The document provides information about financial statements of not-for-profit organizations. It discusses the key components of their financial statements which include a receipts and payments account, income and expenditure account, and balance sheet. It explains items that appear on each financial statement such as subscriptions, donations, depreciation, capital and revenue expenditures. It also differentiates between general funds and specific funds maintained by not-for-profit organizations.
2. These are those organisations which are established for a
charitable or social purpose and not with a view to earn profit.
These also render services to their members and to the society
on voluntary basis.
These non-profit seeking entities exist with a primary motive
of providing service. Such as, a club provides sports and
recreational facilities; a hospital renders medical services;
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3. • SERVICE :- Such organisations are set up to provide service to a specific group or the public
at large such as education, health care, sports, entertainment etc. The main aim of these
organisations is to provide service either free of cost or at nominal rates and not to earn
profit.
• FORM:- Since the basic objective of NPO is to render services such as social, religious,
educational, charitable, etc. so they take the form of clubs, schools, colleges, societies, trusts
or charitable bodies.
• SEPARATE LEGAL ENTITY:- As every organisation has distinct entity from its members, so
has the NPO. Its name and entity is different from the people who have contributed towards
its capital fund. It takes birth by law and winds up in the same way.
• MANAGEMENT BY ELECTED PERSONS:- Management of NPO is done by the people who
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4. • NO PROFIT MOTIVE:- These institutions do not operate with a view to earn profit
rather their aim is to promote education, sports, charity, religion, culture, etc.
• ACCOUNTS:- They prepare financial statements at the end of their accounting
period in the form of RECEIPTS AND PAYMENT ACCOUNT, INCOME AND
EXPENDITURE ACCOUNT and BALANCE SHEET.
• MAJOR SOURCES OF INCOME (FUNDING):- These organisations collect
subscriptions from their members, grants from government, donations, income
from investments etc. to meet the operating cost and cost of projects undertaken.
• SURPLUS NOT DISTRIBUTED AMONG ITS MEMBERS:- Current year’s surplus in
the form of excess of income over expenditure is not distributed among its
members. It is added to Capital Fund.
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5. FINAL ACCOUNTS OF NPO…!!!
NPO prepares annual or final accounts reflecting the financial
transactions of the organisation .
Final accounts of NPO includes :
1 . RECEIPTS & PAYMENT A/C
2 . INCOME & EXPENDITURE A/C
3. BALANCE SHEET
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6. RECEIPTS AND PAYMENTS A/c
RECEIPTS AND PAYMENTS a/c is a summary of cash transactions .
It records all receipts and payments , whether of revenue or capital
nature , and irrespective of the period to which they relate.
It begins with cash and bank balances in the beginning & ends with
the cash & bank balances at the end of the accounting period .
NOTE :
• No adjustments for o/s , depreciation , accrued
• Income , etc. are made in it.
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8. Receipts Amount Payments Amount
TO BALANCE B/D BY CAPITAL PAYMENTS
To Subscription Building
To Donation Furniture
To Legacy Investments
To Entrance Fee Tournaments expenses
To Life membership fee Books
To Endowment fund BY REVENUE PAYMENTS
To Donation for Building Salary
To Tournament Fund Honorarium
To Lockers Rent Rent & Taxes
To Sale of Assets Advertisements
To Sale of old newspapers / periodicals
Electricity
To Proceeds from charity show BY BALANCE C/D
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9. ILLUSTRATION
From the following particulars , prepare receipts and Payments a/c
of metro club, Delhi for the year ended Dec. 31st ,2008Opening
balance of cash and bank on jan 1, 2008 was rs. 8,500 .
Subscription received for current year Rs. 30,000,previous year Rs.
2,000 & future year Rs. 1,000.
Life membership fees Rs.7,000 , investments Rs.30,000, Donations
Rs.4,000, Tournament Fund Rs.4,000, Furniture Rs.15,000,
Tournament expenses Rs.2,500, Salary Rs.7,000.
Charge depreciation on furniture @ 10%p.a., Salary o/s Rs.400,
Accured interest on investment Rs.500.
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10. RECEIPTS & PAYMENTS A/C
Dr. For the year ended 31st dec. ,
Cr.Receipts Amount Payments Amount
To bal b/d 8,500 By investments
30,000
To Subscription:
Previous year 2,000
Current year 30,000
FutureYear 1,000
33,000
By furniture 15,000
To life membership fees
7000
By tournaments
expenses
2,500
To Donations 4000 By salary 7,000
To Tournament fund
4000
By balance c/d 2,000
56,500 56,500
NOTE : Depreciation , salary o/s & accrued interest will not come as these
are non – cash items. Pradhyumn Somani
11. INCOME AND
EXPENDITURE ACCOUNT
o Income and Expenditure is like a Profit&Loss a/c of a
business firm.
o It should be noted that Income & Expenditure a/c does not
have an opening balance . Closing balance is either surplus or
deficit, which is transferred to Capital Fund, shown in the
Balance Sheet.
o Income & Expenditure A/c is prepared on accural basis so
adjustments related to o/s expenses, prepaid expenses and
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13. Expenditure Amount Income Amount
To Salaries
ADD: O/s at the end
LESS: O/s in the beginning
LESS: P/p at the end
ADD: P/p at the beginning
By Subscriptions
ADD:O/s at the end
LESS: O/s in the beginning
LESS: adv. at the end
ADD: adv.at the beginning
To Rent By Entrance Fees
To Insurance Premium By Donations
To Printing & Stationary By Interest on Investments
To Honorarium By Misc. Receipts
To Depreciation By Sale of Old Newspapers
To Loss on Sale of Assets By Profit on Sale Assets
To Audit Fees By Deficit
To Surplus
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14. BALANCE SHEET
o It is a statement that shows the financial position of an
organisation or enterprise as at a particular date. The method of
preparing the Balance Sheet of a NPO is similar to that of a
business firm.
o The surplus or deficit as per the Income & Expenditure A/c is
transferred to the Capital Fund.
o Where Opening Balance of Capital Fund is not given, the same
is arrived at by preparing the Opening Balance Sheet.
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15. FORMAT OF BALANCE SHEET
Of ‘NOT-FOR- PROFIT
ORGANISATIONS’
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16. Balance Sheet
Liabilities Amount Assets Amount
CAPITAL FUND : FIXED ASSETS :
Opening balance
ADD: Surplus
LESS: Deficit
Building(op. Balance)
ADD: Addition
LESS: Depreciation
Life Membership Fees FURNITURE :
Donations for buildings Opening balance
ADD: Purchased
LESS: Sale(book value)
LESS: Depreciation
Legacy INVESTMENT
Entrance Fees CURRENT ASSETS :
SPECIAL FUNDS : Cash in hand
Match Fund/tournament Fund/Prize Fund Stock of Consumable items like food stuff/stationery
Opening balance
ADD: income
LESS: expenses
Interest on Investment Accrued
Bank O/D Subscription Outstanding
O/S Expenses Prepaid Expenses
Creditors Cash at Bank
Subscription Rece. in adv. Pradhyumn Somani
17. SOME IMPORTANT ITEMS
ENTRANCE / ADMISSION FEES:- It is the amount paid by a person at the time
of becoming a member of a NPO. It is a revenue receipt and therefore is
accounted as an INCOME and CREDITED to INCOME AND EXPENDITURE
ACCOUNT.
INCOME AND
Dr. EXPENDITURE A/C
Cr.
Particulars Amount Particulars Amount
By entrance fees 1000
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18. LIFE MEMBERSHIP FEE :- It is accounted as a Capital Receipt
and added to Capital Fund on the liability side of the balance
sheet.
It would be improper to account Life membership fee as income
because a Life Member makes one time payment and avails
services all through his life.
Balance Sheet
LIABILITIES Amount ASSETS Amount
Capital fund xxx
Add : life
membership
fee xxx xxxx
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19. LEGACY:- It is the amount which a not-for-profit organisation will receive
as per the will of a deceased person . Since it is non-recurring in nature so it
is capitalised and added to capital fund on the liabilities side of the balance
sheet . However if it ,is for a specific purpose , it should be capitalised in the
name of the ‘fund’.
BALANCE SHEET
liabilities Amount Asset Amount
Legacy xxxx
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20. SALE OF OLD ASSETS:- It appears on the debit side of Receipt and
Payment a/c. It is a capital receipt and as such should not be transferred to
Income and Expenditure a/c.
However, the profit and loss on the sale of an asset must be taken to the
Income and Expenditure a/c.
For example, if the book value of furniture appearing in the books is Rs.
5000, out of which furniture of Rs. 1000 is sold for Rs. 400, the loss of Rs.
600 will be taken to the debit side of Income and Expenditure a/c and the
furniture of Rs. 4000 (Rs. 5000 less Rs. 1000) will be shown on the Assets
side of the Balance Sheet.
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21. INCOME AND
Dr. EXPENDITURE A/c Cr.
BALANCE SHEET
Particulars Amount Particulars Amount
To furniture 600
Liability Amount Asset Amount
Furniture 4000
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22. SALE OF OLD NEWSPAPERS AND SPORTS MATERIAL:- The
sale of old newspapers is an income and is CREDITED to
INCOME AND EXPENDITURE ACCOUNT.
• As regards sale of sports material is concerned, it is also
considered as income of the organisation. Sports material
consumed is in the nature of depreciation of sports material so
it is shown on the DEBIT side of INCOME AND
EXPENDITURE ACCOUNT.
• If this consumed sports material is sold, money realised is in the
nature of income to be CREDITED to INCOME AND
EXPENDITURE ACCOUNT.
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23. INCOME AND
Dr. EXPENDITURE A/C
Cr.Particulars Amount Particulars Amount
To depreciation on
sports material
xxx By sale of old
newspapers
xxx
By sale of sports material xxx
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24. HONORARIUM:- Special payment made to a person who is not the regular
employee of organisation and rendered some special and extra ordinary
service to the organisation is called Honorarium.
This is made on regular basis that is why it is considered as revenue in nature
and will be DEBITED to INCOME AND EXPENDITURE A/c.
INCOME AND
Dr. EXPENDITURE A/c Cr.
Particulars Amount Particulars Amount
To honorarium xxx
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25. SUBSCRIPTION
• SUBSCRIPTION:- It is the amount paid by the members of NPO on
periodical basis so that their membership is not cancelled. Thus, it
is a recurring source of revenue from its members.
• It is the main source of revenue of NPO so it is CREDITED to
INCOME AND EXPENDITURE A/c.
• It is appeared on the DEBIT side of RECEIPTS AND PAYMENT
A/c.
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26. Broadly, subscription received has the following FOUR adjustments :-
1. SUBSCRIPTION O/S AT THE END OF CURRENT YEAR :- Since
subscription has not been received so far, so on accrual basis it is ADDED to
subscription received on the credit side of income and expenditure a/c and
will be shown on asset side of b/s.
2. SUBSCRIPTION O/S AT THE BEGINNING OF CURRENT YEAR :- It refers
to o/s subscription of last year and it is DEDUCTED from the subscription
received on the credit side of income and expenditure a/c and will not be
shown in closing b/s.
3. SUBSCRIPTION RECEIVED IN ADVANCE AT THE END OF CURRENT
YEAR :- It refers to income received in advance and hence it is DEDUCTED
from subscription received on credit side of income and expenditure a/c and
will be shown on liability side of b/s.
4. SUBSCRIPTION RECEIVED IN ADVANCE AT THE BEGINNING OF
CURRENT YEAR :- It will be ADDED to subscription received on the credit
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27. Subscription can be calculated in three ways :-
1. By showing it in income & expenditure a/c itself.
2. By preparing subscription account.
3. By preparing statement of subscription.
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29. Dr. SUBSCRIPTION A/C
Cr.
Particulars Amount Particulars Amount
To opening o/s
subscription
xxx By opening adv.
Subscription
xxx
To income & expenditure
a/c (b.f.) xxx By bank xxx
To closing adv.
subscription xxx
By closing o/s
subscription xxx
xxxx xxxx
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30. STATEMENT OF CURRENT YEAR’S
SUBSCRIPTION
Particulars Amount
Subscription received during the year xxxx
ADD : Closing o/s subscription xxx
Opening advance subscription xxx
xxxx
LESS : Opening o/s subscription xxx
Closing advance subscription xxx
Subscription Income xxx
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31. Common Balance Sheet in each
caseLiabilities Amount Assets Amount
Advance subscription
xxxx
Accrued subscription
xxxx
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32. ILLUSTRATION :-
Bombay Sports Club disclosed that it received Rs. 1,50,000 by
way of subscription during the year ended 31st March 2006.
Additional Information :-
( Rs.)
Subscription o/s 2004-05 . 4,000
Advance subscription received in 31-3-05. 4,500
Advance subscription received in 31-3-06. 5,100
Subscription o/s on 31-3-06 for 2005-06. 3,800
Show the total subscription of Bombay Sports Club.
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33. INCOME AND EXPENDITURE A/C
Dr. For the year ending 31st March
Cr.Particulars Amount Particulars Amount
By subs. 1,50,000
ADD :closing
o/s subs. 1,000
ADD: opening
Subs. Rece.in
advance 4,500
LESS: opening o/s
Subs. 4,000
LESS: closing subs.
Rece. in adv. 5,100 1,49,200
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34. Dr. SUBSCRIPTION ACCOUNT
Cr.Particulars Amount Particulars Amount
To opening o/s
subscription 4,000
By opening adv. Subs.
4,500
To income &
expenditure a/c (b.f.) 1,49,200 By bank 1,50,000
To closing advance
subs. 5,100
By closing o/s
subscription 3,800
1,58,300 1,58,300
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35. SOLUTION :-
STATEMENT OF SUBSCRIPTION
(for the year ending 31st March 2006)
Particulars Amount
Subscription 1,50,000
Add: Closing o/s subscription 3,800
Opening subs. rece. in advance 4,500
1,58,300
Less: Opening o/s subscription 4,000
Closing subs. rece. in advance 5,100
Subscription income 1,49,200
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37. GENERAL FUND Vs.
SPECIFIC FUND
• As, the excess of assets over liabilities in case of ‘ not-
for-profit organisations ’ is called ‘ capital fund ‘.
The balance of Income & Expenditure acc. in the form
of surplus/deficit is transferred to capital fund every
year. This fund is also called ‘ Accumulated Fund or
General Fund’.
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38. • Specific Funds are those funds which have been constituted for some
specific purpose like Prize Fund ,Match Fund ,Sports Fund, Building
Fund etc.
• The income generated from these specific funds and expenses
incurred related to these funds are directly adjusted from the
concerned funds on the liabilities side of balance sheet and these are
never adjusted in Income & Expenditure A/C.
• For instance, in the absence of match fund , match receipts & match
expenses will be shown in the Income & Expenditure A/C .
• This will affect the surplus/ deficit & consequently ,it will bePradhyumn Somani
39. CAPITAL CAPITAL FUND
i. The term capital is used by business
business concern.
ii. Capital is contributed by the owners
owners of the business entity.
iii. Capital can be withdrawn by the
owners if they desire so.
iv. Capital is the contribution of the
owners of the business.
i. The term capital fund is used by
NPO.
ii. Capital Fund is the excess of assets
assets over liabilities of NPO.
iii. Capital Fund cannot be withdrawn
withdrawn by its members.
iv. It is made by capitalisation of
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40. FUND BASED
ACCOUNTING
• When funds are created for some specific purposes such as
sports fund, building fund, prize fund, etc. then receipts and
income relating to that fund are credited to that fund and
payments and expenses will be debited to that fund .
• So we can say fund based accounting is a book-keeping
technique whereby separate self- balancing sets of assets,
liability , income, expenses and fund balance accounts are
maintained for each contribution for a specific purpose.
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41. ILLUSTRATION
Sports Fund 35,000
Sports Fund Investment 35,000
Income From Sports Fund Investment 4,000
Donations For Sports Fund 15,000
Sports Prizes Awarded 10,000
Expenses On Sports Events 4,000
Interest On General Fund Investments 20,000
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42. Expenditure Amount Income Amount
By Interest on General
Fund Investment
20,000
Liabilities Amount Assets Amount
Sports fund 35,000
Add: Income from Sports fund
fund
Investment 4,000
Add: Donations For Sports
Fund .
15,000
Less: Sports Prizes Awarded
. 10,000
Less: Expenses on Sports events 40,000
Sports Fund Investments
35,000
SOLUTION :-
Income & Expenditure A/c.
Dr. For the year ended 31st march 2013
Cr.
nxcz `,ncmn
Balance Sheet
as on …..
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43. ILLUSTRATION
Sports Fund 35,000
Sports Fund Investment 35,000
Income From Sports Fund Investment 4,000
Donations For Sports Fund 15,000
Sports Prizes Awarded 10,000
Expenses On Sports Events 49,000
Interest On General Fund Investments 20,000
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44. SOLUTION :-
Income & Expenditure A/c.
Dr. For the year ended 31st march 2013
Cr.
nxcz `,ncmn
Balance Sheet
as on …..
Expenditure Amount Income Amount
To Expenses on Sports
Fund 49,000
By Interest on General
Fund Investment
20,000
Liabilities Amount Assets Amount
Sports fund 35,000
Add: Income from Sports
fund
Investment 4,000
Add: Donations For Sports
Fund .
15,000
Less: Sports Prizes Awarded
. 10,000 44,000
Sports Fund Investments
35,000
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45. ILLUSTRATION
Expenditure on construction of Pavilion 6,00,000
Pavilion Fund (op.bal.) 8,00,000
Donation for Pavilion received 10,00,000
Capital Fund (opening bal.) 20,00,000
The construction work is in progress & not yet completed.
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46. Liabilities Amount Assets Amount
Capital Fund :
Opening Bal. 20,00,000
Add: Trans. From Pavilion
Fund 6,00,000 26,00,000
Pavilion in Progress 6,00,000
Pavilion Fund :
Opening Bal. 8,00,000
Add: Donation 10,00,000
18,00,000
Less: Trans. to Capital fund
fund 6,00,000 12,00,000
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48. • UNRESTRICTED FUNDS :- This fund does not impose any restriction on its
management. It is free to use the amount of fund for purpose of organisation.
This fund is called as ‘General Fund’ or ‘Accumulated Fund’ or ‘Capital Fund’.
• RESTRICTED FUND :- It is the fund, the use of which is restricted either by
the management or the donor for a specified purpose. Examples of such funds
are:- Endowment Fund, Annuity Fund, Loan Fund, Prize Fund, Sports Fund,
etc.
• ENDOWMENT FUND :- This fund arises from a bequest or gift. It is a
donation with a condition by the donor to use only the income earned from
the investment of such funds for the specified purpose so that the original
donated amount remains intact.
• ANNUITY FUND :- This fund is created from the contribution received for
giving annuities to the beneficiary.
However, the fund becomes the property of the organisation after the death of
the beneficiary and fund can be used as per terms of agreement.
• LOAN FUND :- These funds are created for granting loans on revolving basis
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