Accounting for Not-for-Profit Organisations
What the exam tests
Not-for-profit organisations - clubs, societies, hospitals, schools - do not trade for profit, so the three statements are different from a company's. The Receipts and Payments Account is a cash and bank summary: receipts on the debit side, payments on the credit side, opening and closing balances. It is not an income statement. The Income and Expenditure Account is the accrual equivalent of a Profit and Loss Account and contains only revenue items of the current year. The Balance Sheet lists assets and liabilities on accrual basis, with Capital Fund (or Accumulated Fund) as the balancing figure.
Core rules
- Subscription income = opening outstanding + received during the year − closing outstanding − closing advance + opening advance.
- Only revenue receipts go to Income and Expenditure. Donations for a building, special funds, legacies and life membership fees are capital receipts shown on the Balance Sheet.
- Sale of old newspapers or used sports material is revenue income; sale of a fixed asset is a capital receipt, and profit or loss on it is adjusted against the fund concerned.
- Depreciation, outstanding expenses and prepaid expenses must be recorded even though no cash moved.
Worked example
A club received subscriptions of ₹18,000 during 2024–25. Outstanding on 1-4-2024 ₹1,200; outstanding on 31-3-2025 ₹1,500; advance received in March 2025 ₹400; advance received in March 2024 ₹300. Subscription to be credited to Income and Expenditure = 1,200 + 18,000 − 1,500 − 400 + 300 = ₹17,600. The ₹400 is a liability (advance) and the ₹1,500 is an asset (outstanding) in the Balance Sheet.
Marks-losing traps
- Presenting the closing balance of Receipts and Payments as "surplus".
- Crediting a building donation to income instead of to the Balance Sheet.
- Omitting depreciation because "no cash was paid".
- Netting an asset sale against fresh purchases.