Accounting for Not for Profit Organisation

Introduction

Not for  profit organizations which are set up for providing Service to its members and the public in general. Profit is not the objective of such organisations. Ex: Clubs, Charitable Institutions, Schools, religious organisations,trade unions,welfare societies etc.

Characteristics of NPO

  1. NPO are formed for providing service to a specific group or public.
  2. These are organised as charitable trusts/societies and subscribers are called members.
  3. It is managed by elected managing/executive committee.
  4. The main sources of income are :- subscriptions from members,donations,govt. aid etc
  5. The funds raised by such organisations are credited to Capital fund/General fund.
  6. The surplus generated is not distributed among the members.

Difference between Trading organisation and Non-Profit Organisation

BasisTrading entitiesNot for Profit Entities
1. Motive To earn profitTo render service 
2. Status Proprietors or owners Subscribers or members
3. Distribution of profit Among the owners Not distributed to any one
4. Result of activitiesProfit or loss either withdrawn or retained in the businessSurplus or Deficit ,which cannot be withdrawn by the members
5. Accounting statements Manufacturing or Trading Profit and loss account and Balance Sheet Receipts and payments account, Income and expenditure account and Balance sheet
6.Accounting systemAccrual systemHybrid system (combination of accrual and cash system) 

The not for  profit organization prepare 3 financial statement at the year end

  1. Receipt and payment account   

  2. Income and expenditure account     

  3. Balance sheet

Receipt and payment account

t is a cash book. it is a summary of all cash transactions. It starts with opening cash and bank balance and ends with closing cash and bank balance. All receipts (cash and cheque) are shown on debit side and all payment (cash and cheque) are shown on credit side

Specimen of receipt and payment account

Receipt and payment account for the year ended (date)

Steps –

  1. Take the opening cash in hand/Bank balance and enter on Debit side,if balance is Bank overdraft at the beginning enter the same on Credit side
  2. All receipt enter on Debit side( including capital,revenue,or for past,current and future)
  3. All payments enter Credit side( including capital,revenue,or for past,current and future)
  4. Does not contain outstanding exp: and accrued income and non cash items(depreciation,bad debts etc)
  5. Balance the account  – if Debit side is more than credit side ,it is cash /bank balance(on credit side),otherwise balance is Bank overdraft (on debit side)

Salient features of Receipt and Payment Account

  1. It is a summary of the cash book
  2. It shows the total amount of all receipt and payments irrespective of the period to which pertain.
  3. It includes all receipts and payments whether they are of capital nature or of revenue nature.
  4. No distinction is made in receipts /payments made in cash or through bank.
  5. No non-cash items such as depreciation outstanding expenses,accrued income etc are shown in this account. 
  6. It begins with opening balance of cash in hand and cash at bank(or bank overdraft) and closes with the year end balances of cash in hand /cash at bank or bank overdraft
Income and expenditure account

It is similar to Profit and Loss A/c prepared by trading concerns.It is debited with all expenses or losses and credited with all incomes and gains.The balance,being either excess of income over expenditure,Surplus (Net profit in the case of trading concern) or excess of expenditure over income ,Deficit(net loss in the case of trading concern) is transferred to capital fund.

Income and expenditure account for the year ended (date)

Steps in the preparation of Income and Expenditure Account

  1. Read the receipt and Payment Account carefully
  2. Exclude the Opening and closing cash/ Bank Balances,as they are not Income
  3. Exclude the Capital Receipts and Payments as these are  to be shown in B/S
  4. Consider only the Revenue Receipts and enter on the Income(Credit) side of IE a/c with adjustments.
  5. Take the revenue expenses to the expenditure(Debit) side of IE a/c with adjustments as per the additional information provided. 
  6. Consider the following items not appearing in Receipt and Payment A/c
  1. Depreciation of fixed assets.
  2. Provision for doubtful debts, if required
  3. Profit or loss sale of fixed assets.
  4. Balance the Account ,If  Credit side is heavier than debit side it is Surplus,  otherwise Deficit.
Capital Receipt:These are the mount received during the year ,the benefit of which will relate to future  years also.These are not in recurring nature.Ex:sale of fixed assetsCapital Payments: These are the payments made during the current period,the benefits of which are available in the future years also.They are not made at regular intervals.It increases the earning capacity of business.Ex: Purchase of furniture.Revenue Receipt:   Revenue receipts are the amount received out of conducting regular activities of the business.which are recurring nature / received repeatedly or regularly.Ex: subscriptionsRevenue payments:These are the payments of recurring nature and to be paid at regular intervals.It maintain the earning capacity of business.

Items of Receipts and Payments Account – The items of receipts and payments account may be classified as 1. Revenue Receipts, 2. Capital Receipts, 3. Revenue Payments and 4. Capital payments. 

1. Revenue Receipts – These are the amounts received by the organization on a recurring nature. 

  1. Annual membership subscription. 
  2. Admission fee not capitalized. 
  3. Receipts from sale of old news papers and magazines. 
  4. Hall rent received. 
  5. Interest received on investment, fixed deposits and loan advanced. 
  6. Donations, grants and legacies (receipt as per the will of a deceased person). 
  7. Locker rent, cloak room rent received.
  8. Receipts from sale of refreshment.
  9.  Any other items of similar nature. 

2. Capital Receipts – These are the amounts received during the current year, the benefit of which will relate to future years also. Such receipts are not received at regular intervals. They include:

  1.  Donations from outsiders or members for specific purpose.
  2. Amount received as loans.
  3. Life membership subscription.
  4.  Admission fees to the extent capitalized. 
  5. Sale proceeds of fixed assets. 
  6. Legacies for specific purposes.
  7. Grants received from Government for meeting capital expenditure. E.g. construction of a Library building. 
  8. Any other receipts of capital nature. 

3. Revenue Payments – These are the payments of recurring nature and to be paid at regular intervals.

  1.  Salaries, wages and honorarium paid.
  2.  Travelling and conveyance allowances.
  3.  Rent, taxes, insurance, electricity , printing and stationary, postage and telegram, repairs etc. 
  4.  Payments for organizing sports meets and tournaments. 
  5.  Payments for purchase of refreshment, dinner etc.
  6.  Interest paid on loan and on bank overdraft. 
  7. Any other payment of revenue nature. 

4. Capital Payments – These are the payments made during the current period, the benefits of which are available in the future years also. They are not made at regular intervals. 

  1. Construction expenses. 
  2. Purchase of fixed assets like furniture, office equipments etc. 
  3. Purchase of books for library.
  4. Amounts advanced to outsiders as loans. 
  5. Purchase of sports goods and equipments.
  6. Any other payments of capital nature. 

Treatment of Important Items

SubscriptionRevenue – Income – For current year only
Donation for general purposeRevenue – Income side of IE A/c
Donation for specific purpose(for Building,ground)Capital – Liability side of B/S
LegacyCapital (If small amount treated as Income )
Life membership feeCapital
Entrance fee/Admission feeFor Schools – Revenue Income ( Unless otherwise as per instruction)
For  Clubs – Capital
Government Grant – general PurposeRevenue-Income side of IE A/c
Government Grant – Specific Purpose(For building,ground etc)Capital – Liability side of B/S
Endowment FundCapital – Liability side of B/S
Sale of Fixed AssetsCapital – Add to Cash balance- (if profit or loss , to be shown in Income and Exp: A/c)
Sale of old news paper,periodicals, sports materialRevenue –Income side of IE A/c
Stationery Consumed Revenue – expenditure side of IE A/c
Sale of grassRevenue – Income side of IE A/c
HonorariumRevenue – expenditure side of IE A/c

Difference between receipt and payment account & income and expenditure account

Receipt and payment accountIncome and expenditure account
It is a real account
It is a summary of actual cash receipts and payments of a particular period
It includes both capital and revenue items
It includes all receipt and payments irrespective of the period to which it belongs
It does not include non cash transaction
It begins with the opening cash/bank balance and ends with the closing cash/bank balance
It is a nominal account
It is a summary of incomes and expenses of a particular period
It includes only revenue items
It includes only income and expenses of a particular period for which the account is prepared
It includes both the cash and non cash transactionIt does not have any opening balance. closing balance may either represent deficit or surplus
Balance sheet

The Balance sheet of not for profit organization is prepared on the same principle as the balance sheet of a profit seeking business. it is a statement of all assets and liabilities of the business. There is no Capital in the case of a trading concern but it may have Capital Fund.Capital fund is made up of surplus of income over expenditure and certain items which are capitalised.Excess of assets over liabilities is called Capital Fund or General Fund

Balance sheet as on (date)

Incidental trading Activity

Some non profit organisations may carry on trading activities such as running canteen,medical store,provision store ,bar etc. mainly to provide certain facilities to their members

In such cases the organisation would like to know the profit made out of trading activities separately. For this purpose a separate  trading account is prepared to disclose the profit or loss made from the trading activity.

Calculation of Subscription for the year

Amount collected from members periodically is called subscription.This is one of the main sources of revenue.This is shown on the credit side of income and expenditure account.Adjustments should be made to show the correct income for the period.

Method – 1

                                      Subscription received during the year          xxxx

                                          Add: Outstanding at the end                     xxx  – (Closing B/S -Asst)

                                                   Advance at the beginning                 xxx – (Open. B/S – Liabt)

                                           Less: Advance at the end                         xxx –(Closing –B/S- Liab)

                                                     Outstanding at the beginning         xxx  – (Open. –B/S- Asst)

                                              Subscription credited to income side    xxx

Method – 2

Format of Subscription Account

ParticularsAmountParticularsAmount
To   Sub. Outstanding A/c (Outstanding at the beginning of the year) 
To Income & Expenditure A/c(balancing figure)
To Balance   C/d( Sub. Received in advance at the end of current year)

Xxx
Xxx

xxx
By      balance  b/d(Sub.received in advance at beginning of the year)
By    Cash/Bank A/c(Total Sub. Received duringThe year)
By   Outstanding sub. A/c( Outstanding at the end of the current year)   
Xxx
Xxx
xxx
xxxxxx

Method – 3

Subscription received during the year    …………………

Opening BalanceClosing Balance
Outstanding+
Received in Advance+
Adjustment of Special Purpose Funds / Tournament Fund

If there is any special purpose fund, eg. Tournament fund, Charity Fund,Prize Fund, Endowment Fund etc. and there are certain items of expenses and incomes

relating to that fund ,then incomes and expenses should not be shown in the income and expenditure account but income should be added to the fund and expenses deducted from such fund on the liabilities side of the balance sheet , suppose the following figures are given

Tournament Fund – xxxx
Add : Tournament Income – xxxx
Interest on Tournament Investment – xxxx
xxxx
Less : Tournament Expenses – xxxx
Amount to be shown in Liability side of Balance sheet – xxxx

(If tournament fund Investment to be shown in asset side of Balance sheet)

Solved Questions

Watch videos . solved questions

Previous Questions
  1. 1. The excess of income over expenditure in a not-for-profit organisation is called
    (a) Surplus (b) Deficit(c) Capital (d) Revenue
    Ans :  Surplus

  2. The amount received by the Not-for Profit organisation as per the will of a deceased person is called
    (a) Honorarium
    b) Legacy
    (c) Subscription
    (d) Specific grant
    Ans : b) Legacy

  3. Show how the following items will appear in the financial statement of a Not-for-Profit organisation :

(i) Cricket Match fund ` 40,00,000
(ii) Cricket Match Expenses ` 23,00,000
(iii) Donations received for conducting cricket matches ` 12,00,000
(iv) Sale of Cricket Match tickets ` 16,00,000                                                     (2 score – 20Mrch)
Ans :

Liabilities

Amount

Assets

Amount

Cricket match fund                     40,00,000

Add : Donation received           12,00,000

Add : Sale of Tickets                   16,00,000
                                                      68,00,000

Less : Match expenses               23,00,000






45,00,000

   

½ b mark each item

  1. Receipts and Payment Account is equivalent to _________.
    (a) Profit & Loss A/c.    (b) Cash Book     (c) Balance Sheet     (d) Capital A/c.
    Ans:  (b) Cash Book

  2. The surplus of Income and Expenditure account is added along with _______ in Balance Sheet. (a) Capital (b) Capital Fund (c) Donations (d) Subscriptions
    Ans : Capital Fund

  3. Write any 2 characteristics of not-for-profit organisations. (2 Marks)
    Ans : Characteristics of not-for-profit organization: 2
    i. Providing service to a specific group such as education, healthcare, charity etc.
    ii. They do not usually engage in trading activities.
    iii. These organizations not entertain credit transactions
    iv. The main sources of income of such organizations are subscription from members, donations,legacies, etc.

  4. Write any five differences between Receipts and Payments Account and Income and Expenditure Account.                                                                              (5 Marks – 2020 March)

  5. Write any five differences between Receipts and Payments Account and Income and Expenditure Account.                                                                                               (5 Score)

  6. List out any 3 differences between Income & Expenditure Account and Receipts & Payments Account.                                                                                                         (3Marks)
    Ans: Difference between receipt and payment account & income and expenditure account

Receipt and payment account

Income and expenditure account

  • It is a real account

  • It is a summary of actual cash receipts and payments of a particular period

  • It includes both capital and revenue items

  • It includes all receipt and payments irrespective of the period to which it belongs

  • It does not include non cash transaction

  • It begins with the opening cash/bank balance and ends with the closing cash/bank balance

 

  • It is a nominal account

  • It is a summary of incomes and expenses of a particular period

 

  • It includes only revenue items

 

  • It includes only income and expenses of a particular period for which the account is prepared

  • It includes both the cash and non cash transaction

  • It does not have any opening balance. closing balance may either represent deficit or surplus

 

  1. As per Receipts and Payment Account for the year ended on March 31, 2019, the

subscriptions received were ` 50,000. Additional information given is as follows :
(i) Subscriptions outstanding on 1-4-2018  – 5,000.
(ii) Subscriptions outstanding on 31-3-2019  – 3,000.
(iii) Subscriptions received in advance as on 1-4-2018 – 2,000.
(iv) Subscriptions received in advance as on 31-3-2019  – 4,000.

Calculate the amount of subscriptions for the year 2018-19 to be credited to Income & Expenditure Account.

Ans :.Calculation of subscription to be credited to Income & Expenditure A/c 5

Subscription received during the year 2018-19

 

50000

Add:Subscription outstanding on 31-3-2019

  3000

 

          Subscription received in advance as on 01-04-2018

2000

5000

Less:Subscription outstanding on 01-04-2018 

5000

 

        Subscription received in advance as on 31-03-2019 

4000

9000

Subscription credited to Income and ExpenditureA/c

 

46000

              ( One score each for each item as shown above, I score for the final answer – Max. 5 scores)

 

  1. Briefly explain the steps in the preparation of Receipts & Payments account.

    Ans :steps in the preparation of Receipts & Payments account.

  1. Take the opening cash in hand/Bank balance and enter on Debit side,if balance is Bank overdraft at the beginning enter the same on Credit side

  2. All receipt enter on Debit side( including capital,revenue,or for past,current and future)

  3. All payments enter Credit side( including capital,revenue,or for past,current and future)

  4. Does not contain outstanding exp: and accrued income and non cash items(depreciation,bad debts etc)

  5. Balance the account  – if Debit side is more than credit side ,it is cash /bank balance(on credit side),otherwise balance is Bank overdraft (on debit side)

 

  1. Prepare the Receipts and Payments Account of Megha Charitable Trust for the year ending March 31,2019 based on the following information

               Opening Cash balance  – 2,000
              Opening Bank balance  – 14,400
              Subscriptions collected for :

                      2017 – 18     – 1,000
                      2018 – 19   –  15,200
                      2019 – 20    –  1,800

Rent paid –  6,000
Sports materials purchased –  9,600
Sale of refreshments  – 2,000
Entrance free received  – 2,000
Sale of old newspapers  – 2,400
Purchase of refreshments – 1,200
Expenses for maintenance of Play ground   – 4,000
Salary paid – 5,000
Donation for building   – 9,200
Tournament expenses –  4,800
Furniture purchased 3,000
Office expenses 2,400
Closing Cash in hand 800

Ans :                       Receipt and payment A/c of Megha Charitable Trust

Receipt

Amount

Payment

Amount

Balance B/d

Bank

Subscription     2017-18 – 1000

                           2018-19 – 15,200

                           2019-20 – 1800

Sale of refreshment

Entrance fee

Sale of old news paper

Donation for building

2000

14,400



18,000

2000

2000

2400

9200

 

Rent paid

Sports materials

Refreshments

Expense for play ground

Salary

Tournament expenses

Furniture

Office expenses

Balance C/d :  Cash  

                          Bank (Balancing figure)

6000

9600

1200

4000

5000

4800

3000

2400

800

13200

 

50000

 

50000

 

  1. As per the Receipt and Payment account of Jeevan Sports Club during the year 31st December 2016, subscriptions received were ` 1,26,000.

Additional Information :

(a) Subscription received in advance on 31-12-2016 ` 26,000.
(b) Subscription outstanding on 1-1-2016 ` 12,000.
(c) Subscription received in advance on 1-1-2016 were ` 14,000.
(d) Subscription outstanding on 31-12-2016 was ` 15,000.

Ascertain the subscription to be credited to Income and Expenditure account for the year 2016, and state which item will appear in the assets side of the closing Balance Sheet for the year 2016.
Ans :

Subscription received 

126000

Add : Sub.received in advance 1-1-2016                 –   14000

 

        Sub.Out standing              31-12-2016             –   15000

29000

Less : Sub. received in advance  31-12-2016         – 26000

 

        Sub.outstanding        1-1-2016                       – 12000

-38000

                Credited in Income and Expenditure A/c for 2016

117000

In 2016 B/S Asset side :  Sub.Out standing    31-12-2016             –   15000

 

  1. From the following Receipt and Payment account and additional information relating to Navajeevan Club, prepare Income and Expenditure Account for the year ended 31st December, 2018 and a Balance Sheet as on that date.

 

Receipt and Payment Account for the year ending 31-12-2018

Receipt

Amount

Payment

Amount

Balance b/d

Subscription

     2017    – 1000

     2018   – 60,000

     2019    – 2000

Sale of news paper

Hall rent

4000




63,000

2000

1000

Salary

General expenses

Books

Electricity

Furniture

Balance c/d

14,000

2000

13,000

6,000

30,000

5,000

 

70,000

 

70,000

Additional Information :

(a) Subscription outstanding on 31-12-2018 ` 5,000 and on 31-12-2017 ` 1,000

(b) Salary outstanding  2,000.

(c) On 1st January, 2018 Building were ` 30,000, Furniture ` 4,000 and Books 5,000.

Ans :


Income and expenditure Account for the yaer ende 31-12-2018

Expenditure

Amount

Income

Amount

Salary                                14000

       Add outstanding      20000

General expenses

Electricity

                            Surplus

 

16000

2000

6000

44000

Subscription                60000

     Add outstanding    5000

Hall rent

Sale of news paper

 

65000

1000

2000

 

68000

 

68000

 


Opening balance sheet as on  1-1-2018

LIabilities

Amount

Assets

Amount





Capital fund (Balancing figure)





44000

Cash

Building

Furniture

Books

Sub.outstanding

4000

30000

4000

5000

1000

 

 

44000

 

44000

 

Balance sheet as on  31-12-2018

LIabilities

Amount

Assets

Amount

Sub.received in advance

Salary outstanding

Capital fund              44000

Add : Surplus           44000

 

2000

2000

 

88000

 

Cash 

Sub.outstanding 31-12-18

Building

Books                          5000

Add : purchase         13000

Furniture                   4000

Add: Purchase         30000

5000

5000

30000

 

18000

 

34000

 

 

92000

 

92000



  1. Following is the Receipts and Payments Account of Madras Sports Club for the year ending 31st March 2019.

 

Receipts

Amount

Payments

Amount

Balance    B/d    –       cash
                                      Bank

Subscription

Donations

Entrance fees

Locker rent

7,300

14,400

3,53,900

60,000

24,200

8,500

Salaries

Printing & Stationery

Sports expenses

Electricity charge

Rent

Entertainment expenses

Investment (31-3-2019)

Balance c/d               Cash

                                    Bank

 

88,000

9,320

96,100

4,380

7,600

1,600

2,10,000

9,300

42,000

 

4,68,300

 

4,68,300

Additional Information :

(1) Subscription outstanding during 2018-19 amounted ` 26,000.
(2) Salary outstanding for the year 2018-19 amounted ` 8,000.
(3) Entrance fees and Donation should be capitalised.
(4) The stock of stationery as on 31-03-2019 is valued at ` 800.
(5) Depreciation is to be charged @ 10% p.a. on Sports equipment.
(6) On 1st April 2018 other balances were as under :

Land and Building ` 1,20,000
Sports Equipments ` 18,000
Library Books ` 10,000

Prepare Income & Expenditure Account for the year ended 31st March 2019 and Balance Sheet as on that date.

Ans :
Income and expenditure Account for the yaer ende 31-3-2019

Expenditure

Amount

Income

Amount

Salary                     88000

Add : o/s sub        8000

Printing and stationery (9320-800)

Sports expenses

Electricity

Rent

Entertainment expe:

Depreciation on sports equip:

Surplus

 

96000

 

8520

96100

4380

7600

1600

1800

172400

Subscription            353900

 Add : O/s   sub       26000

Locker rent

 

 

3,79,900

8500

 

388400

 

388400

 


Opening balance sheet as on  1-4-2018

LIabilities

Amount

Assets

Amount





Capital fund (Balancing figure)





169700

Land and Building

Sports equipment

Library books

Cash

bank

120000

18000

10000

7300

14400

 

169700

 

169700

 

Balance sheet as on  31-3-2019

LIabilities

Amount

Assets

Amount

Salary os

Capital fund             169700

Add : surplus           172400

                                  342100

Add :entrance fee   24200

         Donation         60000

8000





426300

Cash in hand

Bank

Subscription os

Stock of stationery

Investment

Sports equipment 18000

Less : dep                  1800

Library books

Land and Building

9300

42000

26000

800

210000

 

16200

10000

120000

 

434300

 

434300

 

  1. Ms. Bhavya, the secretary of Butterfly Arts & Sports Club is not aware about the treatment of tournament fund in their Balance Sheet. As a Commerce student you are required to help her based on the following details :

Tournament Expenses 16,000
Tournament Fund 22,000
Donation for Tournament 8,000
Collection from the sale of tournament tickets 6,000
Ans:

Balance sheet

LIability 

Amount

Assets

Amount

Tournament fund                          – 22000

Add :Donation for tournament      – 8000

Add : Collection from the sale of tournament tickets                          – 6000
                                                              36000

Less :  Tournament Expenses          16,000






20,000

   

 

  1. Bright Charitable Society gives you their Receipts and Payments Account :

Receipts & Payments A/c. for the year ending Dec. 31, 2017

Receipts

Amount

Payments

Amount

Opening Balance  –       cash
                                        Bank

Subscription

Donation for building

Legacies

Interest on Investment

Bank interest received

15,000

12,500

26,300

60,000

44,500

1,600

500

Advertisement

Charity expenses

Investment

Computer

Rent

Stationery

Printing

Closing balance

                                         Cash

                                         Bank

5,700

4,000

32,000

25,000

6,000

1,200

2,500

 

25,000

59,000

 

1,60,400

 

1,60,400

Prepare Income & Expenditure A/c. and the Balance Sheet for the year ended Dec. 31, 2017 by giving due attention for the following :

(i) On 1-1-2017 the society owned a building worth ` 50,000 and Furniture worth 20,000 and it had creditors of ` 10,000.

(ii) Donations and legacies are to be capitalised.

(iii) Interest on investment accrued ` 3,000.

(iv) Outstanding rent ` 1,000.
Ans : Surplus – 11000
        Opening capital fund – 87500
        Closing Balance sheet total – 214000

  1.  Complete the series :

(a) Receipts and Paynents Account -+ Cash in Hand and cash at Bank
(b) income and Expenditure Account –+ ……?……

 

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