**Case Study: Accounting for Non-Profit Organizations**

*Background:* XYZ Non-Profit Organization (NPO) is dedicated to providing education and healthcare services to underprivileged communities. As a non-profit entity, XYZ NPO follows specific accounting principles tailored to its unique operational structure. Let's explore the key aspects of accounting for non-profit organizations through the lens of XYZ NPO.

**Step 1: Revenue Recognition and Fund Accounting**

- **Revenue Sources:** Unlike for-profit entities, non-profits rely on diverse revenue sources such as donations, grants, and program service fees. Each revenue source has distinct accounting treatment, with a focus on transparency and accountability.

- **Fund Accounting:** Non-profits use fund accounting to segregate resources based on their restrictions and purposes. Common funds include unrestricted, temporarily restricted, and permanently restricted funds. XYZ NPO ensures compliance with donor restrictions and allocates resources accordingly.

**Step 2: Program and Administrative Expenses**

- **Program Expenses:** Non-profits report program expenses related to their mission activities. For XYZ NPO, this includes expenses associated with educational programs and healthcare services. Program expenses are essential for demonstrating the organization's commitment to its stated purpose.

- **Administrative Expenses:** Administrative expenses cover the operational costs necessary for maintaining the organization. This includes salaries, utilities, and other general overhead costs. XYZ NPO carefully manages these expenses to maximize the impact of donor contributions on its mission.

**Step 3: Compliance with Accounting Standards for Non-Profits**

- **Financial Statement Presentation:** Non-profits prepare financial statements, including the statement of financial position, statement of activities, and statement of cash flows. XYZ NPO ensures that its financial statements accurately reflect the organization's financial health and adherence to accounting standards for non-profits.

- **Transparency and Accountability:** Non-profits prioritize transparency in financial reporting. XYZ NPO regularly communicates with stakeholders, providing detailed financial information through annual reports, donor communications, and public disclosures.

**Objective Type Question:** How do non-profit organizations typically account for donor-restricted funds?

A) Combine them with unrestricted funds for simplicity.

B) Allocate them to temporarily restricted funds.

C) Record them as program service fees.

D) Treat them as permanently restricted funds.

Choose the correct option and provide a brief explanation of your choice based on the case study.