Accounting for Not-for-Profit Organisation

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As this involves specific capital fund namely Tournament fund, it’ll be treated as follows in the balance sheet.

As this does not involve any specific fund, the amount incurred on Table Tennis match expenses ₹ 4,000 would be shown on the debit side of Income and Expenditure Account. It is the case of expenses independent of any specific fund.

As there is a specific fund i.e. prize fund, these will be treated under liabilities side of the balance sheet.

There is no specific fund. Receipts from Charity Show would be shown on the credit side and expenses on charity show are deducted from the receipts and the net amount would be shown on the credit side of Income and Expenditure Account.

‘Not-for-Profit’ Organisations are the organisations that are

The following is the meaning of the Receipt and Payment Account.

The following is the meaning of Income and Expenditure Account.

The following are the features of Receipt and Payment Account.

1. Nature: It is summary of the cash book and is very similar in form to cash book. The receipts are recorded on the debit side and payments are recorded on the credit side. It is a real account.

2. Accounting Period: It shows the total amounts of all the receipts and payments regardless of the period they belong to i.e. it shows the receipts and payments belonging to the previous accounting periods, current accounting period and also succeeding accounting periods.

3. Nature of items: It includes The receipts and payments regardless of whether they are of capital or of revenue in nature.

4. Mode of Transaction: Receipts and payments made in either cash or bank are treated in the same way. The only exception to this is to the opening and closing balances which are shown separately for cash and/or bank.

5. Non-cash items: Non-cash items like depreciation or outstanding expenses or accrued income are not included in the Receipt and Payment Account.

6. Opening and Closing balance:It begins with the opening balance of cash in hand and/or cash at bank (or bank overdraft). It ends with the year end balance of cash in hand and/or cash at bank (or bank overdraft)

7. Purpose: It projects the cash position of an organisation.

The following are the steps taken to prepare Income and Expenditure Account from a Receipt and Payments Account.

Subscription: Subscription is a membership fee paid by the members of a Not-for-profit organisation periodically (monthly, quarterly, half-yearly, yearly etc.). It is the main source of income for Not-for-Profit organisations. It is

In Receipt and Payment Account it is calculated as the total of subscriptions received for the previous year, current year and next year.

It is calculated in the Income and Expenditure account as follows:

Capital fund, also called as General Fund, comprises the funds raised by the Not-for-Profit organisations through various sources. In addition to this, the surplus generated in the form of excess of income over expediture is also simply added to the capital fund. In case there is any deficit, it is deducted from the capital fund.

It is also a common practice to add some of the capitalised items like legacies, entrance fees and life membership fees directly to the capital fund.

The capital fund related entries are not considered in the Income and Expenditure account. They are directly moved to the balance sheet.

The capital fund is calculated as follows.

The source of the Receipt and Payment Account is the cash receipts and cash payments recorded in the cash book. However, the individual rececipts and payments are not trasferred directly into the Receipt and Payment Account. Instead, the individual receipts and payments are summarised and the resulting total is transferred into the Receipt and Payment Account. So, the Receipt and Payment Account gives summarised picture of various receipts and payments, regardless of whether they belong to the previous accounting period, current accounting period or the next accounting period. 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, salaries, rent, electicity charges paid from time to time are recorded on the credit side of the cash book but the total salary paid, total rent paid, total electricity charges paid during the accounting period appear on the payment side of the Receipt and Payment account

The opening balance in Receipt and Payment Account represents the cash in hand/cash at bank which is shown on the receipts side. The closing balance of this account represents cash in hand and bank balance at the end of the accounting period and is represented on the credit side of the Receipt and Payment Account. In case, there is any bank overdraft at the end of the accounting period, it will be recorded on the debit side as the last item.

The non-cash items like depreciation, accrued income, outstanding expenses etc which are not part of the cash book are also not part of the Receipt and Payment Account.

The following is a comparison of the cash book and Receipt and Payment Account

Considering the above similarities, we can say that the Receipt and Payment account is a summarised version of Cash Book.

The Income and Expenditure Account of a Not-for-Profit orgainisation is the summary of the income and expenditure account for the accounting year. It is just like a profit and loss account prepared on the accrual basis in case of the business organisations. It includes only revenue items and the balance at the end which represents surplus or deficit. The income and Expenditure account serves the same purpose as that of the profit and loss account of a business organisation. It includes all the revenue items relating to the current period. The expenses and losses are shown on the expenditure side and incomes and gains are shown on the income side of the account. It represents 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). The surplus/deficit is transferred to the capital fund shown in the balance sheet.

The following is a comparison of the Profit and Loss and Income and Expenditure Account

From the above similarities, we can say that the Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern

The following are the differences between Receipts and Payments and Income and Expenditure Account.

Income and Expenditure Account: The income and expenditure account prepared for the Not-for-Profit organisations is similar to the Profit and Loss account prepared for the business organisations. It is prepared with the help of the Receipt and Payment Account. The expenditures are on the debit side and records the expenses and losses. The income side is on the credit side and records the revenues and gains. Income and Expenditure account is a nominal account. All the entries are made on the accrual basis. Once the Income and Expenditure account is prepared the closing balance represents either surplus/defict and is added/subtracted to/from the capital or general fund.

The following are the basic features of Income and Expenditure Account.

1. Nature: It is similar to the Profit and Loss prepared on accrual basis in case of the business organisations.

2. Nature of items: It includes only those receipts and payments which are revenue in nature.

3. Accounting Period: Only those entries that belong to the current accounting period.

4. Debit side: Debit side of this account records the expenses and losses.

5. Credit side: Credit side of this account records the incomes and gains.

7. Opening Balance: There is no opening balance.

8. Closing Balance: Balance at the end represents excess of income over expenditure or vice-versa.

9. Type of account: It is a nominal account.

10. Basis of Transactions: The transactions are accrual based.

11. Purpose:To calculate the surplus/deficit in the current accounting period.

12. Transfer of Closing Balance: The surplus/deficit is transferred to the balance sheet and added/subtracted from the capital fund.

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. It is prepared at the end of the accounting period on the basis of cash receipts and cash payments recorded in the cash book. It is summary of cash and bank transactions under various heads. It gives a summarised picture of various receipts and payments, irrespective of whether they pertain to the previous accounting period, current accounting period or succeeding accounting period or whether they are capital or revenue in nature. The Receipt and Payment Account does not show any non cash items like depreciation. The opening balance in Receipt and Payment Account represents cash in hand/cash in bank and is entered on the receipts side. If there is bank overdraft, it is entered in the payments side. The closing balance represents the cash in hand or cash at bank at the end of the accounting period and is entered on the payments side. If there is a bank overdraft it is entered on the debit side.

The following are the features of the Receipt and Payment Account.

1. Nature: It is summary of the cash book and is very similar in form to cash book. The receipts are recorded on the debit side and payments are recorded on the credit side. It is a real account.

2. Accounting Period: It shows the total amounts of all the receipts and payments regardless of the period they belong to i.e. it shows the receipts and payments belonging to the previous accounting periods, current accounting period and also succeeding accounting periods.

3. Nature of items: It includes the receipts and payments regardless of whether they are of capital or of revenue in nature.

4. Mode of Transaction: Receipts and payments made in either cash or bank are treated in the same way. The only exception to this is to the opening and closing balances which are shown separately for cash and/or bank.

5. Non-cash items: Non-cash items like depreciation or outstanding expenses or accrued income are not included in the Receipt and Payment Account.

6. Opening and Closing balance:It begins with the opening balance of cash in hand and/or cash at bank (or bank overdraft). It ends with the year end balance of cash in hand and/or cash at bank (or bank overdraft)

7. Purpose: It projects the cash position of an organisation.

The following is the treatment of the item Annual Subscription by a not-for-profit organisation

In Receipt and Payment Account it is calculated as the total of subscriptions received for the previous year, current year and next year.

It is calculated in the Income and Expenditure account as follows:

Alternatively, income received from subscriptions can be calculated by preparing a Subscriptions account.

The following is the treatment of the item Specific Donation by a not-for-profit organisation

The following is the treatment of the item Sale of fixed asset by a not-for-profit organisation

The following is the treatment of the item Sale of old periodicals by a not-for-profit organisation

The following is the treatment of the item Sale of sports materials by a not-for-profit organisation

The following is the treatment of the item Life Membership Fees by a not-for-profit organisation

The funds raised by Not-for-Profit organisations are credited to capital fund or general fund. Among the various funds received/collected by the Not-for-Profit organisations, few funds like sports fund, building fund, tournament fund, endowment fund, Government Grant for specific purpose etc are called as specific funds. These specific funds are donated to the Not-for-Profit organisations and they should be used only for the specific purpose for which they are donated/granted for. In other words, they should meet the requirement of the contributors/donors such as building fund, sports fund etc. They should not be used for any other purpose. These funds are capital receipts and hence they are not recorded as income in the Income and Expenditure accounts. Instead they should be recorded in the liabilities side of the balance sheet under specific fund category irrespective of the fact whether the amount is big or small.

Not-for-Profit organisations create specifal funds for certain purposes/activities such as prize funds, match funds and sports funds etc. These funds are invested in securities and the income received through these investements is added to the respective fund. The income on these investments is not credited to the Income and Expenditure account. Similarly, the expenses incurred on such specific purposes are also deducted from the specific fund and not shown as an expense in the Income and Expenditure account.

These special funds are shown in the balance sheet. However, if, after adjustment of income and expenses the balance in specific or special fund is negative, it is transferred to the debit side of the Income and Expenditure Account or adjusted as per prescribed directions.

The consideration of the special funds while preparing various books is given below. It gives an understanding of the treatment of items of Income and Expenditure Account when there is a specific fund for those items.

Analysis of (a): In case of specific funds, if the receipts exceed the expenses then the surplus is added to the specific fund in the Liabilities side of the Balance Sheet as depicted below.

Analysis of (b): In case of specific funds, if the expenses exceed the income, then the difference moved to the Income and Expenditure Account

The following is the meaning of the Receipt and Payment Account.

It is different from the Income and Expenditure account in various aspects as specified below.