In previous post we have given Self Balancing Ledger Latest Notes, Accounting for Amalgamation Auditing Standard 14 Latest Notes, Cash Flow Statement Latest Notes, Company Financial Statements Notes, and Download All Accounting Standards for CA, CWA & CS Exams. Today we are providing Non Profit Organization Latest Notes for CA , CMA, CS & for other Accounts student.
Non Profit Organization Notes – Quick Revision
Non Profit Organization Meaning:
Non Profit Organisations refer to the organisations that are for used for the welfare of the society and are set up as charitable institutions which function without any profit motive. Their main aim is to provide service to a specific group or the public at large. 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) and Trading and Profit and Loss Account. The funds raised by such organisations are credited to capital fund or general fund. The major sources of their income usually are subscriptions from their members 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 (usually a financial year) and ascertain their income and expenditure and the financial position, and submit them to the statutory authority called Registrar of Societies.
Final Accounts or Financial Statements:
The Non Profit Organisations are also required to prepare financial statements at the end of the each accounting period. the final accounts of a ‘non profit organisation’ consist of the following:
(i) Receipt and Payment Account
(ii) Income and Expenditure Account, and
(iii) Balance Sheet.
1) Receipt and Payment Account:
It is prepared at the end of the accounting year on the basis of cash receipts and cash payments recorded in the cash book. It is a summary of cash and bank transactions under various heads. For example, subscriptions received from the members on different dates which appear on the debit side of the cash book, shall be shown on the receipts side of the Receipt and Payment Account as one item with its total amount. Similarly, salary, rent, electricity charges paid from time to time as recorded on the credit side of the cash book but the total salary paid, total rent paid, total electricity charges paid during the year appear on the payment side of the Receipt and Payment Account. Thus, Receipt and Payment Account gives summarised picture of various receipts and payments, irrespective of whether
they pertain to the current period, previous period or succeeding period or whether they are of capital or revenue nature. It may be noted that this account does not show any non cash item like depreciation. The opening balance in Receipt and Payment Account represents cash in hand/cash at bank which is shown on its receipts side and the closing balance of this account represents cash in hand and bank balance as at the end of the year, which appear on the credit side of the Receipt and Payment Account. However, if it is bank overdraft at the end it shall
be shown on its debit side as the last item.
b) Specific purpose
2) Entrance Fees
4) Sale of Investments
5) Sale of Fixed Assets
6) Subscriptions from Members
7) Life Membership Fees
8) Sale of old Newspapers
9) Sale of Old Sports Material
10) Interest on Fixed Deposits
11) Interest/ Dividend on Investments
12) Proceed from Charity Shows
13) Sale of Scrap
15) Interest/Dividend on Specific Fund Investments
16) Miscellaneous Receipts.
|1. Purchase of Fixed Assets
2. Purchase of Sports Material
3. Investment in Securities
4. Printing and Stationery
5. Postage and Courier Charges
7. Wages and Salary
9. Telephone Charges
10. Electricity and Water Charges
11. Repairs and Renewals
12. Upkeep of Play Ground
13. Conveyance Charges
14. Subscription for Periodicals
15. Audit Fees
16. Entertainment Expenses
17. Municipal Taxes
Receipt and Payment Account for the year ending
|Balance b/dCash in Hand
Cash at bank
Sale of newspaper /periodicals/waste paper
Sale of old sports materials
Interest on fixed deposits
Interest/Dividend on general
Sale of scraps
Proceeds from charity show
Sale of Investments
Sale of Fixed Assets
Life membership fees
Receipts on account of
specific purpose funds
Interest on specific funds
Balance b/d (Bank Overdraft)*
|Balance b/d (Bank overdraft)Wages and Salaries
Rates and taxes
Printing and Stationery
Postage and courier
Repair and Renewals
Upkeep of ground
Newspapers and Periodicals
Purchases of Assets
Purchase of Investments
Cash in hand
Cash at Bank*
Steps in the Preparation of Income and Expenditure Account:
It is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations. It includes only revenue items and the balance at the end represents surplus or deficit. The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organisation does. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.2) Income and Expenditure Account:
Following steps may be helpful in preparing an Income and Expenditure Account from a given Receipt and Payment Account:
1. Persue the Receipt and Payment Account thoroughly.
2. Exclude the opening and closing balances of cash and bank as they are not an income.
3. Exclude the capital receipts and capital payments as these are to be shown in the Balance Sheet.
4. Consider only the revenue receipts to be shown on the income side of Income and Expenditure Account. Some of these need to be adjusted by excluding the amounts relating to the preceding and the succeeding periods and including the amounts relating to the current year not yet received.
5. Take the revenue expenses to the expenditure side of the Income and Expenditure Account with due adjustments as per the additional information provided relating to the amounts received in advance and those not yet received.
6. Consider the following items not appearing in the Receipt and Payment Account that need to be taken into account for determining the surplus/ deficit for the current year :
(a) Depreciation of fixed assets.
(b) Provision for doubtful debts, if required.
(c) Profit or loss on sale of fixed assets.
Distinction between Income and Expenditure Account and Receipt and Payment Account:
Based upon discussion made in regard to the Receipts and Payments Account and the Income and Expenditure Account we make the distinction between Income and Expenditure Account and Receipts and Payments Account the tabular form:
|Basis of distinction Account||Income and Expenditure Account||Receipt and Payment Account|
|Nature||It is like as profit and loss account.||It is the summary of the cash book.|
|Nature of Items||It records income and expenditure of revenue nature only.||It records receipts and payments of revenue as well as capital nature.|
|Period||Income and expenditure items relate only to the current period.||Receipts and payments may also relate to preceding and succeeding periods.|
|Debit side||Debit side of this account records expenses and losses..||Debit side of this account records the receipts|
|Credit side||Credit side of this account records income and gains.||Credit side of this account records the payments|
|Depreciation||Includes depreciation.||Does not includes
|Opening Balance||There is no opening balance.||Balance in the beginning represents cash in hand /cash at bank or overdraft at the beginning.|
|Closing Balance||Balance at the end represents excess of income over expenditure or vice- versa.||Balance at the end represents cash in hand at the end and bank balance (or bank overdraft).|
‘Not-for-Profit’ Organisationsprepare Balance Sheetfor ascertaining the financial position of the organisation. The preparation of their Balance Sheet is on the same pattern as that of the business entities. It shows assets and liabilities as at the end of the year. Assets are shown on the right hand side and the liabilities on the left hand side. However, there will be a Capital Fund or General Fund in place of the Capital and the surplus or deficit as per Income and Expenditure Account which is either added to/deducted from the capital fund, as the case may be. It is also a common practice to add some of the capitalised items like legacies, entrance fees and life membership fees directly in the capital fund.
Besides the Capital or General Fund, there may be other funds created for specific purposes or to meet the requirements of the contributors/donors such as building fund, sports fund, etc. Such funds are shown separately in the liabilities side of the balance sheet. Some times it becomes necessary to prepare Balance Sheet as at the beginning of the year in order to find out the opening balance of the capital/general fund.
Preparation of Balance Sheet:
The following procedure is adopted to prepare the Balance Sheet:
1. Take the Capital/General Fund as per the opening balance sheet and add surplus from the Income and Expenditure Account. Further, add entrance fees, legacies, life membership fees, etc. received during the year.
2. Take all the fixed assets (not sold/discarded/or destroyed during the year) with additions (from the Receipts and Payments account) after charging depreciation (as per Income and Expenditure account) and show them on the assets side.
3. Compare items on the receipts side of the Receipts and Payments Account with income side of the Income and Expenditure Account. This is to ascertain the amounts of: (a) subscriptions due but not yet received:
(b) incomes received in advance; (c) sale of fixed assets made during the year; (d) items to be capitalised (i.e. taken directly to the Balance Sheet) e.g. legacies, interest on specific fund investment and so on.
4. Similarly compare, items on the payments side of the Receipt and Payment Account with expenditure side of the Income and Expenditure Account. This is to ascertain the amounts if: (a) outstanding expenses; (b) prepaid expenses; (c) purchase of a fixed asset during the year; (d) depreciation on fixed assets; (e) stock of
consumable items like stationery in hand; (f) Closing balance of cash in hand and cash at bank as, and so on.