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This chapter will focus upon for four types of not-for-profit / service organizations, namely:
1. The professional organization
2. The privately organized education institutions school, college, university
3. The private organized hospital; and
4. The cooperative
What is a non-profit organization?
A non-profit organization is an entity that is operated for the benefit of society as a whole
rather than for the benefit of an individual proprietor or a group of partners or shareholders. A
non-profit organization strives only to obtain revenue sufficient to cover its expenses. Thus, the
concept of income is not meaningful.
Non-profit organizations constitute a significant segment of our society.
Some examples are:
1. Voluntary health and welfare organizations:
2. Schools, colleges and universities
3. Hospitals
4. Cooperatives
5. Labor unions
6. Performing arts organizations
7. Foundations
8. Religious organizations
9. Country Clubs
10. Professional associations
Accounting for non-profit organizations is essentially fund accounting. This means that the
internal accounting for many non-profit organizations is the fund which is an accounting entity
with a self-balancing set of accounts recording cash and other financial resources together with
related liabilities and changes therein. Accounting is based on FASB SFAS 116, SFAS 117, SFAS
124 and AICPA Audit and Accounting Guide for health care organizations.
Funds commonly used by non-profit organizations include the following:
1. Unrestricted fund
2. Restricted fund
3. Endowment funds
4. Agency fund
5. Annuity fund and life income fund
6. Loan fund
7. Plant fund
Unrestricted Fund/ General Fund/ Current Fund
This is also known as the general fun which includes all the assets of a non-profit organization
that are available for use as authorized by the governing board and are not restricted for
specific purposes. The revenue and gains of unrestricted funds are derived from a number of
sources. It is used in fund accounting.
Restricted Fund/ Restricted Current Fund/ General Fund
are the receipts
of resources
are to be used
such as
of a periodic
journal that
or construction
of a in
the unit.
Classifications of Expense of a nonprofit Organization
1. Program services these are the organizations activities that result in the distribution of
goods and services to beneficiaries, customers or members that fulfill the purposes or
mission of the organization.
2. Supporting Services these are other expenses that include all activities of the
organization other than program services, i.e. management and general expenses, fund
raising and membership development activities.
All expense of a non profit organization is reported as unrestricted in the statement of
activities. This means that expenses are deducted only from unrestricted revenue.
What is a restricted fund?
This is used to account for assets available for current use but expandable only as authorized
by the donor of the assets. The donor may impose either use restriction or time restriction
or both. Assets of the restricted fund are not derived from the operations of the nonprofit
Explain endowment of fund.
A permanent endowment fund is one for which the principal must be maintained indefinitely
in revenue producing investment. Only the revenue from the investments may be expended. A
permanent endowment fund is also known as regular endowment. A permanent endowment
fund or permanently restricted but the revenue from the fund is temporarily restricted.
A term endowment fund is one for which the principal may be expended after the passage of
certain period or the occurrence of an event specified by the donor. The term is temporarily

A quasi-endowment fund is a fund established by the governing board of the nonprofit

organization. At the option of the board, the principal may later be expended.
Accordingly, a quasi-endowment fund is included on unrestricted net assets because this is
established using unrestricted net assets.