Here we are going to discuss about Top 49 points of plus two accountancy chapter1-Accounting for Not-for-profit Organisation 


Focused Area topics of this chapter

  • 1. Meaning and Characteristics of Not-For Profit Organisation
  • 2. Accounting Records of Not-for-profit Organisation
  • 3. Receipt and Payment Account
  • 4. Preparation of Income and Expenditure Account
  • 5. Distinction between Income and Expenditure Account and Receipt and Payment Account
  • 6. Treatment of Subscription in the financial statements of Not-For Profit Organisation

Meaning and Characteristics of Not-For profit Organisations

  1. Not-For Profit Organizations are those type of organizations established for the purpose of rendering  service. They are not expected to earn profit, but are organized mainly for social, cultural, educational,  religious and charitable purposes.
  2. Normally, these organizations do not undertake any business activity, and are managed by trustees,who are fully accountable to their members for the utilization of the funds raised for meeting the objectives of the organization. So, they also have to maintain proper accounts and prepare the  financial statement which takes the form of Receipt and payment account, Income and Expenditure  Account and Balance Sheet

Characteristics of Not-For Profit Organisations

  • 1 Their main objective is to render service and is not expect any profit
  • 2 These organisations, organized as charitable trusts/ societies and subscribers to  such organization are called members. They are managed by managing committee.
  • 3 They do not usually engage in trading or business activities.
  • 4 Usually, these organizations not entertain credit transactions.
  • 5 Not for profit organizations keep Cash Book to record all daily receipt and payments, it help  to prepare Receipt and payment Account.
  • 6 They usually maintain a ledger containing the accounts of all incomes, expenses, assets and  liabilities which facilitates the preparation of financial statements at the end of the accounting  period.
  • 7 The main sources of income of such organizations are subscription from members,  donations, legacies, grant, income from investment etc.
  • 8 The funds raised by such organizations through various sources are credited to capital fund
  • 9 The surplus generated in the form of excess of income over expenditure is not distributed  amongst the members. It is simply added to capital fund. They do not maintain capital  account, instead they maintain capital fund.
  • 10 Not for profit organization earn their reputation on the basis of their contributions to the welfare of the society.

Accounting Records Not-For Profit OrganisationsI

  • Not-For Profit Organisations are required to prepare financial statements at the end of each accounting  period. They required to provide necessary financial information to members, donors, contributors,  Registrar of Societies. It is also necessary to know whether the income during the year is sufficient to  meet the expenses or not. The final accounts of consists of the following:
  • 1 Receipts and Payment Account
  • 2 Income and Expenditure Account
  • 3 Balance Sheet

Receipts and Payment Account

  • Receipt and payment account is the summary of cash and bank transactions under various heads. It is  prepared at the end of an accounting year on the basis of cash receipts and payments recorded in the cash  book. Receipt and payment account record all cash receipts and all cash payments, irrespective of whether  they relate to the current period, previous period succeeding period or whether they are of capital or revenue  nature.
  • Receipt and payment account never record non-cash items like depreciation, outstanding expenses,accrued incomes etc. The opening balance in Receipt and payment account represents cash in hand/cash bank which is shown on its receipts side and the closing balance of this accounts represents cash in  hand/cash at bank as at the end of the year, which appear on the credit side of the Receipt and payment  account. 
  • features of Receipt and payment account
  • · It is a real account.
  • · It is a summary of cash book.
  • · It is prepared at the end of an accounting year on the basis of cash book.
  • · It is debited with all cash receipts and credited with all cash payments.
  • · It is prepared on cash basis (records only actual cash receipts and payments).
  • · It records all receipts and payments of current year, previous and succeeding years.
  • · It records all receipts and payments whether they are of capital and revenue nature.
  • · Non cash items like depreciation, outstanding expenses, accrued income etc are never
  • recorded in this account.
  • · It begins with opening cash in hand/at bank and ends with closing cash in hand/at bank.

steps in the preparation of receipts and payments account

  • 1. Take the opening balances of cash in hand and at bank and enter the same on the debit side.
  • 2. Show the total amounts of all receipts on its debit side irrespective of their nature (i.e capital or  revenue) and period (i.e current year,previour or succeeding years)
  • 3. Show the total amounts of all payments on its credit side irrespective of their nature and period.
  • 4. Accrued incomes and outstanding expenses etc not to be entered in this account as they do not involve inflow or out flow of cash.
  • 5. Find out the difference between the total of the debit side and the total of the credit side of the  account and if the total of the debit side is more than the total of the credit side, it is ‘closing  cash in hand/bank’.

Income and expenditure account

  • It is just like a profit and loss account prepared by trading concern. It is prepared on accrual basis. It records only revenue items of current year and the balance at the end of the year represents surplus or deficit. Non cash items like depreciation also recorded in it. 

Salient features of Income and Expenditure account

  • It is a nominal account
  • It is a summary of income and expenditure for the accounting year.
  • It records only the revenue incomes and revenue expenses of the current year. 
  • Non cash items like depreciation, outstanding expenses, accrued incomes etc are shown in this account.
  • It never records capital receipts or payments.
  • It never starts with a balance.
  • Its closing balance will be surplus or deficit. Surplus is added to Capital fund and deficit is deducted from it.

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