,000
SECTION 9 Receivables
9.3 Accounts Receivable

Accounts receivable are funds that individuals or other organizations owe the
NPO due to services provided or goods sold. For example, a not-for-profit day care center
may provide services to a local government for children whose day-care the government
is paying for. Once the services are provided, the NPO has a receivable from the local
government until it is paid for those services. Also, an NPO may bill its members for
services that have been provided and are due to the members but have not yet been paid.
Pro-forma Entries:
Date
Accounts receivable C.B.A.

_________ income (or fees)
1,0000
1,000
To set up an allowance for doubtful accounts
Date
Cash
1,000
Accounts receivable C.B.A.
1,000
To record collection of AR from CBA per billing statement number ___.
9.4 Advances and Other Receivables

Other receivables consist of cash advances for operating expenses, salary loans
and other advances to officers and staff. This category also includes advances to
individuals or organizations that are not intended in the normal operations of the NPO.
Because these receivables come from the NPOs operational fund, intended for the
delivery of programs and services, these receivables should be collected or may be offset
against other activity costs fund approved projects.
Cash Advances
To record billing of _______ services rendered to C.B.A. for the month of March.
Officers attending to assigned projects may be given specific amounts of cash

advances which they can spend for the duration of their visit to these projects. These
advances are computed based on the NPOs administrative and financial policies. Upon
their return to the office, they should liquidate their advances by presenting a summary
of their actual expenses together with the excess money, or a computation of the amount
the NPO still owes them. This is not a problem though when advances equal the actual
expenses.
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Practical Example:
IARI is based in Laoag City. On April 1, 2005, Mr. Expedito Salazar, a project
officer of IARI obtained a cash advance for his out-of-town meeting with EPF directors
to be held in Manila. A PDB check amounting to P10,000 was issued to him.
April 1

10,000
10,000
Assumption A. Actual Expenses < Cash Advance Amount

On April 15, Mr. Salazar came home from his assignment and prepared a liquidation
of his expenses, as follows:
Transportation
Meal allowance
Hotel accommodation
Laundry
P2,000
675
4,500
500
Total expenses
Cash advance
7,675
10,000
Advances still due
P2,325
Assuming that Mr. Salazar pays in cash and IARI deposits it to PDB, the entry
would be:
April 15

Meal allowance
Hotel accommodation
Laundry
To record advances to Mr. Salazar for his trip to Manila.
To record expenses incurred by Mr. Salazar and

receipt of excess cash upon liquidation.
2,325
2,000
675
4,500
500
10,000
Assumption B. Actual Expenses < Cash Advance Amount

In case Mr. Salazar spent more than his cash advance and prepared instead the
following liquidation summary:
Transportation
Meal allowance
Hotel accommodation
Laundry
P3,000
1,450
6,000
800
Total expenses
Cash advance
11,250
10,000
Refundable amount
P1,250
The entry would instead be as follows:

April 15
Meal allowance
Hotel accommodation
Laundry
Accounts payable Expedito Salazar
3,000
1,450
6,000
800
10,000
1,250
SECTION 9 Receivables
Salary Loans
Another form that receivables may take are personal loans given by an NPO to its
officers and employees. This is done with the blessing of the Board of Trustees and is
governed by policies that are uniformly applicable to all.
Practical Example:
On April 30, 2005, Mr. Francisco Santos obtained a loan from IARI in the amount of
P12,000 bearing interest rate of 1% a month. Amortization is through payroll deduction
for a period of 12 months. A promissory note would be prepared to document the
arrangement.
The entry would be:
April 30
Salary loans receivable

Cash in bank PDB CA#111
To record expenses incurred by Mr. Salazar and

amount payable to him for his trip to Manila.
To record loans granted to F. Santos
12,000
12,000
| 69
On May 30, when the first monthly deduction was made from his payroll, the
entry would be:
May 30
Salaries and wages

45,000
SSS, Medicare and Pag-ibig premiums expense 1,270
Salary loans receivable
Interest income
1,000
120
9,962
1,920
200
33,068
The same entry will be made until the loan is repaid by F. Santos, except for the amount
of interest income which is to be computed based on the outstanding balance of his
loan.
There are times when the employee would make a loan from the Social Security System
(SSS) with the same arrangement, that is, payment would be through monthly salary
deduction. In this case, there would be no entry for the loan, but the monthly deduction
would be a credit to SSS loans payable. The NGO is obliged to remit the amount deducted
to the SSS.
The entry would be:
May 30
Salaries and wages

45,000
SSS, Medicare and Pag-ibig premiums expense 1,270
SSS loans payable
1,000
9,962
1,920
200
33,188
To record salaries of F. Santos and his first monthly loan

and interest deduction for his salary loan.
On June 10, the NGO remitted the amount to the SSS.

June 19
SSS loans payable

SSS premiums payable
To record salaries of F. Santos and

his first monthly loan SSS salary loan deduction.
To record remittances to SSS for salary

loans and premiums for the month of May 2005.
1,000
1,420
2,420
10. INVENTORIES
10.1 Description
IAS 2 describes inventories as assets that are held for sale in the ordinary course of
business; in the process of production for such sale; or in the form of materials or supplies
to be to be consumed in the production process or in rendering services.
Normally, the NPOs inventory comprised material or supplies to be consumed in the
process of rendering services. Some NPOs may manufacture goods for the purpose of
distributing these to the beneficiaries.
IAS 2, which prescribes that inventories be valued at a lower cost or net realizable
value, shall guide NPOs with regards to the issues raised. Based on the framework, all
the resources should be recognized as assets if they meet the definition of assets and
the recognition criteria. However, there are two specific situations where an NPO holds
an inventory: if an NPO has inventories held for distribution and if inventories are held
for production.
10.2 Inventories Held for Distribution

In many instances, NPOs purchase goods or receive donated goods that are intended
for distribution to beneficiaries. However, at balance sheet date, some of the items may
still be in the possession of the NPO because, for one reason or another, these may have
to be released after the balance sheet date. The remaining inventory should be
valued based on historical cost.
Illustrative Entries:
On December 10, 2005, OPN Foundation purchased clothes and canned goods to
be given to the victims of floods and typhoons amounting to 100,000.
Dec 10
Relief goods
Cash in bank
100,000
100,000
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To record purchase of clothes and canned goods

for victims of floods and typhoons
71
On December 11, 2005, OPN launched campaigns for people to support its relief
operations. Immediately, it received 200,000 worth of various donated goods from several
donors.
Dec 11
Relief goods
Donations received
200,000
200,000
From December 12 to 31, 2005, OPN distributed the relief goods to the intended
beneficiaries amounting to 250,000. The remainder, 50,000 worth of goods which are
still with OPN will be distributed in the following month/s in other areas.
Dec 31
Relief operations expenses - Goods

Relief goods
250,000
250,000
To record distributed goods to victims of floods and typhoons.
NOTE: The balance of relief goods inventory should be stated at 50,000 (100,000 plus
200,000 less 250,000)
10.3 Inventories Held for Production
To record of various goods received for victims of floods and typhoons.
In some instances, instead of purchasing goods for its beneficiaries, NPOs engage
in the process of production. For example, an NPO may produce organic fertilizers to be
distributed to farmers practicing sustainable agriculture concepts. In this case, the
practice of production accounting should be followed in as far as costing is concerned.
Purchases of raw materials, recognition of labor, application of overhead costs should
be similar to that of production accounting. At balance sheet, however, the remaining
raw materials, work-in-process, and finished goods have to be valued in the balance
sheet or statement of financial position. Inventories held for production should be
stated based on fair value.
11. INVESTMENTS
Accounting of investments in NPOs is similar to that of other types of organizations. In
many NPOs, investments form a significant part of their assets, especially those arising
from endowments, in which the NPO invests funds in perpetuity. The income from the
investments is then used by the NPO for its operations. Sometimes, the Board designates
certain funds to be set aside as long-term investments which may be used to assist the
NPO in collecting funds for use in major projects. However, some investments of NPOs
are so liquid and have such maturities that they are classified as cash equivalents rather
than investments.
Basically, there are two things to consider in accounting for investments: valuation and
the recognition of investment income/gain (or loss).
Initial Recognition
Upon placement of the investment, the asset is recorded at the face amount of the
investment instrument which is acquired in exchange of another asset, usually cash.
Entry:
| 73
100,000
100,000
Investment in ______
Cash
Period-End
Investments (stocks, bonds, etc.) are reported in the statement of financial position at
their fair value. Supposing that the fair value of the above investment on September 30,
is 110,000, the entry on September 30, should be:
Investment in _______
10,000
Unrealized gain(loss) from investment
To record investment in _______ .
To record unrealized gain from investment

based on its fair value on Sep 30.
10,000
Assuming that there may be a decrease in fair value in the succeeding period, such that
the investment is valued at 105,000 only on December 31, the unrealized loss from
investment should be recognized.
5,000
5,000
Unrealized gain(loss) from investment

Investment in _______
The unrealized gain(loss) should be presented at the net amount for the entire
period. In the above example, the unrealized gain is 5,000 (10,000 less 5,000)
Income
Periodically, income from investments is recorded in the books of the NPO based on the
declaration by the issuer of the investment instrument, e.g. dividend income.
Entry:
Cash
(or other form of asset as the case may be)
Income from investment
2,000
2,000
To record _______ income from

investment in _______________.
To record unrealized loss from investment

based on its fair value on Dec 31.
Important Note: The overall income and gain (net of losses) should be credited to the
intended project fund or operations as defined by either the specific donor or the
governing board.
12. PROPERTY & EQUIPMENT AND DEPRECIATION

12.1 Description
Per IAS 16, property, plant and equipment (PPE) are tangible assets that are expected
to be used during more than one period and that are held for use in the operations of
the organization. PPE are recognized when it is probable that the future economic
benefits associated with the asset will flow to the organization and its cost can be reliably
measured. The asset is initially measured at cost and subsequently can be measured at
cost or on revaluation basis.
In the business sector, the asset method is prescribed because of the principles of fair
presentation of balance sheet and matching principle, i.e., only the depreciated portion
of the property and equipment is recognized as an expense because only this is portion
was consumed in generating income during the accounting period. This is basically the
reason why all available accounting standards prescribe the asset method.
12.2 Acquisition of PPE by NPOs

NPOs receive grants intended for specific purpose/s. In many cases, the grant is intended
for the purchase of property or equipment. The donor will require the accounting of its
grant against its intended use. To properly monitor the specific grant activities, the
acquisition will be deducted against the said grant, thereby presenting the actual grant
balance at the end of the period. The matching of grant against its intention is achieved
here. However, for a fair presentation of the financial position of the NPO, the property
and equipment should be reflected in the balance sheet.
These two accounting objectives should be met matching of source against its intention
and fair presentation of balance sheet. Sometimes, only one of these is reflected in the
financial statements.
Acquisitions from Unrestricted Funds
The asset method is proposed as this is the prescribed method in the current
pronouncements.
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75
Entry upon Acquisition

Property and equipment
Cash
50,000
50,000
To record acquisition of _______ equipment
Provision of Deprecation
Depreciation expense
10,000
10,000
To record depreciation for the period.
Upon Retirement, Sale or Disposal

Assuming that after 80% of its cost is fully-depreciated or its net book value is
only 10,000, the equipment was sold at 12,000. The entry to close the equipment
accounts and to recognize the sale is:
Cash
Property & equipment
Gain from sale of equipment
12,000
40,000
50,000
2,000
To record the sale of _________ equipment.
If, on the other hand, the selling price is lower than the net book value, say 9,000,
the loss from sale (1,000) should be debited.
In some instances, the old equipment is donated to another NPO or to beneficiaries.
Donation
Property & equipment
10,000
40,000
50,000
To record donation of _________ equipment to ___________.
Acquisitions from Restricted Funds

When property and equipment are acquired from restricted grant funds, it is proposed
to treat property and equipment as follows:
To meet the requirements of fair presentation of balance sheet and proper
matching of sources against its intentions, the accounting entries and
presentation should provide for both. Corollary entries are made to record the
acquisition as deduction from grant and recognizing the property as asset and
crediting to Property and Equipment Fund (a net asset account). Depreciation
will then be charged against the Property and Equipment Fund.
It is worthwhile to note that the above treatment of property and equipment requires a
separate budget for capital outlay is formulated and approved.
Example: Purchase of a computer set charged against ABC grant

a. Acquisition
In ABC Operational Fund
SECTION 12 Property & Equipment and Depreciation
Cr
5,000.00
5,000.00
In Property & Equipment Fund

Office Equipment (as Asset)
5,000.00
5,000.00
Note: The above two sets of entries should be made at the same time for every property
acquisition.
Presentation in the Statement of Changes in Net Asset
Restr. Fund
ABC
Property &
Equipt Fund
TOTAL
( 5,000)
5,000
Office Equipment Acquisition or

Capital Outlay or Fund Transfer to
b. Depreciation
This is an expense of the Property & Equipment Fund; it is not an expense of the grant
fund (ABC) because the total amount of the acquisition has been deducted from the
ABC fund already.
Depreciation Expense
Accumulated Depreciation
Dr
Cash
To record depreciation for the period
Dr
1,000.00
Cr
1,000.00
| 77
Presentation in the Statement of Activities
EXPENSES:
_______________
_______________
1,000.00
Presentation in the Statement of Financial Position
Property &
Equipt Fund
ASSETS
_______________
_______________
Office Equipment
Less: Accumulated Depreciation
Net Book Value
4,000.00
________________________
________________________
NET ASSETS
Net Asset
4,000.00
________________________
________________________
c. Disposition of Property
This is recorded and presented following the reciprocal of the above entries, i.e., to
close the cost of the property, related accumulated depreciation, and the net book
value under the Property and Equipment Fund. Proceeds or cash value, if any, is
recognized as Other Income in the Operational Fund (not in the Property and
Equipment Fund).
12.2 Ownership
Another issue here is the question of transfer of ownership from the donor to the NPO.
In some instances, transfer of ownership from the donor to the NPO is deferred until
the end of the project term or is dependent on meeting the agreement within the project
period.
5,000.00
1,000.00
________________________
Property &
Equipt Fund
Property and equipment should be recognized at the time of ownership. The value of
the property can be based on historical cost less depreciation or re-valued at the time of
transfer of ownership. In the case of a property acquired from restricted grant/donation
and ownership of the property remains with the grantor/donor until the fulfillment of
certain requirements, then there should be a disclosure in the financial statements that
there are these assets that are in the possession of the NPO but not yet in its name.
12.3 Valuation of Received Donated Properties

Many NPOs receive donated property and equipment; however, the historical record of
the property may not be readily available, so donated properties are usually valued at
fair value at the time of donation or transfer of ownership.
12.4 Depreciation Method

There are various methods of depreciation. Every method has its own justification.
Generally for NPOs, the straight-line method is used over the estimated useful life of
the property as most properties are identified with its usage over a specific period. An
option is to use the written-down value or impaired value method.
12.5 Impairment of Assets
SECTION 12 Property & Equipment and Depreciation
Impairment of assets shall be guided by IAS 36.
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13. LIABILITIES
13.1 Description
A liability is a present obligation of the NPO arising from past transactions or events,
the settlement of which is expected to result in an outflow of resources from the
organization embodying economic benefits or service potential. Liabilities may include:
amounts payable to suppliers for the purchase of goods or services; accounts withheld
from employees or other parties for taxes and for contributions to the SSS or to pension
funds; accruals of expenses; deposit and advances from suppliers, officers; debt obligations
for borrowed funds.
Recognition and treatment of the above-mentioned forms liabilities in an NPO is very
similar to that of the business organizations. However, a very specific type of liability in
an NPO arises from the recognition of a grant received, or portion thereof, that is intended
for future period/s. Other specific types of liability are pass-through accounts or fundsheld-in-trust.
Because these two types of liability are peculiar to NPOs, they are discussed separately
below.
13.2 Deferred Grant

Deferred grants represent support received that is applicable to succeeding years. The
funds are to be used only for the specific projects and in compliance with the terms and
conditions of the support. Under this category, unused funds at the end of the project
are returned to the donors.
Since this is related directly to the accounting of grant received, discussions and examples
are deferred and presented under Chapter 16.1 Grants and Donations.
13.3 Accounts Payable

Accounts payable represent amounts that are owed by the NPO to individuals or
other organizations because of services provided or goods purchased from these entities.
80
For example, a supplier delivered office supplies and equipment to the NPO accompanied
by a billing statement with specific terms of payment and delivery receipt. After the
NPO accepted the goods, the NPO prepares these entries:
Date
Office supplies
Office equipment
Accounts payable - AAA
10,000
50,000
60,000
SECTION 13 Liabilities
After 30 days, the NPO paid AAA for the goods received
Date
Accounts payable - AAA

Cash
60,000
60,000
To record payment of AR to AAA

per billing statement number ___.
13.4 Other Liabilities

Other liabilities such as collections of employee contributions to SSS, mutual funds,
and taxes from employee compensation which are later on remitted to the respective
agencies are treated as liabilities upon collection or deduction from the payroll. These
are subsequently closed upon paying or remitting the amounts.
In NPOs, amounts refundable to employees arising from the liquidation of cash
advances, i.e., actual expense is greater than the original cash advance amount, also fall
under this category.
These liabilities are credited upon incurrence and debited when paid. Sample
entries related to this type have been presented in Chapter 9.4.
13.5 Long-term Liabilities
To record purchase of office supplies

and equipment to be paid after 30 days.
Long-term liabilities are obligations of the NPO to be paid over several years or at least
after more than one year. NPOs usually incur these when there are cash flow problems
such as delayed remittance from donors. Long-term liabilities may also be incurred
when the NPO is engaged in a long-term project, such as construction of a building, in
which cash inflows from sources or donors are expected to be received over several
years. The NPO borrows funds to finance the construction and repay these from the
expected cash inflows.
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Pro-forma Entries
Upon Incurrence
Cash (or other form of asset received)
500,000
500,000
To record loan received for the _________________
Re-classifying the Short-term Portion of the Loan at Period-End. Periodically, the

maturing portion of the loan is re-classified under Current Liabilities.
Loans payable Current
100,000
100,000
To recognize the current portion

of loans payable to __________
Interest expense related to the loans should also be recognized at period-end.

Interest expense
Interest payable
10,000
10,000
To recognize the interest expense

on the loans to _____ for the period.
Payment of Maturing Portion of the Principal and the Interest

Loans payable Current
Interest payable
Cash
100,000
10,000
To record partial payment of loans

to _________ and payment of interest payable.
110,000
14. AGENCY TRANSACTIONS/

FUNDS HELD IN TRUST
These are advances made to an organization for custody which would later be used for
a specific purpose not necessarily administered by the organization. The AICPA5 calls
this type of transaction Agency Transaction, some European NPOs call it Pass-Through
Accounts, and some Asian NPOs call it Funds-Held-in-Trust.
These are resources received in transactions in which an NPO is acting as an agent,
trustee, or intermediary for a resource provider. In the AICPA Audit and Accounting
guide, it is provided that these agency transactions when received should be reported
as increases in assets and liabilities and distributions to third party recipients should
be reported as decreases in these accounts. Amounts held under agency transactions
should be included as liabilities in the Statement of Financial Position. Cash received
and paid in such a transaction should be reported as cash flows from operating activities
in a Statement of Cash Flows.
Agency transactions/Funds-held-in-trust are part of liabilities. The NPO is not the donee;
therefore, this account should be treated as a liability. However, if the donor explicitly
grants the recipient organization variance power, i.e., unilateral power to redirect the
use of the transferred assets to another beneficiary, or if the recipient organization and
the specified beneficiary are financially interrelated organizations, the recipient
organization should recognize the amount as a contribution received. NPOs are
financially interrelated if (a) one organization has the ability to influence the operating
and financial decisions of the other and (b) one organization has an ongoing economic
interest in the net asset of the other.
Transactions that fall under this type should be properly disclosed.
AICPA = American Institute of Certified Public Accountants
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15. PROVISIONS AND CONTINGENCIES

Provisions are recognized as liabilities (assuming that a reliable estimate can be made)
because they are present obligations and it is probable that an outflow of resources
embodying economic benefits or service potential will be required to settle the obligations.
Contingent Liabilities are not recognized as liabilities because they are either:
a. A possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the organization.
b. A present obligation that arises from past events but not recognized because it is
not probable that an outflow of resources will be required to settle the obligation,
or the amount of the obligation cannot be measured with sufficient reliability.
The basic principles and requirements stated in IPSAS 19 and IAS 37 should be adopted.
Basically, provisions are recognized as a liability if a reliable estimate can be made;
contingent liabilities are not recognized as liability, however, disclosures about the
contingent liabilities are required.
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16. CONTRIBUTIONS AND INCOME

16.1 Grants and Donations
There is no provision in the IAS for Grants Received by NPOs. The AICPA Audit
and Accounting Guide on Contributions may also be a reference. Contributions are
defined as transactions in which one entity makes an unconditional voluntary transfer
to another entity without directly receiving equal value in exchange. The transfer may
involve cash or any other asset such as securities, land, buildings, use of facilities or
utilities, material and supplies, intangible assets, services, and unconditional promises
to give those items in the future.
In determining whether a transaction is a contribution or not, the guide provides that
the organization needs to assess the extent of discretion it has over the asset received
and whether it has given up assets, rights, or privileges approximately equal to the
assets, rights, or privileges received. If it has little or no discretion, the transaction is an
agency transaction (discussed separately in 4.13). If it has discretion over the assets
use, the transaction is a contribution, an exchange or a combination of the two.
Accounting for donations and grants is one of the major and specific issues for
NPOs.
Unrestricted Grants and Donations
Unrestricted grants and donations should be treated as Revenue of the NPO. Project
grants are treated as revenues for the period and presented as such in the statement of
activities. Project expenses are deducted from the grant resulting in excess or deficit
which will then be added or deducted from the Net Asset. However, unless otherwise
stipulated in the agreement with the grantor, grant and the resulting net asset should
be treated as Restricted Fund. Many NPOs treat grants as revenue because these are
the principal sources of resources for its operations.
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Illustration:
On July 1, 2005 Pinoy Tayo Foundation, Inc. received a grant from International
Good Governance Institute (IGGI) for Php 1,000,000.
Journal Entries to record the above transactions in the books of Pinoy Tayo:
Credit
Cash in Bank
Grant IGGI
1,000,000.00
1,000,000.00
Debit
Revenues
Php 1,000,000
Restricted Grants and Donations

Case 1: Many grants and donations have a stipulation that unspent portion shall be
returned, or effectively returned, to the grantor/donor thereby creating a
possibility of resource outflow. In this case, grants and donations are recognized
as a liability - Deferred Grant - upon receipt. Periodically, a portion of the
Deferred Grant is recognized as revenue based on the expenses incurred for
the period. This method follows the proposition that the NPO earns its revenue
based on its activities or performance, as expressed in its expenses. The revenue
is always equal to expenses; unspent portion of the grant remains as a liability.
Illustration
On July 1, 2005, Pinoy Tayo Foundation, Inc. received a grant from Concerned
Poverty Removal (CPR) Inc. in the amount of Php 2,000,000.00. Based on their
Grant Agreement an amount of Php 1,100,000.00 shall be spent for January
2006 for Monitoring and Evaluation (M&E) Activities.
a. To record the receipt of the grant on July 1, 2005
Cash in Bank
Grant CPR
Deferred Grant
Debit
2,000,000.00
Credit
900,000.00
1,100,000.00
Pinoy Tayo Foundation, Inc.

Statement of Activities
For the year ended December 31, 200X
Note : The Grant of PhP 900,000.00 will be shown in the Statement of Activities for the
calendar year ended December 31, 2005 under the caption REVENUE; the unspent
portion of the Grant which is Php 1,100,000.00 at the end of the calendar year 2005
will be shown in the Statement of Financial Position under the caption LIABILITIES.
b. To record the expenses incurred for M&E activities on January 25, 2006.
SECTION 16 Contributions and Income
Debit
1,1000,000.00
Credit
1,100,000.00
c. To record the recognition of the Deferred Grant as Revenue in 2006.
M&E expenses
Cash in Bank
Debit
1,100,000.00
Credit
1,100,000.00
Case 2: For grants and donations that are treated as non-exchange transactions, the
asset-liability approach can be adopted since the IASB and IPSASB have both
taken this approach to recognize the revenue arising from non-exchange
transactions.
16.2 Contributions in Kind

Contributions in kind may be in the form of goods, equipment, use of facilities, and
services rendered.
Valuation
Non-Cash Contributions are valued at fair value if the fair value can be measured reliably,
but whenever this is not possible, any of the following alternatives, which should be
disclosed in the notes to financial statements were suggested:
a. Quoted market prices for similar assets
b. The assets replacement cost
c. Independent appraisal of the assets fair value
d. Other valuation techniques, such as discounting the estimated future cash flows.
Fair Value means the amount for which an asset could be exchanged, or a liability
settled between knowledgeable, willing parties in an arms length transaction If the
contributions have no value, these should not be recognized. No value means that
these cannot be used by the Organization.
Illustration
Pinoy Tayo Foundation, Inc. received an equipment from CPR with the following
information:
Deferred Grant
Grant CPR
Equipment
Book Value
Fair Value as independently appraised
Php 1,000,000.00
400,000.00
600,000.00
700,000.00
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To record the above receipt of equipment:
Debit
700,000.00
Credit
700,000.00
Contributed Services are reported as contribution revenue and as assets or expenses

on the following conditions:
a. if the services create or enhance a non-financial asset
b. if the service would typically be needed to be purchased
c. if the service requires specialized skills
d. if these services are provided by individuals with such skills
For contributed services that do not meet the criteria above, such as walk-in
volunteer services, it is recommended that these are disclosed in the notes to financial
statements.
Illustration:
Mr. Pedro Tubig, had approached the Executive Director of Pinoy Tayo Foundation and
had offered his services as a Hydro Engineer Specialist for the Water Distribution Project
of Pinoy Tayo Foundation for free, as part of his Good Samaritan work. The latest
proposal received by Pinoy Tayo from a private Hydro Specialist Company was Php
300,000.00 for the consultancy.
To record the Non-cash contribution/donation:
Consultancy Hydro Specialist
Non-cash contribution/donation
Debit
300,000.00
Credit
300,000.00
16.3 Membership Fees

Imagine the following situation: a new professional membership organization is offering
a one-year membership fee for 6,000.00. How should this organization account for these
revenues? In accrual accounting, an organization recognizes that it has rights to
payments that have not yet been received. These rights are called Accounts Receivable.
The organization also recognizes that it does not have rights to cash that has been
received in advance or providing the related services. These amounts are called Deferred
Revenue.
Equipment
Grant CPR
In the above example, the 6,000.00 membership fee is for one years worth of services,
or 500.00 a month. Under both cash and accrual accounting, the cash increases by
6,000.00 when the membership fee is received. With cash accounting, the full 6,000.00
is shown as revenue on the day that the cash is received. In contrast, an organization
using accrual accounting would recognize the revenue as it was earned, which would be
500.00. In the first month, the organization would have just 500.00 in revenue, and the
remaining 5,500.00 would be shown as deferred revenue. Each month, an additional
500.00 would be recognized as revenue, reducing the deferred revenue.
RELATED LITERATURE on GOVERNMENT GRANTS

At this point, this Accounting Guide presents illustrations on Government Grants, as
some NPOs may have transactions regarding this item. IAS 20 defines government
grants as assistance by government in the form of transfers of resources to an enterprise
in return for part or future compliance with certain conditions relating to the operating
activities of the enterprise.
Government grants, including non-monetary grant at fair value, should be recognized
when there is reasonable assurance that:
a. The enterprise will comply with the conditions attaching to them.
b. The grants will be received.
Classification of government grants:
a. Grants related to assets These are government grants whose primary condition
is that an enterprise qualifying for them should purchase, construct or otherwise
acquire long-term assets. Subsidiary conditions may also be attached restricting
the type or location of the assets or the periods during which they are to be acquired
or held.
b. Grants related to income These are government grants other than those related
to assets.
Accounting for government grants
1. Income approach Government grants should be recognized as income over the
periods necessary to match them with the related costs which they are intended
to compensate, on a systematic basis. In other words, the grant is taken to income
over one or more periods. This is the more acceptable approach.
2. Capital approach Government grants should be credited directly to
shareholdersequity. The reason for this is that government grants are not earned
but represent an incentive provided by government without related costs. This
does not apply to NPOs.
Illustration A:
Community Based Network (CBN) receives a grant of 30,000,000.00 from the National
Government, through the Department of Environment and Natural Resources, for the
purpose of reforestation of the portion of Sierra Madre Mountains over the period of
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three years. The reforestation expenses that will be incurred by CBN are as follows:
First year
Second year
Third year
4,000,000.00
6,000,000.00
10,000,000.00
The standard provides that grants in recognition of specific expenses should be

recognized as income over the period of the related expense.
Accordingly, the grant of 30,000,000.00 is allocated as income over three years in
proportion to the costs incurred.
First year
Debit
30,000,000.00
Cash
Deferred income government grant
Credit
30,000,000.00
To record the grant received from DENR

Income from government grant
6,000,000.00
6,000,000.00
To record the deferred income

(4/20 x 30,000,000.00)
Reforestation expenses
Cash
4,000,000.00
4,000,000.00
To record the 1st year reforestation expense
Second year
9,000,000.00
9,000,000.00
To record the 2nd year deferred income

(6/20 x 30,000,000.00)
Cash
6,000,000.00
6,000,000.00
To record the 2nd year reforestation expense
Third year
15,000,000.00
15,000,000.00
To record the 3rd year deferred income

(10/20 x 30,000,000.00)
Cash
20,000,000.00
To record the 3rd year reforestation expense
10,000,000.00
10,000,000.00
Illustration B
Coco Power receives a grant of 50,000,000.00 from the Australian government for
the construction of a virgin coconut oil facility with an estimated cost of 80,000,000.00
and useful life of 5 years.
The standard provides that grants related to depreciable assets should be recognized
as income over the periods and in proportion to the depreciation of the related assets.
Accordingly, the grant of 50,000,000.00 should be allocated as income over 5 years. The
pertinent entries in the first year are:
Debit
50,000,000.00
1. Cash
Credit
50,000,000.00
2. Building
Cash
80,000,000.00
3. Depreciation
(80,000,000 / 5)
16,000,000.00
4. Deferred income government grant

(50,000,000 / 5)
10,000,000.00
80,000,000.00
16,000,000.00
10,000,000.00
Illustration C
PhilCoco is granted a large tract of land in Mindanao by the national government.
The fair value of the land is 60,000,000. The grant requires that PhilCoco should
construct a coco-diesel refinery on the site. The cost of the refinery is estimated to be
100,000,000.00 and the useful life is 20 years.
The standard provides that grants related to non-depreciable assets requiring fulfillment
of certain conditions should be recognized as income over the periods which bear the
cost of meeting the conditions.
Accordingly, the grant of 60,000,000.00 should be allocated over 20 years. The pertinent
entries in the first year are:
1. Land
2. Refinery
Cash
3. Depreciation
(100,000,000 / 20)
4. Deferred income government grant
(60,000,000 / 20)
Debit
60,000,000.00
Credit
60,000,000.00
100,000,000.00
100,000,000.00
5,000,000.00
5,000,000.00
3,000,000.00
3,000,000.00
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Illustration D
PeoplesRehab receives grant of 50,000,000.00 from the USA government to
compensate for massive losses incurred because of a recent tsunami.
The standard provides that a government grant that becomes receivable as
compensation for expenses or losses already incurred or for the purpose of giving
immediate financial support to the enterprise with no further related costs should be
recognized as income of the period in which it becomes receivable, as an extraordinary
item if appropriate.
Accordingly, the grant of 50,000,000.00 is recognized as income immediately as follows:
Cash
50,000,000.00
50,000,000.00
Since the tsunami losses suffered are extraordinary in nature, the income from the
government grant should be presented also as an extraordinary item.
17. EXPENSES
17.1 Description
Expenses are gross decreases in assets or gross increases in liabilities (or a combination
of both) recognized and measured from rendering services, delivering or producing goods,
or carrying out other activities that constitute the NPOs ongoing major or central
operations. While revenues increase net assets, expenses decrease the net assets of an NPO.
When determining the net excess or deficit for the period, the following pervasive
principles are considered:
a. Associating cause and effect where costs are recognized on the basis of a presumed
direct association with specific revenue which means that costs are charge to
expense in the period that the revenue with which they are associated is recognized.
b. Systematic and Rational allocation wherein the absence of a direct means of
associating cause and effect, some costs are associated with specific accounting
periods as expenses on the basis of an attempt to allocate costs in a systematic
and rational manner among the periods in which benefits are provided.
c. Immediate recognition the cost is immediately expensed.
17.2 Classification of NPO Expenses

Natural Classification of Expenses
This refers to the enumeration of expenses that includes expense categories such as
salaries, rent, electricity, etc. This may not reflect the services, programs, projects of an
NPO which reflect its goals and objectives.
Functional Classification of Expenses
Expenses are classified in relation to the major classification programs/projects,
administrative, fund-raising. This practice classifies all costs according to different
functions of the NPO.
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It is recommended that for NPOs, expenses must be presented by functional classification

in the Statement of Activities. Functional reporting, as its name implies, describes the
activity for which the NPO incurs an expense. The functional classification of expenses
is as follows:
a. Program/Project expenses
b. Administrative expenses, which are further classified as:
General expenses
Human resource development (includes Training Expenses)
c. Fund-raising expenses
Definitions of Functional Classification:
a. Program/Project Expenses relate to those program service activities that result
in services (or goods) being distributed to beneficiaries or members that fulfill
the basic mission of the NPO. An organization can have more than one category
of program services.
Program services expenses are those amounts specifically expended in support of
activities that directly advance the organizations nonprofit mission. In other
words, if an organization exists to promote the development of a cure for AIDS,
amounts spent in grants to AIDS researchers is a program services expense.
b. Administrative Expenses
General Expenses relate to activities such as oversight management, general
record keeping, office maintenance, and similar expenses.
Human Resource Development pertains to expenses incurred for the purpose
of developing and consolidating the NPOs board of trustee, management and
staff.
c. Fund-Raising Expenses are those expenses incurred in encouraging donors to
contribute to the NPO. Fundraising expenses are those amounts used to bring in
additional revenue, typically (but not only) through public donations. An example
of fundraising expenses are the costs of printing and mailing to the general public
flyers that encourage them to support the organizations mission by sending a
donation.
Important Note:
Personnel and other costs traceable to a specific program should be part of program
costs. Administrative personnel and overhead costs are part of Administrative expenses.
Practical Examples
a. Conducted training to co-operators and the following expenses were incurred:
Training Venue
Travel and Transportation of co-operators
Accommodations and meals
Lecturers Honoraria
Total
Php 10,000
5,000
45,000
15,000
Php 75,000
Project Expenses Co-operators Training

Cash
Debit
75,000
Credit
75,000
b. Professional fees paid for Writers 20,000

Project Expenses Professional Fees
Cash
Debit
20,000
Credit
20,000
c. Supplies and materials were procured for 10,000

Administration Expenses Supplies & materials
Cash
Debit
10,000
Credit
10,000
d. The Project pays the monthly rental - 40,000

Administration Expenses Office rent
Cash
Debit
40,000
Credit
80,000
e. Paid salaries of Project management staff 200,000

Administration Expenses Personnel cost
Cash
Debit
200,000
Credit
200,000
f. Conducted staff development training total expenses = 50,000

Human Resource Devt Staff Development training
Cash
Debit
50,000
Credit
50,000
g. Incurred fund-raising expenses, raffle tickets - 20,000
SECTION 17 Expenses
Fund Raising Costs Materials

Cash
Debit
20,000
Credit
20,000
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A Schedule of Expenses using the functional classification can be presented in this

format:
ACCOUNTS
PROGRAM/
PROJECT
EXPENSES
ADMIN
EXPENSES
FUNDRAISING
EXPENSES
TOTAL
Sub-total
Sub-total
TOTAL
17.3 Allocation of Joint Costs

This addresses a situation where a cost incurred by an NPO relates to two or more
different activities. The cost is allocated and reflected in the financial statements, with
a particular impact on the functional reporting in the statement of activities.
Joint costs and indirect costs are allocated to programs and support services. There are
three criteria permitting cost allocation:
a. Purpose criterion
b. Audience criterion
c. Content criterion
Purpose criterion is met if the purpose of the joint activity includes two or
more programs or support services.
Audience criterion is met if the target audience or beneficiaries includes two or
more programs or support services.
Content criterion is met if the joint activity supports program or support services
There are ways of allocation. However, the adopted allocation method should form
part the accounting policies of the NPO and should be applied consistently
for the same type of transaction until the policy is revised. The following are
some of the methods:
a. Physical units method. This method allocates costs based on the physical materials
that make up the joint costs.
b. Relative direct method. This method allocates joint costs in relation to the direct
costs of each of the activities.
c. Stand-alone cost method. This method allocates joint costs to each component of
the joint activity on a ratio that estimates the costs that would have been incurred
had the joint activity been performed separately
Many NPOs practice allocating joint costs using any or combination of the following:
a. Equal allocation. Each project shares equally.
b. Budget-based allocation. Costs are allocated on overflow basis, starting with the
project that has the lowest budget.
c. Size-based allocation. Size may be measured by:
SECTION 17 Expenses
Unit
Persons
Square Meter
Mileage/Kilometers Used
Numbers
Call Units
Local Currency/Equivalent
Persons
Villages
To facilitate the task of allocating joint-costs, an allocation worksheet can be prepared:
Allocation Base
Staff
Office Area
Vehicle Usage
Phone Extension
Phone Calls
Grant Size
Beneficiaries
Field Area
COST
HEADING
TOTAL
AMOUNT
ALLOCATION
BASIS
CALCULATIONS
AMOUNT ALLOCATED
ProjectA ProjectB ProjectC
Total
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18. GAINS AND LOSSES

Revenues of NGOs increase their net assets, expenses decrease Net Assets. All other
transactions that increase or decrease the net assets of a not-for-profit organization are
referred to as gains or losses, respectively. Gains and losses are auxiliary to the NGOs
revenues and expenses, they are not major or central operations.
Many NPOs derive gains and incur losses from foreign exchange transactions, sale of
property, re-valuation of investment securities, and other incidentals.
Presentation
In presenting gains and losses, the Net Basis should be used, i.e., only the net gain
or loss arising from a single set of transactions is presented.
For example, gains and losses from foreign exchange are presented as either net
gain or loss.
Total foreign exchange gain for the period
100,000
Total foreign exchange losses for the period
( 75,000)
Net foreign exchange gain
25,000
__________________
__________________
The net amount of 25,000 gain should be reflected in the Statement of Activities
with a corresponding note to financial statements regarding the incurrence of the net
gain.
98
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OTHER RELEVANT ASPECTS

OF
NPO ACCOUNTING
IV
19. CONSOLIDATED FINANCIAL STATEMENTS

There are instances in the life or existence of an NPO, when it creates another company
to carry out its mission to be of service to mankind. What happens is that it becomes the
sole owner or incorporator, of a new company or corporation which specifies in its articles
of incorporation the very objectives that the NPO wants it to achieve. Thus, the NPO
becomes the parent company and the newly formed company or corporation constitutes
its subsidiary, or its wholly-owned subsidiary. In other words, the NPO is now in control
of this company, meaning the NPO shall have the power to govern its financial and
operating policies so as to obtain benefits from its activities, as clearly defined by IAS
27, Consolidated and Separate Financial Statements.
Definition of Terms:
Consolidated financial statements are the financial statements of a group presented as
those of a single economic entity.
A group is a parent and all its subsidiaries.
A parent is an entity that has one or more subsidiaries.
A subsidiary is an entity, including an unincorporated entity, such as a partnership,
that is controlled by another entity (known as the parent).
Control is the power to govern the financial and operating policies of an entity i.e. a
subsidiary, so as to obtain benefits from its activities. A corporation becomes a subsidiary
when another corporation acquires a controlling interest in its outstanding voting stock.
Ordinarily, one corporation gains control of another corporation directly by acquiring a
majority (more than 50%) of its voting stock.
IAS 27 states that a parent shall present consolidated financial statements in
which it consolidates its investment in subsidiaries in accordance with its provisions.
Control also exists even if the parent owns less than 50% of the voting power of
another corporation when there is power over more than half of the voting rights by
virtue of an agreement, or to govern the financial and operating policies by the NPO
100 |Accounting Guide for Non-Profits
100
under a statute or agreement. Control is also evidenced by power of the NPO to remove
or appoint the majority of the board members or to cast the majority pf votes at meetings
of the board.
A. Acquisition cost is equal to the fair values of the identifiable assets and liabilities
acquired
ABC Organization, an NPO, pays 90,000 for 100% of the outstanding voting stock
of XYZ Corporation, a Rural Bank, on January 1, 2000. At the end of the year, XYZ
Corporations net income and dividends are as follows:
SECTION 19 Consolidated Financial Statements
Net income
25,000
Dividends
15,000
In the books of ABC (Parent)
In the books of XYZ Corporation (Subsidiary)
Investment in XYZ Corporation

Cash
90,000
90,000
Cash
Capital stock
90,000
90,000
To record the acquisition of

the outstanding voting stock
of XYZ Corporation
To record the sale of the

outstanding voting stock

25,000
Share in subsidiary net income
NO ENTRY
25,000
To record 100% share in

XYZ Corporations net income
Cash
15,000
To record receipt of cash
dividends from XYZ
Corporation
15,000
Retained earnings
Cash
To record issuance of
cash dividends to ABC
Corporation
15,000
15,000
In addition, ABC maintains a savings deposit with XYZ Corporation amounting to 7,500.
NO ENTRY
Cash
Deposit liabilities
7,500
7,500
Just a transfer from Cash on

hand to Cash in bank.
To record receipt of
deposits from ABC Corporation
2000
The building facilities of XYZ Corporation are being rented from ABC. Monthly rental
amounts to 1,000.
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PART IV Other Related Aspects of NPO Accounting
Cash
12,000
Rent income
12,000
Rent expense
Cash
12,000
12,000
To record rental expense

paid to ABC Corporation
during the year
Certain advances are made by ABC from XYZ Corporation amounting to P5,500.
To record rental income

received from XYZ
Corporation during the year
Cash
5,500
Advances from XYZ
Corporation
5,500
Advances to ABC Corporation

Cash
5,500
5,500
To record receipt of cash

advances from XYZ
Corporation
To record issuance of cash

advances to ABC
Corporation
At the end of the year, ABC and XYZ prepare their separate financial statements. In
addition, ABC shall prepare consolidated financial statements, and this is done by
combining the financial statements of the parent and its subsidiaries line by line by
adding together like items of assets, liabilities, equity, income and expenses.
To clearly carry this out, a worksheet shall be prepared to present the financial
statements of the Parent or ABC in the first 2 columns, and the financial statements of
the subsidiary or XYZ in the next 2 columns, or on the 3rd and 4th columns.
In order that the consolidated financial statements present financial information about
the group as that of a single economic entity, the following elimination entries are then
taken:
1. The carrying amount of ABCs investment in XYZ
a. Share in subsidiary net income
25,000
25,000
To eliminate ABC Corporations share in XYZ

Corporations net income to bring the investment
account to its beginning-of-the-period balance
b. Investment in XYZ Corporation
Dividends
15,000
15,000
To eliminate the cash dividends from XYZ

Corporation to bring the investment
account to its beginning-of-the-period balance
c Capital stock XYZ Corporation
To eliminate reciprocal equity and

investment balances
90,000
90,000
The above elimination entries shall be presented in the next 2 columns, or on

the 5 and 6th columns, along the same line of the accounts of both ABC and XYZ. Thus,
in the first entry, share in subsidiary net income shall be debited along the line of Share
in Subsidiary Net Income in the Statement of Operations of ABC Corporation, while
Investment in XYZ Corporation shall be credited to Investment in XYZ Corporation
in the Balance Sheet of ABC Corporation. As one can see, the investment account is
reduced by P25,000, and later by the elimination entries on dividends and reciprocal
equity and investment accounts, until the Investment account is reduced to zero.
th
2. Intra-group balances, transactions, income and expenses shall be eliminated in

full
d. Advances from XYZ Corporation
Advances to ABC
5,500
5,500
To eliminate intercompany balances

e. Deposit liabilities
Cash
7,500
7,500
To eliminate ABC savings deposit

with XYZ Corporation
f. Rent income
Rent expense
12,000
12,000
To eliminate inter-company
income and expenses
Following the procedures done in the first set of elimination entries for Investment,
Advances from XYZ Corporation shall be debited to the corresponding liability account
in the Balance Sheet of ABC Corporation and Advances to ABC Corporation shall be
credited to the corresponding asset account in the Balance Sheet of XYZ Corporation.
This will totally remove the advances from the accounts of both companies.
In the same manner, Deposit Liabilities shall be debited to the same account in
the Balance Sheet of XYZ Corporation, and Cash shall be credited to the same account
in the Balance Sheet of ABC Corporation. This entry will reduce these accounts by the
same amount.
The next step is to combine the 6 columns and this will result in the consolidated
amounts that should appear in the consolidated financial statements.
IAS 27 emphasizes the following points:
SECTION 19 Consolidated Financial Statements
1. Intragroup balances and transactions, including income, expenses and dividends,

are eliminated in full. Profits and losses resulting from intragroup transactions
that are recognized in assets, such as inventory and fixed assets, are eliminated
in full.
| 103
2. The financial statements of the parent and its subsidiaries used in the preparation
of the consolidated financial statements shall be prepared as of the same reporting
date.
3. Consolidated financial statements shall be prepared using uniform accounting
policies for like transactions and other events in similar circumstances.
In the consolidated financial statements, the consolidated net income shall equal
the Parents net income, and the consolidated equity shall equal the Parents equity.
20. Matrix Reporting/Fund Accounting

20.1 Definition
The IAS did not mention Matrix Reporting/Fund Accounting as this is peculiar to NPOs
and government institutions. Initially, the AICPA provided guidelines on this topic but
eventually, SFAS 117 does not require reporting financial information by funds.
Matrix Reporting/Fund Accounting is defined as a system of recording resources whose
use may be limited by donors, granting agencies, governing boards, management, or by
law. To keep the books and records in a way that gave recognition to the restrictions set
by the donors, some NPOs kept a series of separate funds for a variety of specific purposes.
Each fund consisted of a self-balancing set of assets, liabilities and net asset accounts.
20.2 As a Method of Accounting for NPOs

Matrix Reporting/Fund Accounting reports may be considered as special-purpose
financial reports and therefore not included as basic requirements in financial reporting.
However, Matrix Reporting/Fund Accounting as part of the accounting system of NPOs
may contribute to better NPO accounting based on the following justifications:
| 105
Matrix Reporting/Fund Accounting is a concept peculiar to NPOs. NPOs receive

funds under various terms and conditions and may be grouped in various ways
based on their intent and purpose and restrictions set by donors and management.
Funding sources and funding arrangements may also vary - single fund, co-funding,
or multi-funding for either individual activities, individual programs, several
programs or the entire organization.
Accountability, transparency, and monitoring were on the top of the list of reasons
why NPOs applied the concept of matrix reporting/fund accounting.
Matrix Reporting/Fund Accounting is also the expression of matching of sources
against intentions (a fundamental concept in accounting) in NPOs. In business,
there should be a proper matching of costs against revenues. In the same manner,
NPOs should have proper matching of funds/sources against its intentions. Fund
is defined as an amount set aside for a specific purpose.
IPSAS 18 Segment Reporting states that reporting financial information by
segments will:
105
- help users of the financial statements to better understand the entitys past
performance and to identify the resources allocated to support the major activities
of the entity; and
- enhance the transparency of financial reporting and enable the entity to better
discharge its accountability obligations.
A segment is a distinguishable activity or group of activities of an entity for
which it is appropriate to separately report financial information for the purpose
of evaluating the entitys past performance in achieving its objectives and for
making decisions about the future allocation of resources.
It is recommended, therefore, that Matrix Reporting/Fund Accounting is an
accounting method for NPOs.
20.3 Dimensions of Fund Accounting

Based on the agreements with the intended user of the NPO financial statements, like
funding agencies (FA), a supporting statement to the Statement of Activities showing,
in a matrix form the relationship of the revenues, expenses, and Net Assets with respect
to each funding source, programs, area of operation, etc., may be prepared.
It can be a relationship between Funding Agency and Programs:
FA 2
Research
Education
Training
Livelihood
FA 3
Total
X
X
Total
Or between Programs and Area of Operation:
FA 1
Area2
Research
Education
Area3
Total
Training
Livelihood
Total
Or could be Area of Operation vis--vis Funding Agency
Area1
Area2
FA 1
FA 2
Area3
X
FA 3
Area1
FA 4
Total
Total
Other form of relationships may be derived based on the needs of management, donors
and other stakeholders. It can also be a multi-dimensional thing.
SECTION 20 Matrix Reporting/Fund Accounting
FA 2
FA 3
Total
Research
- Area1
- Area2
- Area3
Education
- Area1
- Area2
- Area3
Training
- Area1
- Area2
- Area3
Livelihood
- Area1
- Area2
- Area3
20.4 Specific Transactions in Fund Accounting

1. Interfund Transactions
a. Interfund Borrowings
When interfund borrowing is legally allowed, i.e., there are no restrictions for
doing this and this is a result of a sound management decision, entries are made
both on the disbursing and the receiving funds at the same time. This is one of
the most overlooked transactions. Sometimes, records are reflected in one fund
only or records are not done at the same time. This type of transaction results in
an Interfund Receivable in the disbursing fund and an Interfund Payable in the
receiving fund. The Interfund Receivable/Payable accounts are accounts of the
individual funds but these should always have a zero balance at the total column;
therefore these are offset accounts in the consolidated financial statements.
Example:
ICCO Fund temporarily borrowed 10,000.00 from 11.11.11 Fund.
In ICCO Funds record
Cash
Interfund Payable 11.11.11 Fund
FA 1
> to record amount borrowed from 11.11.11 Fund
Dr
10,000.00
Cr
10,000.00
| 107
In 11.11.11 Funds record

Interfund Receivable ICCO Fund
Cash
10,000.00
10,000.00
> to record amount borrowed by ICCO Fund
Presentation in the balance sheet:

ICCO
11.11.11
TOTAL
(10,000)
10,000
Interfund Receivable(Payable)
Interfund borrowings result in Interfund receivable in the paying fund and

Interfund payable in the receiving fund. These accounts only exist in individual
Net Assets while these are non-account in the consolidated financial statements.
b. Expenses Paid by One Fund for Another
Another transaction is the payment of expenses, which are chargeable to another
fund. As in the case of interfund borrowings, this type of transaction results in
Interfund Receivable/Payable in two or more funds.
Example: For a valid reason and again from a sound management decision, a situation
may arise wherein an expense, e.g. training, pertaining to 11.11.11 Fund was
paid from ICCO Funds cash account.
Cr
In ICCO Funds record

Interfund Receivable 11.11.11 Fund
Cash
800.00
800.00
> to record payment of 11.11.11 Funds training expenses
In 11.11.11 Funds record

Training Expense
800.00
Interfund Payable ICCO Fund
800.00
> to record training expenses paid by ICCO Fund
Presentation in the balance sheet:

Similar to the above (item a).
c. Correcting Entries Affecting Fund/s Different from the Original Entry/ies
Dr
This occurs when previous erroneous entries were charged against or credited
to a specific fund but later on it was corrected that the said entries should have
been charged against or credited to another fund.
Assuming there was an error in the original entries wherein a certain expense
(transportation for example) was erroneously charged against and paid from ICCO
Fund, but later on determined that the activity was actually for 11.11.11 Fund.
Original Entries (erroneous)
In ICCO Fund
Cr
Transportation Expense
Cash
100.00
100.00
> to record payment for transportation from _____ to _______
Correcting Entries
In ICCO Fund
Interfund Receivable
100.00
100.00
> to correct entry per Voucher Number ___;

transaction should be charged against 11.11.11 Fund.
In 11.11.11 Fund
Interfund Payable
100.00
100.00
> to recognize transportation expense paid

from Voucher Number ___ (ICCO Fund).
d. Transfer of Fund Balance from One Category to Another

This type of interfund transfers is a mechanism in which one classification of
Net Asset increases and another classification of Net Asset decreases, with no
change in the total Net Assets of the NPO. These are reflected in the Statement
of Activities to reflect the satisfaction of donor restrictions. When this happens,
the related assets, representing the Net Asset transferred, are also transferred.
The nature, circumstances, and related information of the transfer should be
adequately disclosed as a note to financial statements. Most importantly, this
type of transfer should be in accordance to the agreement with the donor.
Example:
Dr
When a project is closed but there is still a fund balance for the project (e.g.
SPF Fund), the NPO and the Donor Agency may agree that the project fund
balance can be transferred to the General Fund. (Some Donors require that
any balance should be returned or forwarded to a new project being funded by
the same donor). It is very important that the NPO and the Donor agree on the
treatment of the balance.
| 109
Cr
In SPF Fund
Operational Fund (Net Asset)
Cash
1,200.00
1,200.00
> to close SPF project and to record

transfer of fund to General Fund.
In General Fund
Cash
Operational Fund (Net Asset)
1,200.00
1,200.00
> to record SPF fund balance

transferred to General Fund.
Presentation in the Financial Statement
Dr
GenFund
Operational Fund *
1,200.00
10,500.00
Fund Transfer (Note x) **
(1,200.00)
1,200.00
Operational Fund after Fund Transfer
11,700.00
* If the transfer was agreed and effected after the period then the Fund Transfer
is reflected in the following periods financial statement; the Fund Transfer
should then be reflected as an adjustment to the Operational Fund Beginning.
If the transfer was agreed and effected within the current period then the Fund
Transfer is reflected in the current periods financial statement; the Fund
Transfer should then be reflected at the bottom of the financial statement to
arrive at the Operational Fund End for the current period.
Disclosure
** The circumstances of the fund transfer as well as the related agreement and
authority should be disclosed in the Notes to Financial Statements.
2. Treatment of Fixed Assets

The Property and Equipment Fund is established in the net assets of NPOs. Acquisition
of property and equipment is recorded using the asset method. A corollary entry should
be made to recognize the transfer of the cost of acquisition from the paying fund to the
Property and Equipment Fund. Related transactions, such as depreciation and
disposition of property are recorded under the Property and Equipment Fund.
SPF
A requisite of the above treatment of property and equipment is necessary to be

implemented: a separate budget for capital outlay should be formulated and approved.
Example: Purchase of a computer set charged against ICCO grant.

a. Acquisition
Cr
In ICCO Operational Fund

5,000.00
Dr
5,000.00
In Property & Equipment Fund

Office Equipment (as Asset)
5,000.00
5,000.00
Note: The above two sets of entries should be made at the same time for every acquisition
of property.
Cash
TOTAL
( 5,000)
5,000

Note: This is usually presented after the regular income and expense items before the
Net AssetEnd or may be under Extraordinary Items.
b. Depreciation.
This is an expense of the Property & Equipment Fund; it is not an expense of the
grant fund (ICCO) because the total amount of the acquisition has been deducted
from the ICCO fund already.
ICCO
Property &
Equipt Fund
Cr
Dr
> to record depreciation for the period
1,000.00
1,000.00
| 111

Property &
.. Equipt Fund ..
EXPENSES:
_______________
_______________
_______________
..
1,000.00
Presentation in the Balance Sheet

Property &
.. Equipt Fund ..
ASSETS
_______________
_______________
Office Equipment
Less: Accumulated Depreciation
5,000.00
1,000.00
_________________________
Net Book Value
4,000.00
NET ASSETS
Net Assets
4,000.00
c. Disposition of Property
This is recorded and presented following the reciprocal of the above entries,
i.e., to close the cost of the property, related accumulated depreciation, and the
net book value under the Property and Equipment Fund. Proceeds or cash
value, if any, is recognized as Other Income in the Operational Fund (not in the
Property and Equipment Fund).
3. Grants and Donations

NPOs usually refer to grants and donations as support. In an NPO setting,
these are treated as revenue because these are the principal sources of resources for its
operations. Grants and donations should be recognized only when they can be realized
and enforced by the NPO.
Example: Received a grant from ICCO amounting to 100,000.00
In ICCO Fund
_________________________
_________________________
Grant (from ICCCO)
Dr
100,000.00
Cash
> to record first remittance from ICCO.
Cr
100,000.00
Presentation in the Statement of Activities (or Statement of Revenues & Expenses)
REVENUES
Grant
_________________
_________________
100,000.00
4. Income distribution
Income such as interest from bank accounts, income from investments, and net gains
can be distributed to appropriate fund/s based on the following hierarchy of rules:
a. based on agreements with donor agencies
b. accrue to the fund where the asset that derived the income is located
c. proportionately based on approved sharing ratios
d. general fund
If the income is distributed to two or more funds, an Interfund Receivable (Payable)
may arise.
Example: ABC Fund has no separate bank account (therefore no cash in bank account)
but its grant is deposited in SCLF bank account (therefore initially, there is an Interfund
ReceivableSCLF in ABC Fund and Interfund Payable-ABC in SCLF Fund). It was
agreed that interest income from the bank account is distributed based on 40:60 ratio
between ABC and SCLF Funds respectively.
To record the Interest Income:
.. ICCO Fund ..
Cr
In SCLF Fund
Cash
100.00
Interest Income
Interfund Payable-ABC
60.00
40.00
In ABC Fund
Interfund Receivable-SCLF
Interest Income
40.00
40.00
5. Joint Costs and Indirect Costs Allocation
Dr
The guidelines on joint costs allocation described above also apply when allocations are
made in the supporting statement to the Statement of Activities showing, in a matrix
form the relationship of the revenues, expenses, and net assets with respect to each
funding source, programs, area of operation, etc.
| 113
Similar to the distributed income in item 4 above, if the expenses are distributed to two
or more funds, an Interfund Receivable (Payable) arise when the resource or asset used
(most of the time, cash) is identified with only one fund or identified with fund/s other
than those affected by the expense.
Example: After determining the proper allocation method, Training Expenses were
rightfully distributed against ICCO Fund, 11.11.11 Fund, and SCLF Fund with the
ratio 40:35:25 respectively. Assuming that before the activity, a Cash Advance was made
by the Training Coordinator (Mr. John McCartney) from ICCO Fund amounting to
10,000 for the activity. After the training, 9,000 was actually spent and 1,000 was returned
to the ICCO Fund.
When the Cash Advance was made
Cr
In ICCO Fund
Cash Advance John McCartney
Cash
10,000.00
10,000.00
> to record cash advance of

John McCartney for ________ training.
When the Cash Advance was liquidated

In ICCO Fund
Training expenses
Interfund Receivable 11.11.11
Interfund Receivable SCLF
Cash
Cash Advance John McCartney
3,600.00
3,150.00
2,250.00
1,000.00
10,000.00
> to record the liquidation of cash advance

of John McCartney re ______ training.
In 11.11.11 Fund
Training Expenses
Interfund payable ICCO
3,150.00
3,150.00
> to record 11.11.11s share in the ____ training as per

liquidation of John McCartney dated __________, Voucher ________
In SCLF Fund
Training Expenses
Interfund payable ICCO
2,250.00
Dr
> to record SCLFs share in the ____ training as per

liquidation of John McCartney dated __________, Voucher ________
2,250.00
6. Funds created from disbursements charged against Grant (e.g. Credit

Revolving Fund, Capital for Income-Generating Projects)
Normally, these are treated as charges against the approved grant. Corollary entries
should be made to establish the fund created. A new accounting sub-cycle is also created
or established. Transactions of this accounting sub-cycle are recorded in the new fund
Example: One of the approved items in the ICCO Grant is the provision for a credit
revolving fund. Initially, 10,000 was loaned to various beneficiaries.
Cr
Dr
In ICCO Fund
10,000.00
Provision for Credit Fund
10,000.00
> to record release of credit fund/loans to _________ beneficiaries.

In Credit Fund
Cash
10,000.00
10,000.00

Provision for Credit Fund
ICCO
Credit Fund
TOTAL
( 10,000)
10,000
Note: This is usually presented after the regular income and expense items before the
Net AssetEnd.
Presentation in the Balance Sheet
.. Credit Fund ..
ASSETS
_______________
_______________
Loans Receivable
TOTAL
10,000.00
_________________________
10,000.00
NET ASSET
Net Asset
10,000.00
_________________________
_________________________
Subsequent Transactions
Collections from the loans receivable will be recorded in the Credit Fund as debit to
Cash and credit to Loans Receivable. Likewise, re-loaning from the collections (not
from the grant fund) will be treated as transaction of the Credit Fund.
Loans Receivable
(or Cash, if not immediately released)
Credit Fund
Additional credit fund from the grant funds (ICCO, 11.11.11, etc) is treated in the same
manner as described above.
| 115
20.5 Sample System of Chart of Accounts under

Fund Accounting
The Chart of Accounts is designed to be a tabular representation of the relationships of
different segments. The most common segments are:
GL Accounts
Subsidiary Ledger Accounts
More segments may be added for further classification of accounts, as needed, as follows:
Funding Agencies
Programs/Projects
Activity Accounts
Division/Units
Areas of Operation
Sample Coding System
Segment
General Ledger Accounts
Where:
1
2
3
4
5
6
7
No. of Digits
Format
6 digits
999999
First digit 9 represents the following:

for Assets
for Liabilities
for Net Assets
for Revenues and Support
for Program Expenses
for Administrative Expenses
for Fund Raising
Second digit (9) is the sequential numbering of sub-categories of the five major
accounts described in the first digit.
Third to sixth digits follow the outlining rule for detail accounts under the subcategories; specifically, the last two digits of Expenses accounts represent the
uniform natural classification of expenses (e.g. transportation, supplies,
communication, etc.)
Subsidiary Ledger Accounts
3 digits
9X9
Where:
first digit (9) represents the following:
0
1
2
3
for Members
for Staff
for Volunteers/Interns/LDO
Etc.
X is the first letter of the surname of individuals or the name of the organization/
institution
Third digit (9) is the sequential numbering of names of individuals or

organizations/institutions beginning with X
Funding Agencies
with X
2 digits
X is the first letter of the name of the Funding Agency

is the sequential numbering of Funding Agencies beginning
Where:
X9
X is the first letter of the name of the Program/Project

is the sequential numbering of Programs/Projects beginning
with X
Activity Accounts
3 digits
999
X9
8
Programs/Projects
2 digits
Where:
first digit (9) represents the activity group

second and third digits (99) is a sequential numbering of the
accounts
Division/Units
3 digits
X99
Where:
X is the first letter of the name of the Division
Where:
99 is the sequential number of Units under Division X
Note: As of current set-up, some divisions do not have units
under them, 01 should be used for the 99 portion of the

code.
Areas of Operation
2 digits
Where:
X9
X is the first letter of the name of the Area 9 is the sequential

numbering of Areas beginning with X
| 117
21. Other Applicable Standards

IAS 8 states that in the absence of a standard or an interpretation that specifically
applies to a transaction, other event or condition, management shall use its judgment
in developing and applying an accounting policy.
In making the judgment, management shall refer to, and consider the applicability of,
the following sources in descending order:
the requirements and guidance in Standards and Interpretations dealing with
similar and related issues;
the definitions, recognition criteria, and measurement concepts for assets,
liabilities, income, and expenses in the framework.
In making the judgment, management may also consider the most recent
pronouncements of other standard-setting bodies that use similar conceptual framework
to develop accounting standards, other accounting literature, and accepted industry
practices, to the extent that these do not conflict with the sources stated in the preceding
paragraph.
118
| 119
APPENDICES
Appendix I
Co-Authors/Contributors
ERIBERT S. PADILLA
President
ACCOUNTANTS FOR NGO CONCERNS (ANC) INC.
PADILLA, PADILLA AND CO.
Rm. 217-C, PSSC Bldg., Commonwealth Ave.,
Diliman, Quezon City, Philippines
Tel. (63-2) 928-2632
Fax. (63-2) 926-6709
Email. eribert@gmail.com
FLORINDA M. LACANLALAY
Consultant
PEACE & EQUITY FOUNDATION
69 Esteban Abada St., Loyola Heights, Quezon City, Philippines
Tel. (63-2) 426-8402
Fax. (63-2) 426-8402 ext 102
E-mail: findamanuel@yahoo.com
Web. www.peacefdn.org
ALFREDO F. MARIANO
President
PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
(NORTHERN CHAPTER)
143 Ma. Clara St., between 6th & 7th Ave. Caloocan City, Philippines
Tel. (63-2) 363-9939 / 323-9201
Fax (63-2) 363-9939
E-mail: a_f_mariano@yahoo.com
LETICIA TAGLE
Partner
ALBA ROMEO & CO
7th Floor MNBC 6805 Ayala Avenue, Makati, Metro Manila, Philippines
Email. lctagle@bdo-albaromeo.com
120
Appendix II
The Project Steering Committee Members and
Country Consultation Convenors
BANGLADESH
AMITA DEY
Executive Director
BANGLADESH FREEDOM FOUNDATION
Apt. B-4, House 74, Road 21, Block B, Banani, Dhaka 1213 Bangladesh
Tel. (88-2) 885-3229
CHINA
LU JIANQIAO
Deputy Director
ACCOUNTING REGULATORY DEPARTMENT, MINISTRY OF FINANCE, P.R. CHINA
San Li He, Xicheng District, Ministry of Finance, Beijing 100820
Tel. (86-10) 685-52540
E-mail: lujianqiao@mof.gov.cn
HONG KONG SAR
(participated in first regional conference only)
JOSEPH WONG
Business Director, Corporate Management
THE HONG KONG COUNCIL OF SOCIAL SERVICE
13th Floor, Duke of Windsor Social Service Building,
15 Hennessy Road, Wanchai, Hong Kong
Tel. (852) 286- 42929
Fax. (852) 286- 54916
Email. joseph.wong@hkcss.org.hk
| 121
121
INDIA
SANJAY AGARWAL (STEERING COMMITTEE MEMBER)
Chartered Accountant
SANJAY ADITYA AND ASSOCIATES
55-B, Pocket C, Siddhartha Extension, New Delhi, 1100 014, India
Tel. (91-11) 263-47253, 263- 46253
Fax. (91-11) 263-43852
E-mail: 26347430@bol.net.in
Web. www.ngoAccounting .net
SURESH KUMAR KEJRIWAL (COUNTRY CONVENOR)
Partner
AGARWAL KEJRIWAL & CO.
No. 1, Ganesh Chandra Avenue, 4th Floor, Kolkata 700 013,
West Bengal, India
Tel. (91-33) 223- 65177
Fax. (91-33) 222-56372
E-mail: agarwalkejriwal@vsnl.com
INDONESIA
RUSTAM IBRAHIM (STEERING COMMITTEE MEMBER)
THE INSTITUTE FOR ECONOMIC AND SOCIAL RESEARCH, EDUCATION/
Lembaga Penelitian, Pendidikan dan Penerangan (LP3ES)
Jl. S. Parman 81, Slipi, Jakarta 11420, Indonesia
Tel. (62-21) 567- 4211
Fax. (62-21) 568-3785
Email. ribrahim@indo.net.id
Web. www.lp3es.or.id
SRI YANTO (COUNTRY CONVENOR)
IKATAN AKUNTAN INDONESIA (IAI)/ INDONESIAN INSTITUTE OF ACCOUNTANTS
Jl. Sindanglaya No. 1, Menteng, Jakarta 10310, Indonesia
Tel. (62-21) 319-04232
Fax. (62-21) 724-5078
E-mail : sy@iaiglobal.or.id / Sri.Yanto@iaiglobal.or.id
PAKISTAN
SYED MOHAMMAD AHMAD

Manager, Finance and Administration
PAKISTAN CENTRE FOR PHILANTHROPY
1-A, Street 14, F-8/3, Islamabad, Pakistan
Tel. (92-51) 285-5903
Fax. (92-51) 285-5069
E-mail: sm.ahmad@pcp.org.pk
| 123
PHILIPPINES
GIL SALAZAR (STEERING COMMITTEE MEMBER)
Executive Director
PHILIPPINE BUSINESS FOR SOCIAL PROGRESS
3/F Magallanes corner Real Streets, Intramuros, Manila, 1002 Philippines
Tel. (63-2) 527-7741 to 50
Fax. (63-2) 5273743
Email. gtsalazar@pbsp.org.ph
ERIBERT S. PADILLA (COUNTRY CONVENOR)
President
Rm. 217-C, PSSC Bldg., Commonwealth Ave., Diliman, Quezon City, Philippines
Tel. (63-2) 928-2632
Fax. (63-2) 926-6709
THAILAND
GAWIN CHUTIMA (STEERING COMMITTEE MEMBER)
Associate Director
THAI FUND FOUNDATION
2044/23 New Phetburi Road, Huaykwang
Bangkok 10310, Thailand
Tel. (66-2) 718- 1852 to 53
Fax. (66-2) 718- 1850
Email. gawin@thaingo.org
APPENDIX II Project Steering Committee Members and Country Consultation Convenors
PANSA TAJAROENSUK (COUNTRY CONVENOR)

Managing Director
RURAL CAPITAL PARTNERSHIP, LTD.
2044/23 New Phetburi Road, Huaykwang Bangkok 10320, Thailand
Tel. (66-2) 718-1852-3
Fax. (66-2) 718-1850
E-mail: tpansa@yahoo.com
Appendix III
First Regional Workshop Participants
January 2005
Bangkok, Thailand
BANGLADESH
A.F.M. MAYEEN
Manager, Finance & Administration
CAMPAIGN FOR POPULAR EDUCATION
5/14 Humayun Road Mohammadpur, Dhaka 1207 Bangladesh
Tel. (880-2) 913- 0427, 811- 5769
Fax. (880-2) 811- 8342
E-mail: mayeen@campebd.org
Web. www.campebd.org
A.N.M. NURUL WAHAB
Partner
A. WAHAB & CO.
Hotel Purbani Annex, 4th floor, 1 Dilkhusha C/A. Dhaka 1000
Bangladesh
Tel. (880-2) 716-1517, 716-9268
Fax. (880-2) 716-1517
E-mail: wahab_co@agni.com / wahab_co@agni.com
IFTEKHAR ZAMAN
Executive Director
TRANSPARENCY INTERNATIONAL BANGLADESH
5th floor, House 1, Road 23, Gulshan 1, Dhaka 1212 Bangladesh
Tel. (880-2) 9884811, 8826036;
Fax. (880-2) 9884811
E-mail: edtib@ti-bangladesh.org
124
PARVEEN MAHMUD
Deputy Managing Director
PALLI KARMA-SAHAYAK FOUNDATION (PKSF)
PKSF Bhaban, E-4/B Agargaon Administration Area
Shere-Bangla Nagar, Dhaka 1207 Bangladesh
Tel. (880-2) 914- 1785
Fax. (880-2) 912- 6244
E-mail: pmahmud-pksf-bd.org / parveenm@bol-online.com
Web. www.pksf-bd.org
MD. RAFIQUL ISLAM
Director
NGO AFFAIRS BUREAU
Prime Ministers Office
Matshaya Bhaban, 9th Floor, 13, Shahid Captain Mansur Ali Sarani,
Ramana, Dhaka-1000 Bangladesh
Tel. (880-2) 956- 2743 5
Fax. (880-2) 956- 2844
CHINA
FENG LI
Project Manager
CHINA NPO NETWORK
Room 303, Unit 7, Building 2, New Era Garden,
Wan Liu Zhong Lu, Haidian District, Beijing, 100089, P.R. China
Tel. (86-10) 825- 73870, 825- 73850
E-mail: fengli@npo.com.cn
HAOMING HUANG
Executive Director
CHINA ASSOCIATION FOR NGO COOPERATION (CANGO)
18 Bei San Huan Zhonglu,100011 Beijing, P.R.China
Tel. (86-10) 620-1308
Fax. (86-10) 620-11328
E-mail: hmhuang@cango.org
Web. www.cango.org
APPENDIX III First Regional Workshop Participants
LU JIANQIAO
Deputy Director
ACCOUNTING REGULATORY DEPARTMENT, MINISTRY OF FINANCE, P.R. CHINA
San Li He, Xicheng District, Ministry of Finance, Beijing 100820
Tel. (86-10) 685-52540
E-mail: lujianqiao@mof.gov.cn
| 125
PENGCHENG WANG
Partner
PAN-CHINA CERTIFIED PUBLIC ACCOUNTANTS
17/F, Bid A, Investment Plaza, 27 Financial Street,
West District, Beijing, 100032, P.R. China
Tel. (86-10) 662- 11008
Fax. (86-10) 662- 12110
E-mail: wangpc@pccpa.com.cn
YAO WEN
CFO Assistant
CHINA YOUTH DEVELOPMENT FOUNDATION (CYDF)
A-1, Houyuanensi Hutong, Jiaodaokou Nandajie,
Beijing, 100009, P.R. China
Tel. (86-10) 840- 22256
Fax. (86-10) 640- 33895
E-mail: yaowenw@vip.sina.com
Web. www.cydf.org
HONG KONG SAR
ALFRED HONG CHENG
Senior Manager for System and Finance
ST. JAMES SETTLEMENT
85 Stone Nullah Lane, Wanchai Hong Kong
Tel. (852) 257- 45201
Fax. (852) 283- 49634
JOSEPH WONG
Business Director
13th Floor, Duke of Windsor Social Service Building, 15 Hennessy Road,
Wanchai Hong Kong
Tel. (852) 286- 42992
Fax. (852) 286- 54916
E-mail: joseph.wong@hkcss.org.hk
Web. www.hkcss.org.hk
WAI-CHI HO
Fundraising Consultant
13th Floor Duke of Windsor Social Service Building, 15 Hennessy Road,
Wanchai Hong Kong
Tel. (852) 286- 42961
Fax. (852) 286- 22561
INDIA
ILA HUKKU
Director
CHILD RELIEF AND YOU (CRY)
12/3-1, Madhavi Mansion, Bachammal Road, Cox Town,
Bangalore - 560 005, Karnataka, India
Tel. (91- 80) 254- 84952, 254- 88574
Fax. (91- 80) 254- 87355
E-mail: psu.blr@crymail.org
LALIT KUMAR
Senior Technical Officer
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
P. B. # 7100, Indraprastha Marg, New Delhi - 110 002 India
Tel. (91-11) 233- 78651
Fax. (91-11) 233- 79398
E-mail: lalit@icai.org
Web. www.icai.org
RAIBAT M. DUTT
Senior Programme Officer - Resource Mobilisation
NATIONAL FOUNDATION FOR INDIA
India Habitat Centre, Zone 4A UGF, Lodhi Road, New Delhi - 110 003 India
Tel. (91-11) 246- 41864
Fax. (91-11) 246- 41867
E-mail: moondutt@nfi.org.in
Web. www.nfi.org.in
SANJAY AGARWAL
SANJAY ADITYA AND ASSOCIATES
55-B, Pocket C, Siddhartha Extension, New Delhi, 1100 014 India
Tel. (91-11) 263- 47253, 263- 46253
Fax. (91-11) 263- 43852
E-mail: 26347430@bol.net.in
Web. www.ngoAccounting .net
SURESH KUMAR KEJRIWAL

Partner
No. 1, Ganesh Chandra Avenue, 4th Floor Kolkata 700 013, West Bengal, India
Tel. (91-33) 223- 65177
Fax. (91-33) 222-56372
| 127
INDONESIA
BENEDICTUS W. SADEWO
Head of SRS Division
USC-SATUNAMA
JL. Sambisari 99, Duwet, Sendangadi, Mlati, Sleman
Yogjakarta 55285 Indonesia
Tel. (62-274) 867- 745 or 747 ext 303
Fax. (62-274) 869- 044 ext 108
E-mail: wahyu_s@usc-satunama.org
Web. www.usc-satunama.org
EKO KURNIAWAN KOMARA
Finance Administration Manager
KEHATI FOUNDATION (THE INDONESIAN BIODIVERISTY FOUNDATION)
Jl. Bangka VIII, no. 3B, Pela Mampang, Jakarta 12720 Indonesia
Tel. (62-21) 718-3185 / 718- 3187
Fax. (62-21) 719- 6131
E-mail: eko@kehati.or.id
RUSTAM IBRAHIM
THE INSTITUTE FOR ECONOMIC AND SOCIAL RESEARCH, EDUCATION
LEMBAGA PENELITIAN, PENDIDIKAN DAN PENERANGAN (LP3ES)
Jl. S. Parman 81, Slipi, Jakarta 11420, Indonesia
Tel. (62-21) 567- 4211
Fax. (62-21) 568-3785
Email. ribrahim@indo.net.id
Web. www.lp3es.or.id
SRI YANTO
Ikatan Akuntan Indonesia (IAI)
THE INDONESIAN INSTITUTE OF ACCOUNTANTS
Graha Akuntan, Jalan Sindanglaya No. 1, Menteng,
Jakarta 10310 Indonesia
Tel. (62-21) 319- 04232
Fax. (62-21) 724- 5078
E-mail : sy@iaiglobal.or.id / iai-info@iaiglobal.or.id
Web. www.iaiglobal.or.id
YODDI SINE
Audit Partner
PAUL HADIWINATA, HIDAJAT, ARSONO &
REKAN REGISTERED PUBLIC ACCOUNTANTS
Member of PKF International Association
Jl. Barito 2 no. 31, Jakarta 12130 Indonesia
Tel. (62 21) 725- 2780
Fax. (62 21) 720- 3026
E-mail: Yoddi-Sine@centrin.net.id / pkf-indo@centrin.net.id
ELAN MERDY
Chief Operating Officer
SAMPOERNA FOUNDATION
Sampoerna Strategic Square, Tower B, 3rd Floor
Jl. Jend. Sudriman Kav. 45, Jakarta 12930 Indonesia
Tel. (62-21) 577- 2340
Fax. (62-21) 577- 2341
E-mail: Elan.Merdy@Sampoernafoundation.org
Web. www.sampoernafoundation.org
TATOK INDRIYANTO
Finance and Accounting Department
SAMPOERNA FOUNDATION
Sampoerna Strategic Square, Tower B, 3rd Floor
Jl. Jend. Sudriman Kav. 45, Jakarta 12930 Indonesia
Tel. (62-21) 577- 2340
Fax. (62-21) 577- 2341
E-mail: Tatok.Indriyanto@Sampoernafoundation.org
Web. www.sampoernafoundation.org
PAKISTAN
ASAD ZIA IQBAL

Desk Reviewer
1-A, Street 14, F-8/3, Islamabad, Pakistan
Tel. (92-51) 285- 5903
Fax. (92-51) 285- 5069
E-mail: asad.zia@pcp.org.pk
Web. www.pcp.org.pk
| 129
HIDAYAT ALI
Chief Executive Officer
ALI ASSOCIATES CHARTERED ACCOUNTANTS
305 Block A, City Towers
University Road Peshawar Pakistan
Tel. (92-91) 5844237 to 38
Fax. (92-91) 5844239
Email. hidayat@brain.net.pk
Website: www.aaca.com.pk
NOOR MUHAMMED
Secretary
PAKISTAN NGO FORUM C/O SPO - SINDH OFFICE
House No. 49, Muslim Housing Society, Qasimabad,
Hyderabad, Sindh, Pakistan
Tel. (92- 221) 654- 725, 65633
Fax.. (92- 221) 652- 126
E-mail: noornm@hotmail.com / Soonharani@yahoo.com
SAJJAD ALI
Secretary Income Tax Policy
Room 421 Central Board of Revenue, Islamabad, Pakistan
Email. sajjadali@cbr.gov.pk
SYED MOHAMMAD AHMAD
Manager of Finance & Administration
1-A, Street 14, Sector F-8/3, Islamabad 44000, Pakistan
Tel. (92-51) 285-5903
Fax. (92-51) 285-5069
Web. www.pcp.org.pk
AAMIR HASSAN ALI NANAWATI

NGO RESOURCE CENTRE (A PROJECT OF AGAKHAN FOUNDATION
PAKISTAN)
Finance Manager
D- 114, Clifton Block 5, Karachi, Pakistan
Tel. 92-021-5865501-2
Fax. 92-021-5865503
Mobile: 92-0333-2166195
Email. aamir.hassan@ngorc.org.pk
Web address: www.ngorc.org.pk
| 131
SULAIMAN SADIQ ALI DHANANI

Finance Manager
AGA KHAN FOUNDATION, (PAKISTAN)
House No. 1, Street 61, F-6/3, Islamabad, Karachi, Pakistan
Tel. (92-51) 227-6812 to 14
Fax. (92-51) 227-6815
E-mail: sulaiman.dhanani@akfp.org
Web. www.akdn.org
PHILIPPINES
ALFREDO F. MARIANO
President
PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (NORTHERN CHAPTER)
Tel. (63-2) 363-9939 / 323-9201
Fax (63-2) 363-9939
ERIBERT S. PADILLA
President
Padilla, Padilla and Co.
Tel. (63-2) 928-2632
Fax. (63-2) 926-6709
Consultant
69 Esteban Abada St., Loyola Heights, Q uezon City, Philippines
Tel. (63-2) 426-8402
Fax. (63-2) 426-8402 ext 102
GIL SALAZAR
Executive Director
PHILIPPINE BUSINESS FOR SOCIAL PROGRESS
3/F Magallanes corner Real Streets, Intramuros, Manila, 1002 Philippines
Tel. (63-2) 527-7741 to 50
Fax. (63-2) 5273743
Email. gtsalazar@pbsp.org.ph
MA. LOURDES V. DEDAL

Director IV, Central Financial Management Office
DEPARTMENT OF FINANCE
7th Floor EDPC Bldg. BSP Bldg. Complex
Roxas Blvd. corner P. Ocampo St., Malate Manila, 1004 Philippines
Tel. (63-2) 526-8166
Fax. (63-2) 526-6941
E-mail: mdedal@dof.gov.ph
THAILAND
KANCHIT SUKJAIMITR
Executive Director
2044/23 New Phetburi Road, Huaykwang, Bangkok 10310 Thailand
Tel. (66-2) 718-1852 to 53
Fax. (66-2) 718- 1850
Email. kanchit@thaingo.org
KETKANOK CHANGKOM
Financial Director
CHILDREN FUND OFFICE
71/12 Soi Pongdamri 2 Moo Baan Pongpetnivet 2, Ngarmwongwarn
Road, Thung Song Hong, Laksi Bangkok, 10210 Thailand
Email. kchangkom@yahoo.com
URUCHAR CHATIKANON
Accountant
Tel. (66-2) 718-1852 to 53
Fax. (66-2) 718- 1850
Email. chatikanon@yahoo.com
TAWEE WIRIYATOON
Secretary
COMMUNITY FINANCIAL AND WELFARE ORGANIZATION INSTITUTE
107 Moo Baan Panya, Pattanakarn 30 Road, Suan Luang, Prawase,
Bangkok 10250 Thailand
PANSA TAJAROENSUK
Managing Director
Tel. (66-2) 718-1852-3
Fax. (66-2) 718-1850
GAWIN CHUTIMA
Associate Director
Tel. (66-2) 718-1852 to 53
Fax. (66-2) 718- 1850
PAIBOON WATTANASIRITHAM
Chair
Tel. (66-2) 298- 0222 ext 501
Fax. (66-2) 298- 0222 ext 502
Email. paiboonwattana@yahoo.com
SUKICH UDINDU
REACT
80 Ramkhanhaeng Road, Soi 9, Moo Baan Tararom
Wangthonglang, Bangkok 10310 Thailand
Email. reactth@yahoo.com
APPC
RORY F. TOLENTINO
Chief Executive
Loyola Heights, 1108 Quezon City, Philippines
Tel. (63-2) 426 6001 ext 4645
Fax. (63-2) 426 1427
E-mail: roryappc@pldtdsl.net
TINA V. PAVIA
Former Program Officer
ASSOCIATION OF FOUNDATIONS
NORMAN JOSEPH Q. JIAO

Executive Director
ASSOCIATION OF FOUNDATIONS
Rm 1102, 11/F Aurora Tower Aurora Blvd,
Cubao, Quezon City 1109 Philippines
Tel. (63-2) 913-7231
Fax. (63-2) 911-9792
E-mail: oman@info.com.ph
Web. www.afonline.org
| 133
Appendix IV
Training Design Workshop Participants
February 2006
Bangkok, Thailand
BANGLADESH
KRISHNA ROY KAMAL
Manager Finance and Administration
BANGLADESH FREEDOM FOUNDATION
Apt. B-4, House # 74, Road 21, Block B Banai,
Dhaka-1213, Bangladesh
Tel. (88-02) 988 7690, 8853229, 9861813
Fax. (88-02) 9886157
Email. kamal@freedomfound.org
NURUL WAHAB, FCA
Partner
A. WAHAB & CO.
Annex-2, 4th floor, 1 Dilkusha C/A, Dhaka-1000, Bangladesh
Tel. (88-02) 716- 9268, 716- 1517
Fax. (88-02) 716- 9268, 716- 1517
Email. wahab_co@agni.com
A.F.M. MAYEEN
Manager Finance & Administration
CAMPAIGN FOR POPULAR EDUCATION
5/14 Humayun Road Mohammadpur, Dhaka 1207 Bangladesh
Tel. (880-2) 913- 0427, 811- 5769
Fax. (880-2) 811- 8342
E-mail: mayeen@campebd.org
Web. www.campebd.org
134
MD. MOINUL HAQUE

Accounts Officer - Grants
MANUSHER JONNO FOUNDATION
House No. 122, Road 1, Block F, Banani Model Town,
Dhaka 1213 Bangladesh
Tel. (88-02) 882-4309, 881-0162, 881-1161 ext 121
Fax. (88-02) 882- 4309 ext 103
Email. moinul@manusher.dhaka.net
CHINA
HAIYAN ZHANG
Accounting Department
RENMIN UNIVERSITY OF CHINA
30-706, Taipingqiaodongli,Fengtai District, Beijing, 100073 P.R. China
Tel. (86-10) 632- 69399
Fax. (86-10) 685- 51141
Email. hyzhang2004@hotmail.com
TONGQIAN LIU
Director for Public Relations
CHINA ASSOCIATION FOR NGO COOPERATION (CANGO)
18 Bei San Huan Zhong Lu, Beijing, 100011, P.R. China
Tel. (86-10) 620- 49988 - 8848
Fax. (86-10) 620-11328
Email. ltq@cango.org
Web. www.cango.org
YONGQING GUO
Director of Distance Education Department
SHANGHAI NATIONAL ACCOUNTING INSTITUTE
No. 200 Panlong Road, Xujing, Qingpu, Shanghai, 201702 P.R. China
Tel. (86-21) 697-68041
Fax. (86-21) 697-68063
Email. guoyq@snai.edu
APPENDIX IV Training Design Workshop Participants
DONG DONG
School of Accountancy
SHANGHAI UNIVERSITY OF FINANCE AND ECONOMICS
No. 777 Guoding Road, Yangpu District, Shanghai, 200433 P.R. China
Tel. (86-21) 659-15642
Fax. (86-21) 651-12195
Email. pearlman@pku.org.cn
| 135
INDIA
MARTIN P. PINTO, FCA
PINTO M.P. AND ASSOCIATES
304, Om Bhawan, 3583, Netaji Sublash Marg, Dariyaganj,
New Delhi, 110 002 India
Tel. (91-11) 232-84965; 223-24965
Fax. (91-11) 232- 84965 / 415- 63032
Email. martin@vsnl.com / pinto@airtelbroadband.in
TEJAS MEHR, ACA
Manager
GIVE INDIA
301 New Delhi ndustrial Estate
Off Mahaklai Caves Road, Andheri (East) Mumbai 400 093,
Maharashtra, India
Tel. (91-22) 268- 78774
Fax. (91-22) 268- 78775
Email tejas@givefoundation.org
HIMANSU KISHNADWALA, FCA
Partner
CONTRACTOR NAYAK & KISHNADWALA CHARTERED ACCOUNTANTS
Jash Chambers (Mustafa Building) 7-A Sir Phirozesha Mehta Road
Mumbai 40 001 Maharashtra India
Tel. (91-22) 563- 59681 to 82
Fax. (91-22) 226- 15814
Email. Himanshu@cnkindia.com
SURESH KUMAR KEJRIWAL

Partner
No. 1, Ganesh Chandra Avenue, 4th Floor, Kolkata 700 013,
West Bengal India
Tel. (91-33) 223- 65177
Fax. (91-33) 222-56372
INDONESIA
RIENA LUCIANA
Accountant
YAPPIKA INDONESIA (CIVIL SOCIETY ALLIANCE FOR DEMOCRACY)
Jl. Pedati Raya No. 20 RT 007/RW 09, Jakarta Timur 13350 Indonesia
Tel. (62-21) 819-1623
Fax. (62-21) 850-0670
Email. riena_l@yahoo.com
Web. www.yappika.or.id
YODDI SINE
Audit Partner
PAUL HADIWINATA, HIDAJAT, ARSONO & REKAN REGISTERED PUBLIC
ACCOUNTANTS
Member of PKF International Association
Jl. Barito 2 no. 31, Jakarta 12130 Indonesia
Tel. (62 21) 725- 2780
Fax. (62 21) 720- 3026
E-mail: Yoddi-Sine@centrin.net.id / pkf-indo@centrin.net.id
JUSTINUS SIDHARTA
Partner
JOHAN MALONDA ASTIKA CPA FIRM
Pluit Raya 200 block V No. 1 -5 Jakarta 14440, Indonesia
Tel. (62-21) 661-7155
Fax. (62-21) 669-6918
Email. justinus@johanmalonda.com / justinus@dnet.net.id
MOCHAMMAD ACHSIN
Public Accountant, Tax & Management
DRS. H. M. ACHSIN MM REGISTERED PUBLIC ACCOUNTANT
JL. Rasamala Raya No. 17 Pancoran South Jakarta 12870 Indonesia
Tel. (62-21) 700- 37844; 705- 09773
Fax. (62-21) 835- 4642
Email. kaphma@yahoo.com / kaphma@telkom.net
JOVITA LIE HOEI GAN

Manager
JOHAN MALONDA ASTIKA CPA FIRM
Pluit Raya 200 Block V No. 1 5, Jakarta 14440 Indonesia
Tel. (62-21) 661-7155
Fax. (62-21) 669-6918
Email. jovita@johanmalonda.com
| 137
PAKISTAN
SHAMSUDDIN QAZI
Second Secretary - CBR
Constitution Avenue, G-5, Islamabad, Pakistan
Email. nasir_shams@yahoo.com
SHAHID MEHMOOD
Senior Manager, Finance
STRENGTHENING PARTICIPATORY ORGANIZATION
9, Street 89, G-6/3 Islamabad 44000, Pakistan
Tel. (92-51) 227- 2978 / 282- 0426
Fax. (92-51) 227- 3527
Email. shahid@spopk.org
Web. www.spopk.org
SYED MOHAMMAD AHMAD
Manager of Finance & Administration
Tel. (92-51) 285-5903
Fax. (92-51) 285-5069
Web. www.pcp.org.pk
MUHAMMAD RASHID RAFIQ
Finance and Administration Officer
Tel. (92-51) 285-5903
Fax. (92-51) 285-5069
Email. rashid.rafiq@pcp.or.pk
Web. www.pcp.org.pk
PHILIPPINES
Consultant
Tel. (63-2) 426-8402
Fax. (63-2) 426-8402 ext 102
ALFREDO F. MARIANO
President
PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (NORTHERN
CHAPTER)
Tel. (63-2) 363-9939 / 323-9201
Fax (63-2) 363-9939
ERIBERT S. PADILLA
President
Tel. (63-2) 928-2632
Fax. (63-2) 926-6709
LETICIA TAGLE
Partner
ALBA ROMEO & CO
7th Floor MNBC 6805 Ayala Avenue, Makati, Metro Manila, Philippines
Email. lctagle@bdo-albaromeo.com
ADELA NICOLAS
Finance Manager
PEACE AND EQUITY FOUNDATION, INC.
Tel. (63-2) 426-8402 ext 121
Fax. (63-2) 426-8402
Email. ella@peacefdn.org
THAILAND
GAWIN CHUTIMA
Associate Director
2044/23 New Phetburi Road, Huaykwang, Bangkok 10310, Thailand
Tel. (66-2) 718-1852 to 53
Fax. (66-2) 718- 1850
| 139
PANSA TAJAROENSUK
Managing Director
Tel. (66-2) 718-1852-3
Fax. (66-2) 718-1850
URUCHAR CHATIKANON
Accountant
Tel. (66-2) 718-1852 to 53
Fax. (66-2) 718- 1850
Email. chatikanon@yahoo.com
APPC
RORY F. TOLENTINO
Chief Executive
Loyola Heights, 1108 Quezon City Philippines
Tel. (632) 426 6001 ext 4645
Fax. (632) 426 1427
E-mail: roryappc@pldtdsl.net
JEANETTE BANDIOLA
Finance and Administrative Officer
E-mail: jcbnette@yahoo.com
ALESSANDRA FERRERIA
Program Officer
E-mail: alexieferreria@yahoo.com
Appendix V
APPC Board of Directors
Officers
DARWIN CHEN
Chair, APPC
HABITAT FOR HUMANITY CHINA
NOSHIR H. DADRAWALA
Vice Chair, APPC
Executive Secretary
CENTER FOR ADVANCEMENT OF PHILANTHROPY INDIA
ERNA WITOELAR
Vice Chair, APPC
Chair of the Executive Board
KEHATI FOUNDATION INDONESIA
ROBERTO CALINGO
Treasurer, APPC
Executive Director
MIRANT PHILIPPINES FOUNDATION
Directors
ROBERT L. BUCHANAN
Director, International Programs
COUNCIL ON FOUNDATIONS, WASHINGTON D.C., USA
JOYCE YEN FENG
Chairperson
DEPARTMENT OF SOCIAL WORK
OF
NATIONAL TAIWAN UNIVERSITY
CHRISTINE EDWARDS
THE MYER FOUNDATION, AUSTRALIA
APPENDIX IV APPC Board of Directors
JENNIFER MARY GILL

Chief Executive
ASB TRUSTS AUCKLAND
141
| 141
HIDEKO KATSUMATA
Managing Director
JAPAN CENTER FOR INTERNATIONAL EXCHANGE
WON-SOON PARK
Executive Director
THE BEAUTIFUL FOUNDATION, SEOUL, SOUTH KOREA
NATALIA SOEBAGJO
Board Member
CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES INDONESIA
CHEE KOON TAN
NATIONAL VOLUNTEER AND PHILANTHROPY CENTER SINGAPORE
SUKICH UDINDU
Managing Director
TG ADVANCE CONCRETE CO. LTD., BANGKOK
PRIYA VISWANATH
CHARITIES AID FOUNDATION INDIA
SHAHNAZ WAZIR ALI
Executive Director
PAKISTAN CENTER FOR PHILANTHROPY
IFTEKHAR ZAMAN
Executive Director
TRANSPARENCY INTERNATIONAL BANGLADESH
AILING ZHUANG
Chair and Executive Director
NPO DEVELOPMENT CENTER, SHANGHAI, CHINA
Founding Governors
BARNETT F. BARON
Executive Vice President
THE ASIA FOUNDATION
TADASHI YAMAMOTO
President
JAPAN CENTER FOR INTERNATIONAL EXCHANGE

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from the Financial Accounting Standards

Asia Pacific Philanthropy Consortium

with funding support from the

APPC encourages the use of this Accounting Guide for Non-Profits,

Printed in the Philippines

PART I. Fundamental Concepts

Users and their Information Needs ...........................................................

Objectives of Financial Reporting..............................................................

1. Introduction and Rationale ..............................................................................

Qualitative Characteristics of Financial Statements ............................... 11

Recognition and Measurements.................................................................. 13

3. The Accounting Equation................................................................................. 14

4. The Accounting Cycle....................................................................................... 16

5. Accrual Basis Guidelines................................................................................ 18

PART II. Financial Reporting and Chart of Accounts

6. Financial Reports and Disclosures................................................................... 24

7. Chart of Accounts ............................................................................................. 46

PART III. Specific Accounts

8. Cash and Cash Equivalents.............................................................................. 60

Cash on hand and in banks ........................................................................ 60

Petty cash fund/Revolving fund ................................................................. 63

Foreign currency accounts.......................................................................... 63

Contributions receivable ............................................................................ 66

Advances and Other receivables ................................................................ 67

10. Inventories ........................................................................................................ 71

V. APPC Board of Directors ................................................................................. 141

Maria Aurora F. Tolentino

Asia Pacific Philanthropy Consortium

MESSAGE FROM THE APPC CHAIR

Asia Pacific Philanthropy Consortium

Accounting Guide for Non-Profits

PART I Fundamental Concepts

1.2 The Role of the NPOs in Society

Accounting Guide for Non-Profits

1.3 NPO Stakeholders

EXPECTATIONS(Social and Economic)

1.4 NPO Governance and Accountability

Financial accounting in NPOs, the topic of this guide, hopes to contribute

PART I Fundamental Concepts

Accounting Guide for Non-Profits

UNDP = United Nations Development Programme

Accounting Guide for Non-Profits

- Board of directors/trustees for policy-making, strategic decision-making, and

- Executive Director for operational decision-making

2.2 Objectives of Financial Reporting

2.3 Basis of Accounting

PART I Fundamental Concepts

2.4 Assumption of Going-Concern

10 | Accounting Guide for Non-Profits

2.5 Qualitative Characteristics of Financial Statements

c. Comparability. Users must be able to compare the financial statements through

12 | Accounting Guide for Non-Profits

PART I Fundamental Concepts

Balance between Qualitative Characteristics

d. Understandability. An essential quality of the information provided in financial

In practice, a balancing, or trade-off, between qualitative characteristics is often

2.6 Accounting Elements

Financial statements are frequently described as a fair presentation of an

To accrue _earned from ____ for the period