Accounting for Not for Profit Organisation

PM Navas

Chapter - 1

Introduction

Not for  profit organisations which are set up for providing Service to its members and the public in general. Profit is not the objective of such organisations. Ex: Clubs, Charitable Institutions, Schools, religious organisations,trade unions,welfare societies etc.

These organisations have service as the main objective and not the profit as is the case of organisations in business. These organisations do not undertake any business activity,they do not manufacture, purchase or sell goods and may not have credit transactions.

Characteristics of NPO

1. NPO are formed for providing service to a specific group or public such as education, health care, recreation, sports and so on.
2. These are organised as charitable trusts/societies and subscribers are called members.
3. It is managed by elected managing/executive committee.
4. The main sources of income are :- subscriptions from members,donations,govt. aid  legacies,  income from investments, etc.
5. The funds raised by such organisations are credited to Capital fund/General fund.
6. The surplus generated is not distributed among the members.

Accounting records of Not for profit Organisations

The not for  profit organisation prepares 3 financial statements at the end of every accounting  period. They are required to provide necessary financial information to members, donors, contributors,  and the Registrar of Societies. It is also necessary to know whether the income during the year is sufficient to  meet the expenses or not.  The final accounts of a ‘not-for-profit organisation’ consist of the following:

 1. Receipt and payment account   

  2. Income and expenditure account     

  3. Balance sheet

Receipt and payment account

    It is a cash book. It is a summary of all cash transactions during the year. It starts with opening cash and bank balance and ends with closing cash and bank balance. All receipts (cash and cheque) are shown on the debit side and all payments (cash and cheque) are shown on the credit side.

Receipt and payment account never records non cash items like depreciation, outstanding expenses,  accrued incomes etc. Opening and closing balances in receipt and payment account represents the opening and closing cash/bank balance. If there is a bank overdraft at the end it shall be shown on its debit side as the last item.

Steps in the Preparation of Receipt and Payment Account

1. Take the opening cash in hand/Bank balance and enter on Debit side,if balance is Bank overdraft at the beginning enter the same on Credit side
2. All receipt enter on Debit side( including capital,revenue,or for past,current and future)
3. All payments enter Credit side( including capital,revenue,or for past,current and future)
4. 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
5. Does not contain  non cash items such as depreciation,bad debts etc
6. Balance the account  – if Debit side is more than credit side ,it is cash /bank balance(on credit side),otherwise balance is Bank overdraft (on debit side)

Specimen of receipt and payment account

Salient features of Receipt and Payment Account

1. It is a summary of the cash book
2. It shows the total amount of all receipts and payments irrespective of the period to which pertain.
3. It includes all receipts and payments whether they are of capital nature or of revenue nature.
4. No distinction is made in receipts /payments made in cash or through bank.
5. No non-cash items such as depreciation, outstanding expenses,accrued income etc are shown in this account. 
6. It begins with opening balance of cash in hand and cash at bank(or bank overdraft) and closes with the year end balances of cash in hand /cash at bank or bank overdraft.

Question - 1

Question - 2

Question - 3

From the information given below,prepare receipts and payments account of banarjee Club for the year ended 31 Dec.2014

Cash in hand (1-1-2014)  - 450

Cash at Bank (1-1-2014)   - 1600

Subscriptions                     - 3940

Donations   -1000

Entrance fees   - 450

Rent from club hall   - 600

Electricity charges   -350

Taxes   -100

Salaries and wages   -2650

Honorarium to secretary   - 300

Interest received on investment - 350

Printing and stationery    - 150

Petty cash payments     - 100

Insurance premium paid   - 90

Locker rent received   - 1200

Cash in hand (31-12-2014)   - 1350

Question - 4

From the following particulars of Nethaji Club,prepare the Receipt and payment Account for the year 2009

Opening Cash balance 4000
Opening Bank balance 7800

Subscription   :       2008 1500
2009 5000
2010 1400

Refreshment   500
Sports materials Purchased 7,100
Grant from Government         14500
Rent paid 450
Office expenses 1100
Entrance fee received 7800
Closing balance of cash 1400

HSE March 2011          Ans 31450

Question - 5

From the following information of Jubily arts Club given below,prepare the Receipts and Payment account for the year ended 31 st December 2012 and balance it

Cash Balance on 1-1-2012 - 3500
Entrance fees 6000
General expenses 2800
Legacy 3500
Donation(Specific) 5000
Salaries 4000
Furniture 14000
Rent received 2000
Sports expenses 5500
Subscription 12000

HSE March 2014      Ans:5700

Question - 6

Draft a receipts and Payments Account of Mahathma Club for the year ending 31 st December ,2011 and ascertain cash balance as on 31-12-2011

Cash balance as on 1-1-2011 -2440
Bank balance as on 1-1-2011 -3800
Subscription from members -4300
(Rs.300 relates to 2010 and 400relates to 2012)

Rent from club hall - 500
Honorarium to secretary - 1200
Petty cash expenses - 80
Investments - 1500

Salary (Rs 350 relates to 2010) -1250

Purchase of furniture (1st Aug 2011) 2000

Bank balance as on 31-12-2011 3200

HSE September 2013                Ans : Closing cash balance 1810

Question - 7 - Prepare the Receipts and Payments Account of Megha Charitable Trust for the year ending March 31,2019 based on the following information :

Opening Cash balance  - 2,000

Opening Bank balance - 14,400

Subscriptions collected for :

2017-18   - 1,000

2018-19  - 15,200

2019-20 -  1,800

Rent paid -  6,000

Sports materials purchased - 9,600

Sale of refreshments - 2,000

Entrance free received -  2,000

Sale of old newspapers - 2,400

Purchase of refreshments -  1,200

Expenses for maintenance of Play ground - 4,000

Salary paid - 5,000

Donation for building -  9,200

Tournament expenses -  4,800

Furniture purchased - 3,000

Office expenses - 2,400

Closing Cash in hand  - 800

March 2021   (Score 8)    Ans : Closing bank balance :13,200