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Accounting For Not For Profit Organizations

The document discusses accounting for not-for-profit organizations. It explains that NPOs are set up to provide services to the public without a profit motive. Their funds come from donations, grants, and investments. They prepare receipts and payments accounts, income and expenditure accounts, and balance sheets. The receipts and payments account is a summary of cash transactions that helps prepare the other accounts. The income and expenditure account is like a profit and loss statement for NPOs. Record keeping helps NPOs meet statutory requirements and control fund utilization.

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0% found this document useful (0 votes)
22 views10 pages

Accounting For Not For Profit Organizations

The document discusses accounting for not-for-profit organizations. It explains that NPOs are set up to provide services to the public without a profit motive. Their funds come from donations, grants, and investments. They prepare receipts and payments accounts, income and expenditure accounts, and balance sheets. The receipts and payments account is a summary of cash transactions that helps prepare the other accounts. The income and expenditure account is like a profit and loss statement for NPOs. Record keeping helps NPOs meet statutory requirements and control fund utilization.

Uploaded by

akashyadavjee556
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounting for Not for Profit Organizations

Meaning NPO

• Not-for -Profit Organizations refer to the organizations 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 organizations 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 organizations is to meet the statutory requirement and help
them in exercising control over utilization of their funds
The main characteristics of such Organizations are:
• Such organizations are formed for providing service to a specific group or public at
large such as education, health care, recreation, sports and so on without any
consideration of caste, creed and color.
• Its sole aim is to provide service either free of cost or at nominal cost, and not to
earn profit.
• These are organized as charitable trusts/societies and subscribers to such
organization are called members.
• managed by a managing/executive committee elected by its members.
• Sources of funds are credited to capital fund or general fund.
• The surplus are simply added in the capital fund.
• Earn their reputation on the basis of their contributions to the welfare of the
society rather than on the customers’ or owners’ satisfaction.
• The accounting information provided by such organizations is meant for the
present and potential contributors and to meet the statutory requirement.
Sources of Income of NPOs

• Subscriptions from members


• Donations
• Financial Assistance from Government
• Income from investments
• Required by Law to keep records
• Proper Control over Utilizations of funds
Accounts Prepared
• Receipt and Payment Account
• Income and Expenditure Account, and
• Balance Sheet.
Receipt and Payment Account

• The Receipt and Payment Account is the summary of cash and bank
transactions which helps in the preparation of Income and
Expenditure Account and the Balance Sheet. Besides, it is a legal
requirement as the Receipts and Payments Account has also to be
submitted to the Registrar of Societies.
Income and Expenditure Account
Income and Expenditure Account is akin to Profit and Loss Account. The
Not-for-Profit Organizations usually prepare the Income and
Expenditure Account and a Balance Sheet with the help of Receipt and
Payment Account. However, this does not imply that they do not make
a trial balance. In order to check the accuracy of the ledger accounts,
they also prepare a trial balance which facilitates the preparation of
accurate Receipt and Payment Account as well as the Income and
Expenditure Account and the Balance Sheet
Salient Features

• It is a summary of the cash book. Its form is identical with that of simple cash book (without
discount and bank columns) with debit and credit sides. Receipts are recorded on the debit
side while payments are entered on the credit side.
• It includes all receipts and payments whether they are of capital nature or of revenue nature.
• No distinction is made in receipts/payments made in cash or through bank. With the
exception of the opening and closing balances, the total amount of each receipt and payment
is shown in this account.
• No non-cash items such as depreciation outstanding expenses accrued income, etc. are
shown in this account.

• It begins with opening balance of cash in hand and cash at bank (or bank overdraft) and
closes with the year end balance of cash in hand/ cash at bank or bank overdraft. In fact, the
closing balance in this account (difference between the total amount of receipts and
payments) which is usually a debit balance reflects cash in hand and cash at bank unless
there is a bank overdraft.
• Steps in the Preparation of Receipt and Payment Account
• Take the opening balances of cash in hand and cash at bank and enter them on the debit
side. In case there is bank overdraft at the beginning of the year, enter the same on the
credit side of this account.
• Show the total amounts of all receipts on its debit side irrespective of their nature
(whether capital or revenue) and whether they pertain to past, current and future periods.
• Show the total amounts of all payments on its credit side irrespective of their nature
(whether capital or revenue) and whether they pertain to past, current and future periods.
• None of the receivable income and payable expense is to be entered in this account as they
do not involve inflow or outflow of cash.
• Find out the difference between the total of debit side and the total of credit side of the
account and enter the same on the credit side as the closing balance of cash/bank. In case,
however, the total of the credit side is more than that of the total of the debit side, show
the difference on the debit as bank overdraft and close the account
Prepare Income and Expenditure Account

Receipts Amount Payments Amount


Balance b/d(cash) 5200 salary 1500
Subscriptions 22500 Rent 800
Entrance Fees 1250 Electricity 3500
Donations 2500 Taxes 1700
Rent of Hall 750 Printing & Stationery 380
Sale of Investments 3000 Sundry Expenses 920
Books Purchased 7500
Government Bonds 10,000
Purchased
Fixed Deposit with 5000
bank(on 31.3.2017)
Balance c/d 1900
Cash in hand 400
Cash at bank 1500
33,200 33,200

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