CLASS 12
ACCOUNTS
CHAPTER-1: ACCOUNTING FOR NOT-FOR-PROFIT ORGANISATION
NOT-FOR-PROFIT ORGANISATION:
There are certain organizations that are set up for providing services to their members and the public in general. Such organizations are called NOT-FOR-PROFIT ORGANISATION.
Eg: Clubs, charitable institutions, schools, religious institutions trade unions, welfare societies, etc.
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 organizations:
1. Their main objective is to render services to its members and the public
2. They don’t normally engage in trading activities
3. They are not expected to earn profit 4. Credit transactions are not usually made
5. No trial balance is prepared
6. Do not prepare Trading, Profit & Loss a/c
7.Their affairs are managed by an executive committee elected by its members
ACCOUNTING RECORDS OF NOT-FOR-PROFIT ORGANISATION:
Usually, NOT-FOR-PROFIT ORGANISATION follows 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 statements are:
1. Receipt & Payment Account
2. Income & Expenditure Account
3. Balance sheet
RECEIPT AND PAYMENT ACCOUNT:
The Receipt and Payment account is a real account that is prepared at the end of an accounting year giving a summary of all cash receipts and payments recorded in the 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:
1. It is a real account
2. It is a summary of the cash book
3. All receipts are debited and payments are credited
4. It usually begins with the opening balance of cash in hand or at the bank
5. It usually ends with closing the balance of cash in hand or at the bank
6. It doesn’t disclose the working results of the concern
7. It includes all receipts and payments of capital and revenue nature.
8. 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 a 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:
1. It is a nominal account
2. Only revenue items are recorded
3. Income and expenditure of the current year only are included.
4. Non-Cash transactions (Depreciation, Provision of bad debts, accrued income, etc.) are adjusted in it.
5. There is no closing balance in this account.
6. It is prepared to find out Surplus (Income over expenditure) or Deficit (Expenditure over income)
7. The surplus or deficit is transferred to Capital Fund in the Balance sheet.
Preparation of Income and Expenditure Account:
The following steps are followed to prepare income and expenditure accounts from the receipt and payments account.
1. Read the Receipt and payment account thoroughly.
2. Exclude the opening and closing balances of cash and bank
3. Exclude the capital receipts and capital payments
4. Identify the revenue incomes relating to the current year from the debit side of the Receipt and payment account
5. Identify the revenue expenditure relating to the current year from the credit side of the Receipt and payment account
6. Non-Cash transactions (Depreciation, Provision of bad debts, accrued income, profit or loss on sale of fixed assets, etc.) are adjusted in it.
7. Finally, the excess of income over expenditure (Surplus) or excess of expenditure over income (Deficit) be ascertained and transferred to Capital Fund.
BALANCE SHEET:
The balance sheet of a non-profit organization is prepared for ascertaining the financial position of the organization. It shows assets and liabilities as of 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 the balance sheet is as follows:
1. Capital fund at the beginning is ascertained by preparing a statement of affairs(Opening Balance Sheet)
2. Surplus from Income and Expenditure account must be added to the Capital Fund (Deficit must be deducted).
3. Outstanding expenses, income received in advance, etc on a closing date be shown on the liability side
4. Income receivable and expenses paid in advance etc must be shown on the assets side.
5. Closing cash in hand and at bank appearing in Receipts and Payments Account must be shown on the assets side.
6. The credit balance of the Receipts and Payments Account (Bank Overdraft) should be shown on the liability side.
7. Assets in existence at beginning of the year should be adjusted for additions and depreciation
8. 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.
9. Any special collection of non-recurring nature (Capital Items) should be shown on the liability side.
Receipts and Payments Account V\S Income and Expenditure Account
Receipts and Payments Account:
- Real account
- Summary of cash books Like a Profit and Loss account.
- Its debit side shows receipts and the credit side shows payments.
- Its debit side shows expenses and losses and the credit side shows incomes and gains.
- It starts with an opening balance of cash or bank.
- It doesn’t start with cash or bank balance It records all receipts and payments of the previous year, current year, and the succeeding year
- Non- cash transactions are not made
- Its closing balance is carried to the succeeding year.
- It records both revenue and capital items
Income and Expenditure Account:
- Nominal account
- Like a Profit and Loss account.
- Its debit side shows expenses and losses and the credit side shows incomes and gains
- It starts with an opening balance of cash or bank.
- It records the income and expenses of the current year only.
- Non- cash transactions are made
- Its balance (Surplus or Deficit) is transferred to Capital Fund.
- It records only revenue items.
Calculation of the amount of Subscription credited to Income and Expenditure Account
Particulars Amount (Rs.)
Subscription received during the year Add: Closing Subscription Outstanding Add: Opening Subscription Received in Advance
Less: opening Subscription Outstanding Less: Closing Subscription Received in Advance The amount of Subscription credited to Income and Expenditure Account
xxx xxx xxx
xxx xxx xxx xxx
Subscription: Subscription is a membership fee paid by the member on annual basis. This is the main source of income for non-profit organizations. Subscription paid by members is shown as a receipt in the Receipts and Payments Account.
Legacy: it is the amount received by non-profit making organizations 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 gifts. It may
a) Specific Donations
b) General Donations
Calculation of the number of Expenses debited to Income and Expenditure Account
Particulars Amount (Rs.)
Expenses paid during the year Add: Closing Expenses Outstanding Add: Opening Expenses Paid in Advance
Less: opening Expenses Outstanding Less: Closing Expenses Paid in Advance The number of Expenses debited to Income and Expenditure Account
xxx xxx xxx
xxx xxx xxx xxx
Calculation of the amount of Stationery debited to Income and Expenditure Account
Particulars Amount (Rs.) Payment made for stationery during the year Add: Opening stock of Stationery Add: Amount due for stationery bought during the year
Less: Closing stock of Stationery The amount of Stationery debited to Income and Expenditure Account
xxx xxx xxx xxx
xxx xxx
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