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Page 1 of 5AFAR–NOT FOR PROFIT ORGANIZATIONSLECTURE NOTESFINANCIAL STATEMENTS REQUIRED FOR PRIVATE NOTFOR PROFIT ORGANIZATIONS.1.Statement of financial position2.Statement of activities3.Statement ofcash flows4.SpecificforVoluntaryHealthandWelfareOrganizations–Statement of Functional ExpensesStatement of Financial position–shows assets andliabilities similar to commercial accounting.Net assetsare classified into:1.Unrestricted–no donor imposed restrictions2.Temporarilyrestricted–withdonorimposedstipulations ( expiration of time and fulfillment of userestrictions)3.Permanently restricted–with donor imposedrestrictions that do not expire nor can be removed byNPO activity.Statement of Activities–shows revenues, expenses,gains and losses as well as reclassification among thedifferent types of net assets.The change in net assetsfor each type is required.Expenses are required(reported) only in unrestricted net assets.Statement of Cash Flows–similar to the Cash Flowsprepared in commercial accounting.Specific funds used by not for profit organizations:1.Unrestricted fund–include all the resources that areavailable for use by authority of the Board ofDirectors (even though designated for specificpurposes) and are not restricted by donors.2.Restricted fund–accounts for assets available forcurrent use but are not derived from the operationsof the NPO’s. Theseassets aretransferred tounrestricted funds at the time the designatedexpenditure is made.3.Endowment funda.Permanent–principal is to be maintainedindefinitely in revenue providing investmentsb.Term–principal may be expended after passageof a period of timec.Quasi–established by Board of Directors underits control4.Agency fund–used to account for assets held byNPO as a custodian.5.Others; like annuity funds, loss funds (for colleges)and plant funds.Other important considerations:1.Revenues and gains come from own principal andauxiliary activities or from donors.Revenues areaccrued at full rates even though some of it perhapsmay be waived.2.Contributions–contributions of cash and otherassets are recognized when received and credited tocontributions revenue (Restricted or Unrestricted).Contributed services and facilities are recognizedboth as expense and contributions revenues, net ofany cost paid related thereto.3.Pledges - unconditional pledges are recognized asreceivablesandcontributions(restrictedorunrestricted).Appropriate provisions for doubtfulpledges are also set up.4.Expenses and losses–all expenses of the NPO arerecognized in the unrestricted fund.Expenses can beclassified into.a.Program–activities that result in the distributionof goods and services to beneficiaries.