Question

what is the major difference in accounting for the general fund of a hospital and the unrestricted fund of other non-business, non profit organization of orher NNOs?

Answer 1

Answer. A fund may be defined as an accounting with a self balance set of account regarding cash and/or other resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose ofcarrying specific activities or attaining certain objective in accordance with special regulation, restrictions or limitations.
Thus, every fund is aimed at fulfilling some purpose and the services embodied in the assets are the primary means to achieve that purpose.
Fund based accounting essentially involves preparation of financial statements fundwise and consolidation of those statements to represent the financial results/position of the organization as a whole.

Revenue funds essentially record normal revenue transactions. In other words, revenue funds are received to meet operating expenses.
However, the use of revenue fund may be restricted or unrestricted. Restricted funds account for resources whose use is restricted by the donor. Restrictions may be externally imposed by the grantors of gifts or endowments. In addition, the governing body of the organization may designate monies for specific purpose. In case ofrestricted funds revenue is reorganized to the extent of resources expended.

These entities also use accrual basis of accounting and keep fund based accounts to record their activities. However, these entities have the following distinctive features:
(a) Hospital generally have two major fund classes - general (unrestricted) and restricted. The general fund is the primarily operating fund for hospitals and mostly received from donors or other parties who have imposed certain restrictions on their use. These funds hold the restricted assets and transfer expendable resources to the general funds for expenditure. Restricted funds may be subdivided into three categories - development fund, endowment fund and other specific purpose fund.
(b) General fund accounts for the resources received and expended in the primary health care mission of the hospital. Depreciation is included in the operating expenses. Fixed assets are included in this fund with the understanding that the governing board may use the assets in any manner desired. Operating revenues ofa hospital include seat rent and other fees earned from patients, cafeteria sales, tuition fees from medical students and transfers from restricted funds.Nonunrestricted endowment income etc. The major expenses in the general fund are for administrative costs. Ifthere is any uncollected service revenue, the same is deducted from gross patient service revenue. It may be noted here that even not-for-profit hospitals charge seat rents and other fees from patients accommodated in 'pay cabins'.
Accommodation in general ward is normally free.
Hospitals may receive donation ofsupplies and equipments. Donated supplies include medicines and disposable medical equipment. Donated supplies are included in the operating revenue at fair values. Such supplies are shown as inventory. An appropriate expense are charged when such supplies are used.
On the other hand, donated equipments or other fixed assets are directly added to general fund balance and recognised as asset in the general
fund balance sheet. Depreciation on such donated assets are shown as
operating expenses in the general fund income and expenditure account.
However, equipments having a life of less than one year is charged off in the same year.
Cash donations, if any, may be either restricted or unrestricted. Accordingly, it will be accounted for.

Restricted funds have different purposes. Development funds account for contributions to be used only for additions to fixed assets. When the asset is actually acquired, the corresponding fund is transferred to general fund. The treatments of endowment funds are same as discussed in earlier. Specific purpose funds are restricted for specific operating purposes (equivalent to restricted revenue fund in case of
educational institutions.) For example, a donor may specify that a donation of Rs. 50,000 may be used only for maternity care. The donation is held in the specific purpose fund until the maternity expenditure is approved in the general fund. Then, the corresponding expenditure for maternity care is shown in the general fund income and expenditure account.
Two fund based balance sheets are to be prepared - one for general fu nd and the other for restricted funds. The general fund will record unrestricted investments, property, plant, equipment, long term loans, current assets, current liabilities etc. The restricted funds will record investment ofrestricted funds, cash balance, capital work in progress and individual fund balances.
Finally a consolidated balance sheet may be prepared for external reporting purpose.