Accounts of Non Profit Organisation

8/7/2019 Accounts of Non Profit Organisation

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Non trading concerns or Non profit organization arethose concern whose main object is not to earn profitbut to render services to their members and to the

community.Eg: Educational institutions, associations, clubs,hospitals, trade unions, charitable societies etc

Their income consist of admission fees, subscription

collected from members, donation from members andnon-members and grants from government and otheragencies.

Result of the concern may be either surplus or deficit


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Statements prepared by Non trading concern

1. Receipts and payments Account

2. Income and Expenditure Account

3. Balance Sheet


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1.Receipts and payments Accounty It is prepared at the end of the period incorporating

therein all receipts and payments covering a particular

period in a summary form.y Like cash book, all receipts of cash or cheque are

entered on the debit side and all payments on thecredit side.

yThe difference between two sides represents cash inhand


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Format ofReceipts and payments Account

Receipts Amount Payments Amount

To O e i ala ce:Cas i a

Cas at aTo ll recei ts(ca ital a reve e)

To ala ce /Cas i aCas at a

xxx

Xxx

XxxXxx

XxxXxx

y ll ay e ts(ca ital a reve e)

y clo

si ala ce:Cas i aCas at a

Xxx

XxxXxxXxx

Note 1: All receipts and payments whether to thecurrent, preceding or succeeding period are includedNote 2: Only actual receipts and payments are included,

ignoring accrued incomes and outstanding expenses.


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2.Income and Expenditure Account

y

Non trading concern prepare income and expenditureaccount which is similar to profit and loss accountprepared by trading concern

y It is a nominal account and is debited with all expenses

or losses and credited with all incomes and gainsy The result being either excess of income over

expenditure (surplus) or excess of expenditure overincome (deficit) and is transferred to the capital fund


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Format ofIncome and Expenditure accountExpenditure Amount Income Amount

To All revenue expenses

of the current yearincluding provision ismade for all outstandingexpenses, accruedincomes, depreciation,doubtful debt etc

To excess of income overexpenditure(surplus)

xx

xxxxx

By All revenue incomes

of the current year xxxxx


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Preparation ofIncome & Expenditure Account

from Receipts & Payments Account

1. mit the opening & closing cash & bank balance2. Take only revenue items of income & expenditure3. Take only revenue items for the current period and

exclude items relating to the preceding or succeedingperiods

4. Make adjustment for accrued incomes, outstandingexpenses, income received in advance and prepaidexpenses

5. Make provision for bad debts, depreciation etcThe difference between two sides will indicate

either surplus or deficit and it should be transferred tothe capital fund.


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3.Balance sheety Balance sheet is prepared to ascertain the financial

position as on the close of a particular period

y It is prepared in the usual mannery There may not be any formal capital for a non-trading

concern. The excess of assets over liabilities is calledcapital or general fund


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Procedure for preparing balance sheet1. Ascertain the capital fund at commencement. For

this opening balance sheet should be prepared,

setting out the liabilities on one side and assets onthe other side. The difference between the two sidesis capital fund in the beginning.

2. In case of closing balance sheet, adjust the capital

fund for surplus or deficit during the year and alsoadjust items to be capitalized

3. In the closing balance sheet bring forward previousyears liabilities, if they are still outstanding.


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Procedure for preparing balance sheet(contd)

4. Show the closing balance of the receipts & paymentsaccount, viz cash in hand and cash at bank on the

asset side of the balance sheet5. Assets which already exist in the beginning of the

year should be adjusted for additions and disposals,if any made during the year and also for any

depreciation charged on assets.6. Show the new assets acquired, if any, during the year.

This can be traced from the payment side of receiptsand payments account


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Procedure for preparing balance sheet(contd)

7 If there is any fresh liability incurred during the year,that should be shown on the liability side

8 utstanding assets such as income accrued,expenses prepaid etc should be shown on the assetside

9 utstanding liabilities such as income received in

advance, outstanding expenses etc should be shownon the liability side

10 Items of special nature should be shown in thebalance sheet after making necessary adjustments.


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Items of special nature includesI. Entrance fees

Accountants differ in the treatment of entrance fees.Many feel that, since the amount is collected only onceand it is of non-recurring nature, it should be capitalized

and taken to the liability side of balance sheet.thers argue that, the club or

institution receives it fairly regularly every year becauseof regular entry of members. So it should be shown as anincome on the credit side of income & expenditure

account.Note: In the absence of specific instruction in the question,

students may treat it any way but they must append anote justifying the choice made


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Items of special nature includes(ii) Subscriptions

This is one of the main source of revenue and

should be treated as income. This is shown on thecredit side of income and expenditure account.Adjustment for outstanding, prepaid etc should bemade so as to show the correct income for the

period.


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Items of special nature includes(iii) Donations

a) Specific donations

It must be treated as capital receipt and shouldbe shown on the liability side of balance sheet.

Eg: Donation for building, donation for library, donationfor furniture etc

b) General donation

Donation of a comparatively small amountmust be treated as income. But if the amount of suchdonation is big, it must be treated as capital receipt andshould be shown on the liability side of the balance sheet


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Items of special nature includes(iv) Legacy

It is the amount received by the non-trading concern

as per the will of a deceased person. It is a capitalreceipt and is shown on the liability side of balancesheet.

But if the amount is small, it may be treated asincome and may be shown on the credit side of

income and expenditure account.

Note: In the absence of specific information , legacymust preferably be capitalized.


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Items of special nature includes(v) Life membership fees

As the service has to be rendered for a long timewithout further payment, it must be treated as capital

receipt and should be capitalized.(vi) Special purpose fund

If there is any special purpose fund Eg: Tournamentfund, charity fund, prize fund, endowment fund etc and

there are certain items of expenses and income relating tothat fund, then income and expenses should not be shownin the income and expenditure account but income shouldbe added to the fund and expenses should be deductedfrom such fund on the liability side of balance sheet.


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Items of special nature includes(vii) Sale of old assets

The amount realized from the sale of old

assets should be treated as capital receipt and shouldbe credited to asset account. But the profit or loss onits sales should be treated as revenue and is taken toincome and expenditure account.

(viii) Sale of newspaper, periodicals etcAmount received on selling newspaper,

periodicals etc should be treated as income and iscredited to income and expenditure account.


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Accounts ofProfessionalsy It involves

1. Preparation ofReceipts and Payments from income

and Expenditure Account or Preparation of incomeand expenditure from Receipts and paymentsaccount

2. Preparation ofBalance Sheet


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Preparation ofReceipts & Payments Account from

Income & Expenditure Accounty Another type of problem involves the preparation of

Receipts & Payments Account from a given Income &Expenditure Account & Balance sheet.

yThe receipts & payments account includes both revenue &

apital items and also actual total amount of cash receiptsand cash payments relating to previous, current andsucceeding periods.

y Income and Expenditure reveals only the actual incomewhether received or not and also actual expenses whetherpaid or not.

y Follow a reverse procedure to calculate the actual cashreceipts & cash payments by taking each and every item in

the income & expenditure account as the starting point


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Calculation of total receipts(eg: Subscription)

Current years subscription xxx

(Given in income & Expenditure account)

Less outstanding at the end of the current year xxx

Add outstanding at the end of the previous year xxx

Less received in advance in the previous year xxx

Add received in adv. at the end of the current year xxx

xxx

Note: This figure will be taken as the starting point for thecalculation of income


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Calculation of total payments(Eg: Salaries)

Current years salaries xxx

(Given in income & Expenditure account)

Less outstanding at the end of the current year xxxAdd outstanding at the end of the previous year xxx

Less Paid in advance in the previous year xxx

Add Paid in advance at the end of the current year xxx

xxx

Note: This figure will be taken as the starting point forthe calculation of expenditure

Accounts of Non Profit Organisation

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