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Illustrative transactions of not for profit-organizations

Assume that the society for the rehabilitation of Addis professors of accounting
(SRAPA), a voluntary health and welfare organization, is formed at the beginning of
19X1. It receives its support from the public –at-large, as well as though the united way.
SRAPA owns a building and various pieces of equipment, which are used to carry out its
service-counseling and education program. It uses the following funds.
1. Current unrestricted fund
2. Current restricted fund
3. Land, buildings, and equipment fund

The transactions for each fund, for 19X1, are as follows:


1. Unrestricted pledges of Birr 130,000, which apply to the current period are made
by various people of this amount, Birr 15,000 is not expected to be collectible.
Contributions receivables 130,000
Allowance for uncollected contributions 15,000
Support contributions 115,000
To record pledges and estimated uncollectibles

2. Contributions receivables of Birr 110,000 are collected and contributions of Birr


12,000 are written off:
Cash 110,000
Allowance for uncollected contributions 12,000
Contributions receivables………………………….. 122,000
To record collection and written off of certain pledges:

3. Of the above amount, Birr 20,000 is invested in government securities for use as
management sees fit.
Investments ………………………………. 20,000
Cash …………………………………………….20, 000
To record purchase of government securities
4. The society’s allocation from the United way amounts to Birr 65,000. From this
amount a share of the united ways fund raising. Cost birr 5000 is deducted.
Cash …………………………………. 60,000
United-way fund raising costs…..5,000
Received from united
Way…………………………………….65,000
To record 19X1 allocation from united way
5. A fund-raisin book sale is held. The event raises Birr 12,000. Out of this amount
Birr 3,000 of related direct cost are incurred and paid.
Cash ……………………………………………..12,000
Support-special events………………………….12, 000
To record support from book sale
Expenditures-fund raising …………………3,000
Cash …………………………………………………3,000
To record direct costs of book sale

6. Investments income of Birr 2000 is earned during the year. Of this amount Birr
1500 is received by year-end.
Cash …………………………………..1500
Accrued interest receivable ………..500
Revenue –investment income …………………..2000
To record 19X1 investment income
7. Membership dues of Birr 2,500 are collected during the year
Cash …………………………………………….2, 500
Revenues-membership dues ……………………2,500
To record receipt of membership dues

8. Services donated to the society are as follows:


a) A psychologist provides counseling to a number of accounting professor at
No. cost. The services are valued at birr 3,000
b) An attorney performs certain legal work for free the services are valued at Birr
600.
Expenses-counseling services ………………….3000
Expenses-administration.............................600
Support-donated supplies ……………………….3600
To record receipt of donated services

9. Supplies, with a market value of Birr 800 are donated to the society by a local
accounting firm. They are used in the general operation of the organization.
Expense –administration……………………………………800
Support-donated supplies ………………………………….800
To record receipts of donated supplies

10. Salaries and wages incurred during the year (including fringe benefits) are
allocated as follows:
Administration………………………………. Birr 25,000
Counseling services………………………… 60,000
Education ……………………………………. 50,000
Fund raising …………………………………. 5,000
By year-end all salaries, wages, and fringe benefits have been paid.
Expenses-administration …………………….. 25,000
Expenses-counseling services……………….. 60,000
Expenses-education ………………………….. 50,000
Expenses-fund raising ………………………… 5,000
Cash ……………………………………………………140,000
To record salaries, wages, and fringe benefits of 19X1

11. Other expenses are allocated as follows:


Contractual services
Counseling services Birr 10,000
Education 5,000
15,000
10,000
Supplies (all education)
Miscellaneous expenses:
Administration Birr 3,000
Counseling services 2,000
Education 3,000
Fund raising 1,000
11,000
Total Birr 36,000

Of this amount, all but birr 4000 has been paid by year-end
Then, entries are as following:-
Expenses-administration 5,000
Expenses-counseling services 12,000
Expenses-education 18,000
Expenses-fund raising 1,000
Accounts payable 4,000
Cash 32,000
To record expenses incurred in 19 x 1 and payment of vouchers.

12. The closing entry for 19X1 is:


Support-contributions ………………………………… 115,000
Support-special events ………………………………… 12,000
Support-donated services …………………………….. 3,600
Support-donated materials …………………………… 800
Revenues-investment income …………………………. 2,000
Revenues-membership dues ………………………….. 2,500
Received from units way ………………………………. 65,000

Expenses-administration …………………………….……….31,400
Expenses-counseling services………………………………..75,000
Expenses-education raising ………………………………….68,000
Expenses fund raising…………………………………………9,000
United way fund-raising costs ……………………………….5,000
Fund balance-unrestricted ………………………………..12,000
To close revenue, support, expense and fund-raising cost accounts.

Activity 4.4
Answer the following questions in writing and check your answers with those given in the
answer key.

Instruction
Assume that an NGO is formed by the name, “the society for the rehabilitation of Addis
business professionals (SRABP)” it receives its support from the public at large SRABP own
a building and its services-counseling and education program. It uses the following funds.
a) Current unrestricted fund
b) Current restricted fund
c) Land building and equipment fund

The transactions for each fund, for 19X1 are as follows. You are required to make entry
for the following transactions.
1. An unrestricted pledge of Birr 115,000 which applies to the current period and is
made by many people, Birr 15,000 is not expected to be collected. (Record the
pledges and estimated uncollectible).
2. Contribution receivables of birr 102,000 are collected and contribution of Birr
8,000 are written off. Record the collection and written of certain pledges.
3. Of the above amount birr 10,000 is invested in government securities for use as
management sees fit. Record the purchase of government securities.
4. The society’s allocation from donor –x amount to birr 50,000. From this amount a
share of Donor X’ fund raising cost Birr 3,000-is deducted. Record the allocation
from donor-x.
5. A fund raising book sale is held. The event raises Birr 15,000. Out of this amount
Birr 2,000 of related direct costs are incurred and paid. Record: -
a) Support from book sale
b) Direct cost of book sale
6. Investment income of Birr 5000 is earned during the year. Of this amount birr 300
is receive by year end. Record, the investment income.
7. Membership dues of Birr 3,000 are collected during the year. Record the receipt
of membership dues:
8. Series donated to the society are as follows:
a) A psychologist provides counseling to a number of business educationalists at
no cost. The series are valved at Birr 4200.
b) An attorney performs certain legal work for free. The services are valued at
Birr 800.
9. Supplies with a market value of Birr 600 are donated to the society by a local
business firm. They are used in the general operation of the organization. Record
the receipts of donated supplies.
10. Salaries and wages incurred during the year (including fringe benefits) are
allocated as follows:
Administration …………………………….. Birr 20,000
Counseling services ……………………….. 65,000
Education ……………………………………. 45,000
Fund raising…………………………………. 10,000
By year-end all salaries, wages, and fringe benefits have been paid. Record
salaries, wages and fringe benefits of 19X1.

11. Other expenses are allocated as follows


Contractual series:
Counseling services…………………11,000
Education…………………………… 4,000
15,000
Supplies (all education)…………………………… 10,000
Miscellaneous expenses:
Administration…………………………….. Birr 4,000
Counseling …………………………………. 1,000
Education ………………………………….. 5,000
Educating raising ………………………… 2,000
12,000
Total……………………. Birr 37,000

Of this amount, all but birr 3.000 has been paid by year-end. Record the expenses
incurred in 19X1 and payment of vouchers.

12. Record the closing entries of revenue, support, expenses and fund-raising cost
accounts.
Illustration
Current restricted fund
1. Pledges of birr 20,000 and cash gifts of Birr 10,000 are received, with the
stipulation that they be used only for special educational programs over the next
five years. Twenty percent of the pledges are estimated to be uncollectable.
Entries are:
1. Cash………………………………………………10,000
Contributions receivables……………………20,000
Allowance for uncollect contributions……………4,000
Support contributions……………………………….26, 000
To record restricted gifts and pledges

2. Restricted-purpose pledges of Birr 15,000 are collected and another Birr 2,000 are
written off.
Cash……………………………………….……..15,000
Allowance for uncollected distributions…. 2,000
Contributions receivables…………………….17, 000
To record collection and written off of restricted pledges

Land building, abd equipment fund


3. Special educational services of Birr 21,000 are paid by this fund in 19X1.
Expenses-special education…………………………21,000
Expense-special education……………………………..21,000
Fund balance-restricted………………………………….5,000
To close support and expense accounts

Land building abd equipment fund


1. The society received a grant of birr 250,000 from AKLILU LEMMA FOUNDATION,
to be used for the purchase of building and equipment.
Cash………………………………………250,000
Support-contributions ……………………..250,000
To record contribution for purchase of building and equipment.

2. An investment of Birr 100,000 is made in government securities.


Investment…………………………………..100,000
Cash…………………………………………………..100,000
To record investment in government securities.
3. Equipment costing Birr 50,000 is purchased, using the resources donated by
Aklilu lemma foundation
Equipment ………………………..50,000
Cash……………………………….50, 000
To record purchase of equipment with monies restricted for that purpose.
4. A building is purchase for Birr 400,000. A down payment of birr 80,000 is made a
mortgage is take out for the remainder.
Building …………………………………400,000
Mortgage-payable ……………………..320,000
Cash ………………………………………. 80,000
To record purchase of building with restricted monies and mortgage.
5. Interest of Birr 8000 is received on the investment in government securities.
Cash ……………………………… 8000
Revenue-investment
Income …………………………8000
To record earning an investments.
6. Payments of Birr 10,000 are made on the mortgage during the years. Of this
amount, Birr 8000 is for interest.
Mortgage payable ………………………2000
Expenses-interest……………………..8000
Cash ……………………………………………10,000
To record payments on mortgage.
7. Depreciation for the year amount to birr 20,000 on the building and birr 10,000 on
the equipment, it is allocated as follows:
Administration ……………………… Birr 3,000
Counseling services ………………… 10,000
Educational services ……………….. 16,000
Fund raising …………………………. 1,000
Depreciation expense-administration………………………. 3,000
Depreciation expense-counseling services…………………. 10,000
Depreciation expense –educational service………….16, 000
Depreciation expense-fund raising…………………... 1,000
Accumulated depreciation-building ……………………..20,000
Accumulated depreciation-equipment…………………10,000
To record depreciation on building and equipment for 19X1
8. The closing entry is as follows:
Contributions…………………………… 250,000
Revenue-investment income ……….. 8,000
Expense-interest …………………………………. 8,000
Depreciation exp-admi…………………………… 3,000
Deprec.exp- counseling
Service ……………………………….10,000
Deprec. Exp-educational
Service ……………………………….16,000
Deprec. Exp-fund raising………………………. 1,000
Fund balance-unexpended……………………. 220,000
To close contributions, revenues, and expense accounts.
The fund balance of the land, building, and equipment fund is generally separated
in to “unexpected” and “expended” portions. The unexpended portion equals to
the contributions receivable accounts. The expended portion equals the net boo
of the fixe asset (original costs less accumulated depreciation), less the amounts
outstanding on any associated mortgages. At the end of each reporting period, it is
necessary to adjust the unexpended fund balance to reflect the expended portion.
The adjustment at the end of 19X1 is 102,000 (Birr 50,000+400,000-Birr
320,000+2000-30,000 = Birr 102,000).
The entry to make this adjustment is:
Entry: -
Fund balance-unexpended………………102,000
Fund balance-expended………………………102,000
To adjust fund balance-expended to reflect the change in net investment in fixed
assets.

Table 4.1
Not for-profit organization
Statements of financial position
June 30, 19 x 0
(Expressed in thousands)
19 x 1 19 x 0
Assets
Cash and cash equivalents Birr 75 Birr 460
Accounts and interest receivables 2130 1670
Inventories and prepaid expenses 610 1000
Contributions receivables 3025 2700
Short term investments 1400 1000
Asset restricted to investments in
Land, buildings and equipment 5210 4500
Land, buildings, and equipment 61,700 63,590
Long term investment 218,070 203,500
Total assets Birr 292,220 Birr 278,480
Liabilities and net assets
Liabilities:
Accounts payable Birr 2570 Birr 1050
Refundable advance - 650
Grants payable 875 1300
Notes payable - 1140
Annuity obligations 1685 1700
Long-term debt 5500 6500
Total liabilities 10,630 12,340
Net assets:
Unrestricted 115,228 103,670
Temporarily restricted 24,342 25,470
Permanently restricted 142,020 137,000
Total assets 281,590 266,140
Total liabilities and net assets Birr 292,220 278,480
Table 4.2
Voluntary health and welfare service
Statement of functional expresses
Year ended December 31, 19 x 2
(Will comparative totals for 19 x 1)
19 x 2
Program services Supporting services Total expenses
Research Public Professional Community Total Management Funding Total 19x2 19x1
health education and services and general raising
education training

Sales salaries Birr 45,000 291,000 251,000 269,000 856,000 331,000 368,000 699,000 1,555,000 1,433,00
Employee health and 4,000 14,000 14,000 14,000 46,000 22,000 15,000 37,000 83,000 75,00
retirement benefits
Payroll taxes, etc 2,000 16,000 13,000 14,000 45,000 18,000 18,000 36,000 81,000 75,00
Total salaries and 51,000 321,000 278,000 297,000 947,000 371,000 401,000 772,000 1,719,000 1,853,00
related expenses
Professional fees and contract 1,000 10,000 3,000 8,000 22,000 26,000 8,000 34,000 56,000 53,00
service payment
Supplies 2,000 13,000 13,000 13,000 41,000 18,000 17,000 35,000 76,000 71,00
Telephone and telegraph 2,000 13,000 10,000 11,000 36,000 15,000 23,000 38,000 74,000 68,00
Postage and shipping 2,000 17,000 13,000 9,000 41,000 13,000 30,000 43,000 84,000 80,00
Occupancy 5,000 26,000 22,000 25,000 78,000 30,000 27,000 57,000 135,000 126,00
Rental equipment 1,000 24,000 14,000 4,000 43,000 3,000 16,000 19,000 62,000 58,00
Local transportation 3,000 22,000 20,000 22,000 67,000 23,000 30,000 53,000 120,000 113,00
Conference, convention, 8,000 19,000 71,000 20,000 118,000 38,000 19,000 51,000 169,000 156,00
meetings
Printing and publications 4,000 56,000 43,000 11,000 114,000 14,000 64,000 78,000 192,000 184,00
Awards and grants 1,332,000 14,000 119,000 144,000 1,609,000 - - - 1,609,000 1,448,00
Miscellaneous 1,000 4,000 6,000 4,000 15,000 16,000 21,000 37,000 52,000 64,00
Total expenses before 1,412,000 539,000 612,000 568,000 3,131,000 567,000 650,000 1,217,000 4,348,000 4,004,00
depreciation
Depreciation of building and 2,000 5,000 6,000 10,000 23,000 7,000 4,000 11,000 34,000 32,00
equipment
Total expenses Birr 1,414,000 544,000 618,000 578,000 3,154,000 574,000 654,000 1,228,000 4,382,000 4,036,00
Statement of functional expenses
Voluntary health welfare organizations are required to prepare a statement of functional
expenses. The statement identifies each program and support service, and amount of each
expenses, on an object (by type) basis. It is prepared in a matrix format. A statement of
functional expenses is illustrated in (table 4.2).