Accounts of Not for Profit Organisation

Not for Profit Organisation

Organisations which are run without the motives of earning profits are called as Not for Profit Organisation (or Non Profit Organsiation), e.g. Clubs, Charitable Institutions, Schools, Colleges, Chambers of Commerce, Associations of Manufactures of Traders of different lines, Sports Associations, Professional Institutions, Trusts, Trade Unions, etc.

Financial Statements of Non-Profit Organisations consist of-

  • Receipts & Payments A/c: Disclosing the Total Receipts / Inflows and Total Payments / Outflows.
  • Income & Expenditure A/c: Disclosing the expenditure incurred and income during the period, Surplus, or the Deficit.
  • Balance Sheet: Showing the financial position at the end of the period.

Receipts and Payments Account

Receipts & Payments A/c shows Account Head wise summary of Cash Receipts and Payments for a specified period, together with opening & closing Cash Balances of the period.All Receipts and Payments (whether Revenue or Capital in nature), are considered in this report. A typical example of format and account Heads of Receipt and Payment Account (a Sports Club) is shown below:

Receipts and Payments Account for the year ended …..

To Balance b/d: By Salaries 
     Cash By Insurance 
     Bank By Rates and taxes 
To Subscription & Membership fee By Postage and telephone 
To Entrance fee/admission fee By Printing and Stationery 
To Life membership fee By Purchase of furniture 
To Interest By Newspapers and periodicals 
To Donation By Purchase of food & Beverages 
To Donation for building fund By General expenses 
To Receipts for prize fund By Sports material 
To Sale of refreshments By Prizes awarded 
To Sale of furnitures  By Closing Balance 
To Sale of old & Scrap Items Cash: 
To Sale of sports material Bank: 

Income and Expenditure Account

Like P&L A/c of trading / business enterprises, Income & Expenditure A/c of Non-Profit Organisations shows the Surplus or Deficit from their operation during the period.

Income & Expenditure Account is prepared on the principles of (a) Accrual, (b) Matching, (c) Periodicity and (d) Capital Revenue distinction.

The key elements of Income and Expenses of Income & Expenditure Account of such Organizations are described below:

  1. Income: For a Non-Profit Organisation, Income includes the following-
    1. Subscriptions (subject to adjustments for Subscriptions Receivable and Subscriptions received in Advance, at the beginning and at the end of the accounting year)
    1. Donations for meeting revenue expenditure.
    1. Membership Fees or Entrances Fees (normal periodic fees for meeting regular running expenses).
    1. Recurring Contribution/Grants from Local Authorities.
    1. Income from Investments.
    1. Net Incomes from special activities, (e.g. shows, sports events). Expenses are deducted from the collection of that activity and net amount is shown in the Income and Expenditure A/c.
    1. Expenses:
      1. Expenses incurred to meet, its objectives, serve the members like:
        1. Medicine, Cost of test and investigations etc. (in Hospital)
        1. Sports materials, tournament expenses, etc. (in Sports Club)
        1. Award of scholarships, organization of seminars, etc. (Coaching, Training in Educational Societies)
      1. Any expenditure for acquisition of a fixed asset will be capitalized, and the annual depreciation shall be debited to revenue expenditure.

Income and Expenditure Account  for the year ended…..                 

To Salaries By Subscription 
To Insurance By Entrance fee 
To Rates & taxes By Interest 
To Honorarium By Donation 
To Postage & telephone By Profit from sale of food 
To Printing & Stationery By Sale of old & Scrap Items 
To Newspaper & periodicals By Sale of sports material 
To General expenses  By Excess of expenditure over income 
To Sport material To Loss on sale of furniture   
To Depreciation   
Excess of income over expenses   

Distinction between Receipts & Payments A/c and Income & Expenditure A/c

BasisReceipts & Payments A/cIncome & Expenditure A/c
ContentsIt is summary of cash receipts and payments during the period.Similar to Profit and Loss Account. Income & Expenses related to the period.
Revenue / Capital DistinctionIt shows both revenue and capital items.It shows only Revenue items.
PeriodicityAll Receipts and Payments during the relevant period are shown. Accruals & Outstanding are not considered.All Revenue Expenses and Incomes related to the current year shown (whether expense paid or is outstanding, income received or accrued).
AdjustmentsAdjustments for accrued or advance are not shown.All adjustments related to current year are shown.
Interlink with Balance SheetClosing cash balance is shown under current asset in Balance Sheet.The Surplus / Deficit is carried to Capital Fund in the Balance Sheet.
Cash / AccrualOnly cash transactions are considered.Both Cash and Credit / Accrual transactions are considered.
Carry forward of balanceClosing Balance of Cash & Bank Account are carried forward as Opening Balance of next year.Closing balance of this account is merged into Capital Fund.

Balance Sheet

The balance sheet of non-trading concern shows all the assets and liabilities of the entity on a specified date. The excess of assets over liabilities is the Capital Fund or General Fund, which is made up of the excess of income over expenditure and other incomes capitalized from time to time. Sometimes, it may be needed to prepare two balance sheets i.e.:-

  • Balance sheet in the beginning of the accounting year (to ascertain the capital fund in the beginning),
  • Balance sheet at the end of the accounting year (to ascertain the financial position of the firm as on that date).

Statement of Affairs

Statement of affairs prepared by organization is a statement where assets are recorded at net realisable value and liabilities are valued based on priority of claims.

Statement of Affairs as on…….

Creditors Cash 
Outstanding expenses Bank 
Advance subscription Accrued subscription 
Donation for building fund Prepaid Expenses 
Prize fund: Fixed assets 
Add: Receipts Less: Sale 
Add: Interest Add: Purchase 
Less: Expenses Less: Depreciation 
Capital Fund Investments 
Add: Surplus or Prize fund investment 
Less: Deficit Stock 
Add: Life membership fees   
Add: Legacies   
Add: Donation   

Difference between Statement of Affairs & Balance Sheet

Statement of affairs is prepared by organization, where assets are recorded at net realisable value and liabilities are valued based on priority of claims.

Balance sheet is a statement which contains assets, liabilities and owners equity prepared in the ordinary course of business where assets and liabilities will be valued / recorded based on respective Accounting Standards.

Treatment of items in Income & Expenditure A/c and Statement of Affairs

  1. Subscription: It includes periodic fees received by an institution from its members and constitutes revenue receipt. The Receipt & Payments A/c records the amount of actual subscription received whereas the income & expenditure A/c shows only the subscription relating to accounting period whether received or not.

Adjustment for subscription

Subscription received during the current year

Add:Accrued subscription of current year.
Add:Subscription received during previous year for current year:
Less:Subscription received for previous year
Less:Subscription received for next
  1. Donation
  2. Special purpose Donation: If donation has been received to meet some capital expenditure (e.g. construction of building), it will be capitalized and will be taken in the liability side of Balance Sheet. Even when some donation is received to meet revenue expenses but till the end of the current financial year, such expenses have not been incurred, such donation will also be shown in liability side of Balance Sheet. Otherwise, only the deficit or surplus on the specific account is shown in Income & Expenditure Account.
  3. General Donation: If donation received is not for any specific purpose, and the amount is small, then it is shown in Income & Expenditure Account. If the amount is substantial, it will be considered as non-recurring nature and will be taken to the liabilities side of the Balance Sheet.
    1. Entrance or Admission Fee: This fee is usually charged for admitting a person as a member. It is generally considered as item of income. However, in some cases,(clubs) the entrance fees is capitalized as it is of non-recurring nature.
  4. Legacy: Such amounts are received on account of a “will” of some person and generally shown in liability side of the Balance Sheet, since it is non-recurring in nature. However, small amounts received may be taken as income.
  5. Capital Funds: The capital fund (also termed as general fund or accumulated funds), consists of the contributions made by the promoter’s surplus accumulated over the years and the other capitalized items, if any (like membership fees, entrance fees, etc).
  6. Special Funds: These are created and kept for special purpose (e.g. special funds for sports expenses). Net income after all related expenses relating to such special funds should be added to these funds in the liability side of Balance Sheet.
  7. Grants: Any financial help received from public funds (e.g. local bodies or Government) for special purpose is treated as Income.
  8. Endowment Fund: It normally constitutes substantial amount of money advanced to a concern and placed in fixed deposits or invested in securities. It itself is a liability whereas the investment on it is an asset. The income from investment is treated as Income.
  9. Sale of old Item & Scrap: Such amount received is treated as Income.
  10. Miscellaneous: Consumption of materials may have to be computed from purchases and adjustments for Opening & Closing stock. Adjustment for outstanding expenses can be shown.
Expenses paid during the current year 
Add:Outstanding of current year
Less:Paid for previous year
Less:Paid for next year
Add:Paid in previous year for current year
Stock Consumed during the year 
Opening stock 
Payments to creditors during the year
Less:Paid for previous year
Add:Unpaid for current year
Less:Closing stock
Cost of stock consumed

Receipts & Expenditure A/c for Professional Firms

In the case of Professionals, Income and Expenditure Account and Balance Sheet are normally prepared to show the performance and financial position. However, Receipts and Expenditure Account are sometimes also prepared to show result of professional activities. Such an account includes all expenses on the basis of mercantile system, i.e. accrual basis, but for income, Cash System is followed.

To compute Profit, all Outstanding Expenses are taken into account, but the Fees and Incomes receivable (or the Work-In-Progress) are not considered on the principle of prudence.

So, a Difference appears between profit as shown by Income and Expenditure A/c and that shown by Receipts and Expenditure A/c is due to non-recognition of Outstanding Fees and Charges and Work-In-Progress, in the Receipts and Expenditure Account.

Fund based Accounting

Fund based accounting refers to preparation of Financial statements on a fund-wise basis. Institutions like, College, Schools, universities etc. maintain separate ledger for each fund.

Fund is applicable to the amounts collected and invested for special purpose. Every fund is aimed at fulfilling some specific purpose and services embodied in the assets are the primary means to achieve. Any expenditure incurred for example, construction of building is made out of this fund. In non-business organization, contribution and donation for such expenses are directly adjusted in specific account instead of recording into Income & Expenditure A/c.

Adjustment of Subscription, Expenses, Depreciation and Preparation of Income & Expenditure A/c

Ex. Mahaveer Sport Club gives the following Receipts & Payments Account for the year ended March 31, 1998:

Receipts and Payments Account

To Opening Cash & Bank Balance5,200By Salaries15,000
To Subscriptions34,800By Rent & Taxes5,400
To Donations10,000By Electricity Charges600
To Interest on Investments1,200By Sports Goods2,000
To Sundry Receipts300By Library Books10,000
  By Newspapers & Periodicals1,080
  By Misc. Expenses5,400
  By Closing Cash & Bank Balances12,020
 51,500 51,500
LiabilitiesAs on 31.3.97 (Rs.)As on 31.3.98 (Rs.)
Outstanding Expenses:  
Newspapers & Periodicals400500
Rent & Taxes600600
Electricity Charges8001,000
AssetsAs on 31.3.97 (Rs.)As on 31.3.98 (Rs.)
Library Books10,000 
Sports Goods8,000 
Furniture and Fixtures10,000 
Subscriptions Receivable5,00012,000
Investment- Govt. Securities50,000 
Accrued Interest600600
Provided Depreciation on:  
Furniture & Fixture @ 10% p.a.  
Sports Goods @ 20% p.a.  
Library Books @ 10% p.a.  
You are required to prepare Club’s opening Balance Sheet as on 01.04.97, Income and Expenditure Account for the year ended on 31.3.1998 and the Balance Sheet as on that date.

Solution :Steps involved for solving the above problem-

  • Computation of Subscription Income.
  • Calculation of Expenses.
  • Calculation of Depreciation.
  • Computation of Opening Balance of Capital Fund.
  • Preparing Income and Expenditure Account.
  • Preparing Balance Sheet.

Workings Details:

  1. Computation of Subscription Income for the year ended 31.3.98
Subscription received during the year34,800
Add: subscription receivable on 31.3.9812,000
Less: Subscription receivable on 31.3.975,000
  • Calculation of Expenses for the year ended 31.3.98
  ExpensesSalaries Rs.Electricity Charges Rs.Rent and taxes Rs.Newspapers and Periodicals Rs.
Paid during the year15,0006005,4001,080
Add: Outstanding (as on 31.3.98)2,0001,000600500
Less: Outstanding (as on 31.3.97)1,000800600400
Expenses for the year16,0008005,4001,180
  • Calculation of Depreciation
ParticularsFurniture & Fixture Rs.Sports Goods Rs.Library Books Rs.
Book value of assets on 31.3.9710,0008,00010,000
Add: additions during the year2,00010,000
Less: Depreciation:   
– Furniture @ 10% p.a.1,000  
– Sports goods @ 20% p.a. 2,000 
– Library books @ 10% p.a.  2,000
W.D.V. as on 31.3.989,0008,00018,000
  •   Balance Sheet(opening) of Mahaveer Sports Club as on 1st April, 1997
Liabilities Rs.AssetsRs.
Capital Fund (Balancing Figure) 86,000Library Books10,000
Outstanding Expenses:  Sports Goods8,000
Salaries1,000 Furniture and Fixture10,000
Newspapers and Periodicals400 Subscriptions Receivable5,000
Electricity Charges800 Investments- Govt. Securities50,000
Rent and Taxes6002,800Accrued Interest600
   Cash and Bank Balance5,200
  88,800 88,800
  •   Income and Expenditure Account for the year ended on 31st March 1998
To Salaries (W.N.2)16,000By Subscription(W.N.1)41,800
To Electricity Charges (W.N.2)800By Interest on Investment1,200
To Rent and Taxes (W.N.2)5,400By Sundry Receipts300
To Newspapers and Periodicals (W.N.2)1,180  
To Misc. Expenses5,400  
To Depreciation on Fixed assets (W.N.3)5,000  
To Excess of income over Expenditure (Bal. Fig.)9,520  
 43,300 43,300
  • Balance Sheet of Mahaveer Sports Club as on 31st March, 1998
Liabilities Rs.Assets Rs.
Capital Fund  Fixed Assets:  
Opening Balance (W.N.4)86,000 Furniture and Fixture (W.N.3)9,000 
Add: Excess of Income over Exp. (W.N.5)9,520 Sports Goods (W.N.3)8,000 
Add: Donations10,0001,05,520Library Books (W.N.3)18,00035,000
Outstanding Expenses  Investment:  
Salaries2,000 Govt. Securities 50,000
Newspapers and Periodicals500 Accrued Interest 600
Electricity Charges1,000 Subscriptions Receivable 12,000
Rent and Taxes6004,100Cash and Bank Balance 12,020
  1,09,620  1,09,620

Note: In this solution, donations have been capitalized. Alternatively, donation may be credited to the Income and Expenditure Account assuming that the donations have been raised for meeting some Revenue Expenditure.

Adjustments of Income & Expenses

Ex. Summary of Receipts and Payments of Bombay Medical Aid Society for the year ended 31.12.2000 are as follows:

Opening Cash balance in hand Rs.8,000, Subscription Rs.50,000, Donation Rs.15,000, Interest on Investments @ 9% p.a. Rs.9,000, Payments for medicine supply Rs.30,000, Honorarium to Doctors Rs.10,000, Salaries Rs.28,000, Sundry Expenses Rs.1,000, Equipment Purchase Rs.15,000, Charity show expenses Rs.1,500, Charity show collection Rs.12,500.

Additional information’s: 

Subscription due1,5002,200
Subscription received in advance1,200700
Stock of medicine10,00015,000
Amount due for medicine supply9,00013,000
Value of equipment21,00030,000
Value of building50,00048,000
You are required to prepare Receipts and Payments Account and Income and Expenditure Account for the year ended 31.12.2000 and Balance Sheet as on 31.12.2000

Solution: Steps involved for solving the above problem-

  • Computation of Subscription Income.
  • Computation of Purchase of Medicine.
  • Computation of Medicine Consumption.
  • Computation of Depreciation on Equipment.
  • Computation of Depreciation on Building.
  • Computation of Opening Balance of Capital Fund.
  • Preparation of Receipt and Payment Account.
  • Preparation of Income and Expenditure Account.
  • Preparation of Balance Sheet.

Working Details:

Subscription for the year ended 31st December 2000 :Rs.
Subscription receivable during the year50,000
Less: Subscription receivable on 1.1.20001,500 
Less: Subscription received in advance on 31.12.20007002,200
Add: Subscription receivable on 31.12.20002,200 
Add: Subscription received in advance on 1.1.20001,2003,400
Computation of Purchase of Medicine :Rs.
Payment of Medicine Supply30,000
Less: Amount due for medicine supply on 1.1.20009,000
Add: Amount due for medicine supply on 31.12.200013,000
Computation of Medicine Consumed :Rs.
Stock of Medicine on 1.1.200010,000
Add:  Purchase of medicine during the year (W.N.2)34,000
Less: Stock of Medicine on 31.12.200015,000
Computation of Depreciation on Equipment :Rs.
Value of equipment on 1.1.200021,000
Add: Purchase of equipment during the year15,000
Less: Value of equipment on 31.12.200030,000
Depreciation on equipment for the year6,000
Computation of Depreciation on Building:Rs.
Opening W.D.V50,000
Less: Closing W.D.V48,000
Depreciation on Building for the year2,000
  •  Balance Sheet of Bombay Medical Aid Society

As on 31st December, 1999

Capital Fund (balance figure)1,80,300Building50,000
Subscription received in advance 1,200Equipment21,000
Amount due for medicine supply9,000Stock of medicine10,000
  Investments (9% on Rs.9,000)1,00,000
  Subscription receivable1,500
  Cash in hand8,000
 1,90,500 1,90,500

Receipt and Payment Account for the year ended 31st December, 2000

To Cash Balance b/d8,000By Purchase of Equipment15,000
To Subscription50,000By Charity show expenses1,500
To Donation15,000By Medical supply30,000
To Interest9,000By Honorarium10,000
To Charity show collections12,500By Salaries28,000
  By Sundry Expenses1,000
  By Cash in hand b/ f (Bal. fig.)9,000
 94,500 94,500
  • Income and Expenditure Account of for the year ended 31st December, 2000
To Medical consumed (W.N.3)29,000By Subscription (W.N.1)51,200
To Honorarium to doctor10,000By Donation15,000
To Salaries 28,000By Interest on Investments9,000
To Sundry expenses 1,000By Profit on charity show: 
To Depreciation on Equipment  (W.N.4)6,000     Show collection12,500 
To Depreciation on Building (W.N.5)2,000     Show expenses-1,50011,000
To Surplus (Balancing Figure)10,200  
 86,200 86,200
  •  Balance Sheet of Bombay Medical Aid Society as on 31st December, 2000
LiabilitiesRs.Assets Rs.
Capital Fund Building50,000 
Opening Balance (Wn..6)1,80,300 Less: Depreciation (W.N.5)2,00048,000
Add: Surplus (Wn.8)10,2001,90,500Equipment21,000 
Subscription received in advance700Add: Purchase15,000 
Amount due for medicine supply13,000 36,000 
  Less: Depreciation  (W.N.4)6,00030,000
  Stock of medicine15,000
  Subscription receivable2,200
  Cash in hand (Wn.7)9,000
 2,04,200 2,04,200

Interest on Securities, Income & Expenditure A/c

Ex. Smith Library Society showed the following position on 31st March, 2001:

Balance Sheet as on 31st March, 2001

Capital Fund7,93,000Electrical Fittings1,50,000
Expenses Payable7,000Furniture50,000
  Investment in Securities1,50,000
  Cash at Bank25,000
  Cash in Hand25,000
 8,00,000 8,00,000

The receipt and payment account for the year ended on 31st March, 2002 is given below:

To Balance b/f By Electric Charges7,200
Cash at Bank25,000 By Postage and Stationary5,000
Cash in Hand25,00050,000By Telephone Charges5,000
To Entrance Fees30,000By Books Purchased60,000
To Membership Subscription 2,00,000By Outstanding Expenses Paid7,000
To Sale proceeds of Old papers1,500By Rent88,000
To Hire of Lecture Hall20,000By Investment in Securities40,000
To Interest on Securities8,000By Salaries66,000
  By Balance C/f 
       Cash at Bank20,000
       Cash in Hand11,300
 3,09,500 3,09,500

You are required to prepare an Income and Expenditure Account for the year ended 31st March, 2002 and a Balance Sheet as at 31st March, 2002 after making the following adjustments:

  • Membership Subscription included Rs.10,000 received in advance.
  • Provide for Outstanding rent Rs. 4,000 and salaries Rs. 3,000.
  • Books to be depreciated @ 10% including additions. Electrical Fittings and Furnitures are also to be depreciated at the same rate.
  • 75% of the Entrance Fees is to be capitalized.
  • Interest on securities is to be calculated @ 5% p.a. including purchase made on 1.10.2001 for Rs. 40,000.

Solution: Steps involved for solving the above problem-

  • Computation of Interest on securities.
  • Preparation of Income and Expenditure Account.
  • Preparation of Balance Sheet.

Workings Details:

  1. Computation of Interest on securities
Interest on securities:Rs.
(5% on Rs.1, 50, 000)7,500
(5% on Rs.40,000 for 6 months)1,000
Less: Interest received8,000
Outstanding                  500

Income and Expenditure Account for the year ended on 31st March 2002

Expenditure DrIncome Cr
To Electric charges 7,200By Entrance fees30,000 
To Postage & Stationary 5,000      Less: Capitalised (75%)22,5007,500
To Telephone Charges 5,000   
To Rent88,000    
     Add: Outstanding4,00092,000By Membership Fee2,00,000 
To Salaries66,000      Less: Advance10,0001,90,000
     Add: Outstanding3,00069,000By Sale of Old Newspapers 1,500
To Depreciation on :  By Hire of lecture Hall 20,000
     Books (10% on 4,60,000)46,000 By Interest on Securities8,000 
     Electric fitting (10% on 1,50,000)15,000       Add: Accrued (Wn.1)5008,500
     Furniture (10% on 50,000)5,00066,000By Deficit   (Balancing Figure) 16,700
  2,44,200  2,44,200
  • Balance Sheet as on 31st March 2002
Liabilities Rs.Assets Rs.
Capital Fund7,93,000 Electric fitting1,50,000 
Add: Ent. Fee(75%)22,500 Less: Depreciation15,0001,35,000
 8,15,500 Furniture50,000 
Less: Deficit (W.N.2)16,7007,98,800Less: Depreciation5,00045,000
Advance Membership fees 10,000Books4,00,000 
Outstanding Expenses:  Add: Additions60,000 
Rent4,000  4,60,000 
Salaries3,0007,000Less: Depreciation46,0004,14,000
   Investment in securities 1,90,000
   Accrued interest on Securities (Wn.1)500
   Cash in Hand20,000
   Cash at Bank11,300
  8,15,800  8,15,800

Click Here for PDF