Accounting for Non-profit

Organisation
Mobin Shaikh
Non-profit Entities

• Legal entity operated for the benefit of the society

• Profit making is not an objective
• Objective may be social, educational, religious or
charitable
• Forms are clubs, societies or charitable bodies.
• Surplus not to be distributed to the members but to be
transferred to capital fund.
Characteristics of Non-profit Organizations

1. Entity – they do not have owners

2. Service – limited number of citizens of a community to city, state or
nation
3. Form – clubs, societies, charitable bodies to run educational institutes,
hospitals etc.
4. No-profit motivation – service is motive
5. Financing- Donations from outside, membership fees
6. Funds – created for providing maximum benefits to the members,
public at large
7. Budget- necessity to prepare budgets
Contd.

1. Governance by elected members – similar to corporate

firms
2. Recognition of revenue- similar as business
organizations, accounting period
3. Measurements of cost expirations – similar to business
firms e.g. Depreciation
4. Accrual basis – similar as business firms
Accounting Procedures

• 1. Receipts and payments accounts

• 2. Income and Expenditure account
• 3. Balance sheet
1. Receipts and Payments Account

• It is a summary of ‘cashbook’.
• Primary report to show cash position
• All receipts and payments whether in cash or cheque are
shown as shown in cash book.
• All the receipts are debited (Capital or Revenue)
• All the payments are credited (Capital or Revenue)
• Starts with opening cash balance, ends with the closing
balance
• It is usually not a part of the double entry system.
Contd.

• It includes all the cash and bank receipts (Current, past

or future)
• Surplus or deficit can not be ascertained but the closing
balances
• It is not a Trial Balance but a ‘Cash Trial’
Specimen of a Receipts and Payments
Account

INFOCITY CLUB
Receipts and Payments Account for the year ended on 31.03.2015
Receipts Rs Payments Rs.
To Opening Balance By salaries ………………..
Cash …….. By electricity …………………
Bank …….. ……………….
To membership fees By rent …………………
2013-14 ……………… By purchase of investments ………………….
2014-15 ……………… By purchase of furniture …………………
2015-16 ……………… By Closing Balance
To Donations ………………. Cash ………
Bank ………. ……………………
2. Income and Expenditure Account

• It is equivalent to Profit and Loss Account

• Matching of Revenue against the expenses of the period
• This account shows ‘surplus or deficit of income over expenditure’
• Expenditure here means revenue expenses and not the capital
expenses
• The whole of the revenue or expenditure is taken into
consideration irrespective of the facts they have been received or
paid or not. (Accruals)
Contd.

• Both cash and non cash items e.g. Depreciation are taken into
consideration
• Capital expenditures and incomes are excluded
• Only ‘current year’s income and expenses are considered here
Specimen of a Income and Expenditure
Account
INFOCITY CLUB
Income and Expenditure Account for the year ended on 31.03.2015
Receipts Rs Payments Rs.
To Salaries ……….. By subscriptions ………….
Add: O/s ……….. …………… Add: O/s …………
To Rent …………. Less: Paid in advance …………. ………………..

To Insurance premium …….. By Donations …………………

Less: Prepaid ……… ……………… By Admission fees ………………….
To Excess of income over expenses ……………..

……………….
……………………
Specimen of Balance sheet (same principles
as B/S. of business firm)

• BALANCE SHEET OF INFOCITY CLUB AS AT 31.03.2015

Liabilities Rs Assets Rs.
Capital Fund …………. Building ……………
Add: Surplus ………….. ……………… Furniture ……………..
Subscriptions received in Sports equipments …………….
advance ………………
Outstanding liabilities …………….. Cash at bank ………………
Cash in hand ……………..
…………………….. ………………
Meaning of few items/terms

• Capital Fund – Same as capital. It is made up of special donations or

capitalizing admissions/membership fees. Also known as ‘General Fund’
or ‘Accumulated Fund’
• Donations – cash or kind donated by the supporters, well wishers,
members
• Legacy – Gift by a will. General legacy is capitalized in the name of the
fund if it is for ‘specific’ purpose, else added to the capital
• Subscriptions- regular amount paid by the members to keep membership
alive
• Sectional subscriptions- special subscriptions collected form members
for particular activity.
Contd.

• Life membership – lump some paid by a member. Credited to

special fund and transferred a portion to income and expenditure
account and balance is c/f till exhausted. Alternatively, can be
capitalized when received.
• Honorarium – token payment made to a person for the services
rendered to the non-profit organization
Accounting Treatments of few items

• Subscriptions – treated as income for the period adjusting advance receipts

• Donations –
I. large and non-recurring donations are generally added to the capital
fund.
II. Small and recurring donations are credited to the income and exp.
Account of the period.
III. Donations in the form of assets are credited to the particular fund
account and in the absence capital fund account.
IV. Treatment as per the special direction given in the rules of the
organization.
Contd.

• Entrance or Admission fees-

I. Credited to capital fund account
II. When the amount is small, just to cover the expenses of
admission can be treated as income
III. As per the directives in the regulations.
• Life membership Fees
• As discussed earlier
1. Preparation of Income and Expenditure Account
and Balance Sheet when Trial Balance and other
information is given:
I. Income are shown on the right hand side of the I&E account while
Expenditure are to be shown in the Left hand side of the I&E Account .
II. All the income and expenditure ‘for the period’ are to be taken in to
consideration on ‘Accrual’ basis.
III. All capital items are to be shown in the Balance sheet as Asset or
liability as applicable.
IV. Consider the additional information and make necessary adjustment to
the affected accounts.
V. Surplus or deficit to be ascertained and to be added to the Capital
fund/accumulated fund in the balance sheet.
Preparation of Income & Expenditure Account
and B/S from T-Balance (31.03.2008)
 Preparation of Income & Expenditure Account and B/S from T-Balance
Particulars Debit Credit Particulars Debit Credit
General Fund 30000 Stewards’ and servant's 5800
wages
Cash in hand 2000 Extension of clubhouse 10000

Bank 3000 Printing and stationery 1000

Sundry Debtors 2400 Law charges 500
Sundry Creditors 1500 Annual subscriptions 30000
Loan @15% (1.7.07) 20000 Card and billiard room 4000
receipts
Furniture 10000 Washing 1600
Club House 40000 Wines, cards and cigars sold 5000
Stock of Cigars 500 Repairs to club house and 400
furniture
Rent 6000 Conversion expenses 1000
Rates, Taxes and 600 Wine, cards and cigars 4000
Insurance purchased
Secretary's Honorarium 1200 Interest on loan 1000

Entrance fees 1000 Subscriptions received in 1500

Additional information

• Subscription for 2007-08 outstanding Rs. 2000

• Write off depreciation @10% p.a. on furniture and 2 % on club
house including extension
• Stock of cigars Rs. 400, Wine Rs. 600 on 31.03.2008
Preparation of I&E Account and B/S. when Receipts
and Payments Account and other Information is
given
i. Prepare B/s. at the beginning after taking in to account (i) opening
cash and bank balance (ii) Assets and Liabilities given and (iii)
Accumulated fund
ii. From the receipts and payments account identify capital payments and
revenue payments
a) Post revenue payments to I&E, when no adjustments required
b) Prepare ledger for the adjustment and post adjusted amount to I&E Account
c) Post capital payments to appropriate assets or liabilities account of B/s.

iii. treat receipts items as above.

iv. Adjust other additional information items
v. Calculate surplus or deficit and transfer to B/s. and prepare B/s. at the end of
the period.
Ex. Calculate the amount of subscription to be credited to Income &
Expenditure Account of the year 2007

• Subscription received during the year 2007 Rs. 7000

• Subscriptions outstanding at the beginning of 2007 Rs. 1400
• Subscriptions outstanding at the closing of 2007 Rs. 1600
• Ex. Calculate the amount of subscription to be credited to Income
& Expenditure Account of the year 2007
• Subscriptions received during 2007 Rs. 12000
• Subscriptions received for 2008 Rs. 1600
• Subscriptions O/s. at the beginning of 2007 Rs. 2000
• Subscriptions O/s. at the end of 2007 Rs. 700
• Mr. Singh, treasurer of City Club for the year 2009-10, submits the
following data for membership fees.
1. Cash/cheque received in the year totaled Rs. 1,00,000.
2. As on 1.04.2009, Rs. 2000 was in arrears for 2008-09 (but cleared
by 31.03.2010) and Rs. 800 was received by previous years
treasurer for Mr. Singh.
3. Mr.Singh received Rs. 1500 towards the next year fees, but failed
to recover Rs. 1700 fro his current year’s members.
Mumbai Golf Club prepared the following Receipts and
Payments Accounts for the year ended 31.12.2013

Receipts Amt. Rs. Payments Amt. Rs.

To Balance b/d. 38000 By Sports equipments (Bought 100000
on 01.09.2013)
To Subscriptions: By Tournament expenses 40000
2012 20000 By Electricity 5000
2013 185000 By Printing 3000
2014 9000
BY Salaries & Wages 34000
To Entrance Fess (Capital 8000 By Exhibition expenses 21000
Receipts)
To Interest on investments 15000 By Balance C/d. 72000
275000 275000
Additional Information

I. Fixed Assets of the club on 1.1.2013 includes the following:

Sports Equipments- Rs. 1,55,000, Club Ground Rs. 6,20,000,
Furniture Rs. 20,000
II. Subscriptions for 2013 collected in 2012- Rs. 5000
III. Unpaid subscriptions for the year 2013 – Rs. 3,000
IV. Depreciation to be provided @ 20% p.a. on sports equipmetns
and @ 5% on furniture.

Prepare I&E Account and B/S. for the year 2013

The following is the Receipts and Payments Account of
Karnavati Club Ltd. for the year ended on 31.03.2008

Receipts Amt.Rs. Payments Amt. Rs.

To Cash B/d. 40,800 By Salary 1,86,400
To Entrance Fees 40,000 By Rent 74,400
To Subscriptions: By Electricity 31,200
2006-07 10,000
2007-08 1,22,000
2008-09 14,000
To Sale of Refreshments 3,00,000 By Printing & Stationery 13,200
To loan taken from member 80,000 By Insurance Premium 7,200
By General Expenses 18,400
By Purchase of New Furniture 1,80,000
By Cash in hand 96,000
6,06,800 6,06,800
You are informed that…

I. Outstanding and prepaid amounts on 31st March were:

Year Rent due Electricity Bill Due Subscriptions Due Prepaid Insurance

2006-07 7,200 25,600 10,000 2,000

2008-09 14,400 80,00 16,000 2,800
II. Cost of refreshments sold was Rs. 2,00,000. The surplus is to be treated as
income.
III. On 31st March, ‘07 book value of the furniture was Rs. 120000. new furniture
was purchased on 1st October, ’07. Depreciation is to be provided at 10%.
IV. Loan form a member was taken on 1st October,’07. Interest @10% p.a. is
payable thereon.