Accounting for Not for Profit Organisation
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
- NPO are formed for providing service to a specific group or public.
- These are organised as charitable trusts/societies and subscribers are called members.
- It is managed by elected managing/executive committee.
- The main sources of income are :- subscriptions from members,donations,govt. aid etc
- The funds raised by such organisations are credited to Capital fund/General fund.
- The surplus generated is not distributed among the members.
Difference between Trading organisation and Non-Profit Organisation
|Basis||Trading entities||Not for Profit Entities|
|1. Motive||To earn profit||To 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 Result of activities||Profit or loss either withdrawn or retained in the business||Surplus or Deficit ,which cannot be withdrawn by the members|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 system||Accrual system||Hybrid 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)
- 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
- All receipt enter on Debit side( including capital,revenue,or for past,current and future)
- All payments enter Credit side( including capital,revenue,or for past,current and future)
- Does not contain outstanding exp: and accrued income and non cash items(depreciation,bad debts etc)
- 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
- It is a summary of the cash book
- It shows the total amount of all receipt and payments irrespective of the period to which pertain.
- It includes all receipts and payments whether they are of capital nature or of revenue nature.
- No distinction is made in receipts /payments made in cash or through bank.
- No non-cash items such as depreciation outstanding expenses,accrued income etc are shown in this account.
- 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
- Read the receipt and Payment Account carefully
- Exclude the Opening and closing cash/ Bank Balances,as they are not Income
- Exclude the Capital Receipts and Payments as these are to be shown in B/S
- Consider only the Revenue Receipts and enter on the Income(Credit) side of IE a/c with adjustments.
- Take the revenue expenses to the expenditure(Debit) side of IE a/c with adjustments as per the additional information provided.
- Consider the following items not appearing in Receipt and Payment A/c
- Depreciation of fixed assets.
- Provision for doubtful debts, if required
- Profit or loss sale of fixed assets.
- 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.
- Annual membership subscription.
- Admission fee not capitalized.
- Receipts from sale of old news papers and magazines.
- Hall rent received.
- Interest received on investment, fixed deposits and loan advanced.
- Donations, grants and legacies (receipt as per the will of a deceased person).
- Locker rent, cloak room rent received.
- Receipts from sale of refreshment.
- 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:
- Donations from outsiders or members for specific purpose.
- Amount received as loans.
- Life membership subscription.
- Admission fees to the extent capitalized.
- Sale proceeds of fixed assets.
- Legacies for specific purposes.
- Grants received from Government for meeting capital expenditure. E.g. construction of a Library building.
- Any other receipts of capital nature.
3. Revenue Payments – These are the payments of recurring nature and to be paid at regular intervals.
- Salaries, wages and honorarium paid.
- Travelling and conveyance allowances.
- Rent, taxes, insurance, electricity , printing and stationary, postage and telegram, repairs etc.
- Payments for organizing sports meets and tournaments.
- Payments for purchase of refreshment, dinner etc.
- Interest paid on loan and on bank overdraft.
- 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.
- Construction expenses.
- Purchase of fixed assets like furniture, office equipments etc.
- Purchase of books for library.
- Amounts advanced to outsiders as loans.
- Purchase of sports goods and equipments.
- Any other payments of capital nature.
Treatment of Important Items
|Subscription||Revenue – Income – For current year only|
|Donation for general purpose||Revenue – Income side of IE A/c|
|Donation for specific purpose(for Building,ground)||Capital – Liability side of B/S|
|Legacy||Capital (If small amount treated as Income )|
|Life membership fee||Capital|
|Entrance fee/Admission fee||For Schools – Revenue Income ( Unless otherwise as per instruction)|
For Clubs – Capital
|Government Grant – general Purpose||Revenue-Income side of IE A/c|
|Government Grant – Specific Purpose(For building,ground etc)||Capital – Liability side of B/S|
|Endowment Fund||Capital – Liability side of B/S|
|Sale of Fixed Assets||Capital – Add to Cash balance- (if profit or loss , to be shown in Income and Exp: A/c)|
|Sale of old news paper,periodicals, sports material||Revenue –Income side of IE A/c|
|Stationery Consumed||Revenue – expenditure side of IE A/c|
|Sale of grass||Revenue – Income side of IE A/c|
|Honorarium||Revenue – expenditure side of IE A/c|
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 transactionIt does not have any opening balance. closing balance may either represent deficit or surplus
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
|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)
|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)
Method – 3
Subscription received during the year …………………
|Opening Balance||Closing Balance|
|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
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)
Watch videos . solved questions
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
The amount received by the Not-for Profit organisation as per the will of a deceased person is called
(d) Specific grant
Ans : b) Legacy
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)
½ b mark each item
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
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
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.
Write any five differences between Receipts and Payments Account and Income and Expenditure Account. (5 Marks – 2020 March)
Write any five differences between Receipts and Payments Account and Income and Expenditure Account. (5 Score)
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
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
( One score each for each item as shown above, I score for the final answer – Max. 5 scores)
Briefly explain the steps in the preparation of Receipts & Payments account.
Ans :steps in the preparation of Receipts & Payments account.
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
All receipt enter on Debit side( including capital,revenue,or for past,current and future)
All payments enter Credit side( including capital,revenue,or for past,current and future)
Does not contain outstanding exp: and accrued income and non cash items(depreciation,bad debts etc)
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)
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
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.
In 2016 B/S Asset side : Sub.Out standing 31-12-2016 – 15000
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
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.
Income and expenditure Account for the yaer ende 31-12-2018
Opening balance sheet as on 1-1-2018
Balance sheet as on 31-12-2018
Following is the Receipts and Payments Account of Madras Sports Club for the year ending 31st March 2019.
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.
Income and expenditure Account for the yaer ende 31-3-2019
Opening balance sheet as on 1-4-2018
Balance sheet as on 31-3-2019
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
Bright Charitable Society gives you their Receipts and Payments Account :
Receipts & Payments A/c. for the year ending Dec. 31, 2017
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
Complete the series :
(a) Receipts and Paynents Account -+ Cash in Hand and cash at Bank
(b) income and Expenditure Account –+ ……?……