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- Entity: Not-for-profit organization is a separate legal entity promoted by individuals or enterprises.
- Services: Not-for-profit organization is established for welfare and service of the society and its members.
- Form: It is set up by charitable society, trust or club, etc., with the main objective of rendering social, educational, charitable or religious services.
- No profit motive: Not-for-profit organization does not function with the objective of earning profit. The profit (surplus) arising there form is used for the object for which it is established. In other words, surplus of these organizations is not distributed among its members.
- Funding: It collects donations and contributions from the members and outsiders to meet the cost of the projects undertaken and also meet the operating cost.
Basis
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Not-for-profit
organization
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Profit
earning organization
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Motive
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Motive is to provide services.
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Motive is to earn profit.
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Funds
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It includes donations, subscription, and surplus.
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It includes capital contribution by owners.
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Financial
Statements
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It includes Receipts and Payment Account, Income
and Expenditure Account and Balance Sheet.
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It includes Trading and Profit and Loss Account
and Balance Sheet.
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Surplus/Profit
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Balance of the Income and Expenditure Account is
either surplus or deficit.
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Balance of profit and Loss Accounts is either Net
Profit or Net Loss.
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- Receipts and Payments Account: Receipts and Payments Account is a summary of cash and banks transactions prepared at the end of the accounting period. It records all receipts and payments, whether of revenue or capital in nature and irrespective of the period to which they relate.
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Receipts |
Amount (Rs.) |
Payment |
Amount (Rs.) |
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To Balance b/d (Opening Bal.)
Cash in Hand
Cash at Bank Revenue
Receipts To Subscriptions (Present, past and
future) To Entrance fee (in recurring nature) To General grants To Sale of newspaper, grass, etc. To Sale of old used sport materials To Interest on Investments To Income from Concerts/Lectures To Receipts from show To Dividends To Rent To Interest To Misc. Receipts Capital
Receipts To Life membership fees To Subscriptions for specific purpose To Donation for specific purpose To Grant for Specific purpose To Legacies To Endowment fund To Sale of fixed assets To Receipts on Account of Special Fund,
i.e., Match Fund, Prize Fund, etc. |
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By Balance b/d (opening) (in case of bank overdraft) Revenue
Payments By Salaries By Rent By Postage Expenses By Advertisement Expenses By Newspapers and Magazines, etc. By Repairs By Audit Fee By Maintenance Expenses By Insurance By Security’s Honorarium By Municipal Tax By Gardening By Prize Distributed By Office expenses By Expenses on Show By Misc. Payments Capital
Payments By Purchase of Fixed Assets By Spots Equipments By Investments By Books By Loans (Repayment) By Building Construction By Balance c/d (Closing Bal.):
Cash in Hand Cash at Bank |
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xxx |
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- Donation: Donations are often received by charitable institutions. It is sort of gift in cash or property received from some persons or organizations. Donation can be for specific and general purposes.
- Specific donation: When the donations received are to be utilized for a specific purpose say, extension of the existing building, creation of a book bank, etc., it is called specific donation. It should be capitalized and to be shown on liabilities side of balance sheet.
- General Donation: When the donations are to be utilized to promote the general purpose of the organization, they are called general donations. They are treated as revenue receipts, as it is a regular source of income. It is shown on the income side of the income and expenditure account of the current year.
- Legacies: The amount received by a non-profit organization as per the will of a deceased person is termed a legacy. It is treated as capital receipts and shown on the liability side. However, legacies of a small amount may be treated as income and shown on the income and expenditure account.
- Entrance fees: It is also known as admission fee is paid only once by the member at the time of becoming a member. As entrance fees is paid by a member only once, it is argued that it should be treated as capital receipt and transferred to capital fund, however, it should be treated as revenue receipt and credited to the income and expenditure account, when the amount is small to cover the expenses of admission.
- Income and Expenditure Account: Income and Expenditure Account is the summary of income and expenditure of the year. It is like profit and loss account. It shows surplus or deficit. It is prepared on accrual basis of accounting.
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Expenditure |
Amount
(Rs.) |
Income |
Amount
(Rs.) |
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To
Salaries Add:
Outstanding at the end Less:
Outstanding at the beginning To Rent To
Insurance Premium Less:
Prepaid To Audit
Fees To
Printing and Stationary To
Honorarium To
Telephone Expenses To
Repairs To
Depreciation To Spots
Material Used To
Depreciation To Surplus (or Excess of income over
Expenditure) |
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By
Subscriptions Add: Outstanding at the end Add: Advance at beginning Less: Outstanding in beginning Less: Advance at the end By
Entrance fees By
Donations By Sale
of Newspapers By Hall
Rent By Sundry
receipts By Deficit (or Excess of expenditure
over income)
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- Life Membership Fees: When lump sum amount is paid by the members instead of paying periodic subscription, it is treated as life membership fees. It is treated as capital receipts and added to the capital fund on the liabilities side of a balance sheet.
- Sale of old assets: Book value of an asset is credited to the asset account. Any profit on sale of an asset is credited and any loss on sale of an asset is debited to income and expenditure account.
- Sale of periodicals: It is an item of recurring nature and shown on the credit side of income and expenditure account.
- Sale of sports materials: Sport materials are consumable assets. Sale of sports material is the regular feature with any sport club. It is usually shown on the income in the income and expenditure account.
- Payment of Honorarium: Honorarium is the amount paid to the person who is not an employee of the institution and has voluntarily undertaken a service. It is debited to income and expenditure account.
- Endowment Fund: It is fund arising from a bequest or gift, the income which is devoted for a specific purpose. Hence, it is a capital receipts and shown on the liabilities side of the balance sheet as an item of a specific purpose fund.
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Liabilities |
Amount
(Rs.) |
Assets |
Amount
(Rs.) |
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Bank overdraft, if any Outstanding expenses Advance subscription Capital Fund* (Balancing Figure) |
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Cash in Hand Cash at Bank Fixed asset, if any Investments, if any Outstanding subscriptions Prepaid Expenses |
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Liabilities |
Amount
(Rs.) |
Assets |
Amount
(Rs.) |
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Capital fund: Opening
Balance Add: Surplus Less: Deficit Add:
Entrance Fee (Capitalized
Amount) Building Fund: Opening
balance Add:
Donation for Building Income from building fund Investments Sports Fund: Opening
Balance Add:
Donation (sports fund) Interest on sports fund Investments Less: Sports
prize awarded Current
liabilities Outstanding Expenses: Rent Salaries Electricity/Water
charges Subscription received in advance |
xxx
xxx
xxx
xxx
xxx
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Fixed Assets: Building Opening
Balance Add: Additions Less:
Depreciation Furniture Opening
Balance Add:
Additions Less:
Depreciation Current Assets: Cash in
hand Cash at
bank Subscription
arrear Accrued
Interest Investments: Building
Fund Investments Sports
Fund Investments Prepaid Expenses: Insurance Rent
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xxx
xxx
xxx xxx xxx xxx
xxx xxx
xxx xxx
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xxx |
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xxx |
Basis
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Income and
Expenditure Account
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Profit and
Loss Account
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Objective
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The main objective of Income and Expenditure
Account is to ascertain surplus,
i.e., excess of income over expenditure or deficit, i.e., excess of expenditure over income.
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Main objective of Profit and Loss Account is to ascertain
Net profit or Net loss.
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Prepared
by
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This account is prepared by Not-For-Profit
Organizations.
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This account is prepared by business enterprises.
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Method
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This account is prepared from the Trial Balance,
where complete set of books of accounts are maintained or from the receipts
and payment account and other information, where complete set of books of
accounts are not maintained.
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This account is prepared on the basis of trial
balance and other information.
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Balance
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The balance of this account is termed as surplus
or deficit.
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The balance of this account is termed as net
profit or net loss.
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Basis
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Receipts
and Payment Account
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Income and
Expenditure Account
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Nature
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It is a classified summary of cash transactions
showing receipts and payments under different heads for the period (Real
Account).
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It is like a Profit and Loss Account (Nominal
Account).
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Form
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Debit side of this account records receipts
credit side records payments.
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Debit side of this account records expenses and
credit side records incomes.
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Purpose
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Purpose of this account is to show the difference
between two sides denoting the cash/bank balance at the end.
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Purpose of this account is to show the net
results of the activities during the year resulting in surplus or deficit.
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Balance
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Balance in the beginning means cash in hand and
bank balance in beginning and balance at the end means cash in hand and bank
balance at the end.
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There is no balance in beginning. Balance at the
end means either surplus or deficit.
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Capital
and
Revenue Items
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It records receipts and payments during the year
both capital and revenue items.
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It records income and expenditure of only revenue
items relating to the accounting period.
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Adjustments
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It is based on cash system of accounting. Hence,
no adjustments are made.
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It is based on accrual system of accounting. Hence,
adjustments are made.
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Contents
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It shows receipts and payments made during the
year whether they relate to past, current or succeeding year.
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It shows incomes and expenditures of the current
year only.
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Depreciation
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It does not record non-cash items, e.g.,
depreciation.
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It record non-cash items, e.g., depreciation.
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Receipts |
Amount (Rs.) |
Payments |
Amount (Rs.) |
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To Balance on 1st
April, 2016 To Subscriptions To Donations To Entrance Fees To Rent Realized
Club Hall To Interest on
Investment |
4,400 37,600 8,000 4,300 5,250 2,950 |
By Electricity
charges By Taxes By Salaries and
Wages By Honorarium to
Secretary By Printing and
Stationary By Petty cash
payments By Insurance
Premium By Balance on 31st
March, 2017: Cash in Hand |
3,440 500 21,500 2,500 350 900 310
33,000 |
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62,500 |
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62,500 |
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Receipts |
Amount (Rs.) |
Payment |
Amount (Rs.) |
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To Balance b/d To Subscription: 2016:
2400 2017: 1,26,600 2018: 4,800 To Profit from
canteen To Miscellaneous
Receipts To Sale of old
newspapers To Dividends |
60,000
1,33,000 90,000 4,500 11,200 48,500 |
By Salaries By Stationary By Rates and Taxes By Telephone charges By Investments By Advertisement By Postage By Sundries By Balance c/d |
1,24,000 24,000 36,000 6,000 75,000 10,000 10,000 35,000 27,000 |
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Total |
3,48,000 |
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3,48,000 |
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Expenditure |
Amount (Rs.) |
Income |
Amount (Rs.) |
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To Salaries To Stationary 24,000 Add:
Opening stock 3,000 Less:
Closing stock 5,400 To Rates and Taxes To Telephone
charges To Advertisement To Postage To Sundry Expenses To Depreciation on
Building To Surplus |
1,24,500
21,600 36,000 6,000 10,500 10,000 35,000 30,000 15,600 |
By Subscription 1,33,800 Outstanding at the end 8,700 Outstanding at the beginning (2,700) Advance at the beginning (4,800) By Profit from canteen By Miscellaneous Expenses By Sale of old newspapers By Dividend
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1,35,000 90,000 4,500 11,200 48,500
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2,89,200 |
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2,89,200 |
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Liabilities |
Amount (Rs.) |
Assets |
Amount (Rs.) |
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Capital Fund
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6,65,700 |
Cash Outstanding
Subscription Opening stock Building |
60,000 2,700 3,000 6,00,000 |
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6,65,700 |
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6,65,700 |
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Liabilities |
Amount (Rs.) |
Assets |
Amount (Rs.) |
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*Capital Fund 6,65,700
Surplus 15,600 Advance
Subscription |
6,81,300 4,800 |
Cash Outstanding
Subscription Closing stock Investment Building : 60,000 Less:
Depreciation : 3,000 |
27,000 8,700 5,400 75,000
57,000 |
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6,86,100 |
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6,86,100 |
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