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4 ACCOUNTING FOR NON-PROFIT ORGANISATION

NON-PROFIT ORGANISATION
 Organisations that are not established for making profit but to provide
some service.
 Example: Gymkhana / sports clubs; Educational institutions; Public hospitals;
Libraries; Cultural clubs like Rotary or Lions club; Religious institutions;
Charitable trusts, etc.
 Normally, they do not manufacture, purchase or sell goods and may not
have credit transactions. Hence they need not maintain many books of
account (as the trading concerns do)
 Major sources of their income usually are subscriptions from their
member’s donations, grants-in-aid, income from investments, etc.
 The main objective of keeping records in such organisations is to meet the
statutory requirement and help them in exercising control over utilisation
of their funds. They also have to prepare the financial statements at the
end of each accounting period and ascertain their income and expenditure
and the financial position.

Special Items:
 Entrance Fees received at the time of admission of a new member. It could
be either capitalized as they are non-recurring or taken as revenue as
per the rules of the institution. There’s a view that addition of member is an
ongoing activity and thus every year the institute will get entrance fees. So
it may be taken as a normal revenue receipt.

 Donations – They could be used for meeting capital or revenue expenses.

If donations are received for a special purpose, the amount is credited to
a fund from which the amounts are disbursed. The fund may be invested in
specified securities. Income from such investments is credited to the fund
A/c only. Small donation amounts which are not earmarked for any specific
purpose may be treated as revenue receipts.

 Legacy – Many times trusts are formed in the memory of certain persons
by their will. In such case after the demise of the person, the funds pass

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on to the institution. Such legacies are of course onetime and therefore

should be taken to the capital fund.

 Endowments – Sometimes, donations are also in the form of endowments to

be used as per instructions of the donor. These are to be treated as
capital receipts.

 Life membership fees – These could be taken as capital receipts and every
year a charge is debited based on some logic. In other words, when
received, it could be treated as deferred receipt in the balance sheet
and every year a specific amount is credited to Income& Expenditure
Account.

 Subscriptions – Subscription is a membership fee paid by the member on

annual basis. This is the main source of income of such organisations These
are taken as revenue receipts. These must be recognised as revenue on the
accrual concept.

Final Accounts or Financial Statements:

It is necessary to know whether the income during the year was sufficient to
meet the expenses or not. To provide the necessary financial information to
members, donors, and contributors and also to the Registrar of Societies. For this
purpose, they have to prepare their final accounts at the end of the accounting
period and the general principles of accounting are fully applicable in their
preparation. The final accounts of a ‘non-profit organisation’ consist of the
following:
1) Receipts and Payments Account
2) Income and Expenditure Account, and
3) Balance Sheet.

Features of Receipts and Payments Account

1. It is an Account which contains all Cash and Bank transactions made by a
non-profit organization during a particular financial period. (May related
to any period)
2. It starts with the opening balances of Cash and Bank. All Cash Receipts
both capital & revenue during the period are debited to it.

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3. All Cash Payments both capital & revenue during the period are credited to
this Account. It ends with the closing Cash and Bank Balances.
4. While recording the Cash and Bank transactions all entries are made on Cash
Basis.
5. It is a summary of Cash Book.
6. It follows Real Account.

Features of Income and Expenditure Account

1. It follows Nominal Account.
2. All expenses of revenue nature for the particular period are debited to
this account on accrual basis.
3. Similarly all revenue incomes related to the particular period are credited
to this account on accrual basis.
4. All Capital incomes and expenditures are excluded.
5. Only current year’s incomes and expenses are recorded. Amounts related
to other periods are deducted. Amounts outstanding for the current year
are added.
6. Profit on sale of asset is credited. Loss on sale of asset is debited. Annual
depreciation on assets is also debited.
7. If income is more than expenditure, it is called a surplus, and is added with
Capital or General Fund etc. in the Balance Sheet.
8. If expenditure is more than income, it is a deficit, and is deducted from
Capital or General Fund etc. in the Balance Sheet.

# Difference between Receipts and Payments Account and Income and

Expenditure Account
Basis Receipts and Payments Account Income and Expenditure
Account
Nature It is the summary of the cash book It is like as profit and loss
account
Nature of It records receipts and payments of It records income and
Items revenue as well as capital nature expenditure of revenue
nature only
Period Receipts and payments may also relate Income and expenditure
to preceding and succeeding periods items relate only to the
current period
Debit side Debit side of this account records the Debit side of this account

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receipts records expenses and

losses
Credit side Credit side of this account records Credit side of this account
the payments records income and gains
Depreciation Does not includes depreciation Includes depreciation
Opening Balance in the beginning represents There is no opening balance
Balance cash in hand /cash at bank or
overdraft at the beginning
Closing at the end represents cash in hand at Balance at the end
Balance the end and bank balance (or bank represents excess of
overdraft) income over expenditure or
vice-versa

IMP MCQ:
1. Income and Expenditure Account is 4. A Club is of 200 members. Subscription
prepared on per member is Rs. 3000 per annum.
(a) Cash basis Outstanding subscription at the beginning
(b) Accrual basis of the year and end of the year were
(c) Hybrid basis Rs.18000 and Rs. 28000 respectively.
(d) Either (a) or (b) Amount of subscription to be shown in
Income and Expenditure Account will be
2. Receipts and Payments Account is (a) Rs. 600000
prepared on (b) Rs.618000
(a) Accrual basis of accounting (c) Rs.572000
(b) Cash basis of accounting (d) Rs. 590000
(c) Hybrid basis of accounting
(d) Either (a) or (b) 5. A Club is of 150 members. Subscription
per member is Rs. 500 per month.
Subscription of 8 members of whole year's
3. A Club is of 200 members. Subscription
was not received and subscription from 5
per member is Rs. 3000 per annum.
members has been received in advance for
Outstanding subscription at the beginning
six months of the next year. The amount
of the year and end of the year were
of subscription to be shown in Receipts and
Rs.18000 and Rs.28000 respectively.
Payments Account will be
Amount of subscription to be shown in
Receipts and Payments Account will be (a) Rs. 900000
(a) Rs.600000 (b) Rs.867000
(b) Rs.618000 (c) Rs.963000
(c) Rs.572000 (d) Rs. 933000
(d) Rs. 590000

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6. A Club is of 100 members. Subscription 9. In a Club, subscription received for

per member is Rs. 2500 per annum. Rs. current year is Rs. 250000, Subscription
218000 are received during the year of current year received in the previous
2016-17 which includes Rs. 20000 and Rs. year is Rs. 25000, Subscription
15000 subscription for the years 2015-16 outstanding for current year isRs.45000,
and 2017-18 respectively. At the end of Subscription received in advance in current
the year 2016-17, the amount of year isRs.11000 and subscription of
outstanding subscription will be previous year received in current year is
(a) Rs. 32000 Rs. 35000. The amount of subscription to
(b) Rs.52000 be shown in Receipts and Payments Account
(c) Rs.35000 will be
(d) Rs. 67000 (a) Rs. 250000
(b) Rs.296000
7. A Club is of 100 members. Subscription (c) Rs.274000
per member is Rs. 2500 per annum. Rs. (d) Rs. 226000
218000 are received during the year
2016-17 which includes Rs.20000 and Rs. 10. In a Club, subscription received for
15000 subscription for the years 2015-16 current year Rs. 250000, Subscription of
and 2017-18 respectively. At the end of current year received in the previous year
the year 2016-17, the amount of Rs. 25000, Subscription outstanding for
subscription received in advance will be current year Rs.45000, Subscription
(a) Rs. 20000 received in advance in current year
(b) Rs.15000 Rs.11000 and subscription of previous year
(c) Rs.35000 received in current year Rs. 35000. The
(d) Rs. 32000 amount of subscription to be shown in
Income and Expenditure Account will be
8. An institution received Rs. 180000 as (a) Rs. 274000
rent during the year 2016-17 which (b) Rs.226000
includes Rs. 36000 received in advance for (c) Rs.309000
the year 2017-18. Outstanding rent at (d) Rs. 320000
the end of the years 2015-16and 2016-17
were Rs.24000 and Rs.28000 respectively. 11. In a Club, subscription received for
Amount of rent to be shown in Income and current year Rs. 250000, Subscription of
Expenditure Account for the year 2016-17 current year received in the previous year
will be Rs. 25000, Subscription outstanding for
(a) Rs. 180000 current year Rs.45000, Subscription
(b) Rs.144000 received in advance in current year
(c) Rs.140000 Rs.11000 and subscription of previous year
(d) Rs. 148000 received in current year Rs. 35000. If the
beginning of the current year the
outstanding subscription is Rs.42000 then

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the amount of outstanding subscription at (b) Rs.46000

the end of the current year will be (c) Rs. 36000
(a) Rs. 45000 (d) Rs. 60000
(b) Rs.87000
(c) Rs. 52000 13. Without adjusting the items of:
(d) Rs. 55000 Outstanding subscription Rs. 5600;
Outstanding rent Rs. 3500; and Prepaid
12. In a Club, subscription received for insurance Rs.1500, the Income and
current year Rs. 250000, Subscription of Expenditure Account of Poova
current year received in the previous year Entertainment Club shown a surplus of Rs.
Rs. 25000, Subscription outstanding for 67000. The amount of surplus after above
current year Rs.45000, Subscription adjustments will be
received in advance in current year (a) Rs. 59400
Rs.11000 and subscription of previous year (b) Rs.63400
received in current year Rs. 35000. At (c) Rs. 70600
the end of the current year amount of (d) Rs.66400
subscription received in advance will be
(a) Rs. 11000

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