1.Organisations which are s providing services to its members and the public are called NOT-FOR-PROFIT ORGANISATION.
Eg: Clubs, charitable institutions, schools, religious institutions trade unions, welfare societies etc.
2.NOT-FOR-PROFIT ORGANISATION is defined as “a nonprofit seeking entity which does not usually involve in trading activities, but engage in rendering services to members and society”
Features of accounting for not-for-profit organisation
- Their main objective is to render services to its
members and the public
- They don’t engage in any trading activities
- They are not expected to earn profit by any mean
- Credit transactions are not usually made
- No trail balance is prepared
- Dont need to prepare Trading, Profit & Loss a/c
- Their affairs are manages by executive committee,thats
elected by its members
ACCOUNTING RECORDS OF NOT-FOR-PROFIT ORGANISATION
Usually NOT-FOR-PROFIT ORGANISATION follow the cash system of accounting. A NOT-FOR-PROFIT ORGANISATION prepares three statements at the end of the accounting year, which form its final accounts. These
- Receipt & Payment Account
- Income & Expenditure Account
RECEIPT AND PAYMENT ACCOUNT
✔️The Receipt and Payment account is a real account which is prepared at the end of an accounting year giving a summary of all cash receipts and payments recorded in cash book.
✔️It is debited with all items of receipts and credited with all payments. At the end of the period, the account is balanced. The final balance in this account represents the balance of cash
in hand or at the bank or overdraft.
Features of Receipt and Payment Account
- It is a real account
- It is a summary of cash book
- All receipts are debited and payments are credited
- It usually begins with opening balance of cash in hand
or at bank
- It usually ends with closing balance of cash in hand or
- It doesn’t disclose the working results of the concern
- It includes all receipts and payments of capital and revenue nature.
- It records all receipts and payments relating to previous,
current and subsequent years.
INCOME & EXPENDITURE ACCOUNT
An Income and Expenditure account is a nominal account prepared by a non- Profit Organisation, in order to ascertain the surplus or deficit of a particular period. It is prepared in the form of Profit and Loss account. All expenses and losses are debited and all incomes and gains are credited. The surplus or deficit is transferred to Capital Fund in the Balance sheet.
Features of Income &Expenditure Account
- It is a nominal account
- Only revenue items are recorded
- Income and expenditure of the current year only are
- Non-Cash transactions (Depreciation, Provision of bad
debts, accrued income etc.) are adjusted in it.
- There is no closing balance in this account.
- It is prepared to find out Surplus (Income over
expenditure) or Deficit (Expenditure over income)
- The surplus or deficit is transferred to Capital Fund in
the Balance sheet.
Preparation of Income and Expenditure Account
Steps followed to prepare income and
expenditure account from receipt and payments account.
- Read the Receipt and payment account thoroughly.
- Exclude the opening and closing balances of cash and
- Exclude the capital receipts and capital payments
- Identify the revenue incomes relating to the current year from debit side of Receipt and payment account
- Identify the revenue expenditure relating to the current year from credit side of Receipt and payment account
- Non-Cash transactions (Depreciation, Provision of bad debts, accrued income, profit or loss on sale of fixed assets etc.) are adjusted in it.
- Finally, the excess of income over expenditure (Surplus) or excess of expenditure over income (Deficit) be ascertained and transferred to Capital Fund.
The balance sheet of a non-profit organisation is prepared for ascertaining the financial position of the organisation. It shows assets and liabilities as at the end of the year. Assets are shown on the right hand side and liabilities on the left hand side.
The procedure in the preparation of balance sheet is as
- Capital fund at the beginning is ascertained by preparing a statement of affairs(Opening Balance Sheet)
- Surplus from Income and Expenditure account must be added to the Capital Fund (Deficit must be deducted).
- Outstanding expenses, income received in advance etc on closing date be shown on the liability side
- Income receivable and expenses paid in advance etc must be shown on the assets side.
- Closing cash in hand and at bank appearing in Receipts and Payments Account must be shown on the assets side.
- The credit balance of Receipts and Payments Account (Bank Overdraft) should be shown on the liability side.
- Assets in existence at beginning of the year should be adjusted for additions and depreciation
- New assets acquired during the year which appear on the payment side of Receipts and Payments Account should be shown on the asset side of the closing balance sheet.
- Any special collection of non-recurring nature (Capital
Items) should be shown on the liability side
Subscription is a membership fee paid by the member on annual basis. This is the main source of income of non-profit organisation. Subscription paid by members is shown as receipt in Receipts and Payments Account.
Legacy: it is the amount received by non-profit making organisations on the death of a person as per his “will”. It is usually a non-recurring nature (Capital Items)
Donation: Donations are amounts receives by way of gift. It
a) Specific Donations
b) General Donations