Accounting for Not-for-Profit Organisations
Accounting for Not-for-Profit Organisations tests whether you can convert cash-based receipts and payments into accrual-based income and expenditure, and present a meaningful Balance Sheet when there is no profit motive. DHSE questions usually centre on subscription adjustments, donations, special funds, life membership, consumable sports material and depreciation.
Core records
- Receipts and Payments Account: summary of cash/bank receipts and payments, includes capital and revenue items; shows opening and closing balances.
- Income and Expenditure Account: accrual basis; only revenue items; surplus/deficit transferred to Capital Fund.
- Balance Sheet: assets and liabilities; Capital Fund = assets - liabilities (including surplus).
Treatment rules
Subscriptions: adjust opening and closing outstanding and advance. General donations are income; specific donations are funds. Entrance fees are generally capitalised to Capital Fund. Life membership fees are capitalised, not credited to I&E. Sale of old sports material is income. Cost of sports material consumed = opening stock + purchases - closing stock. Honorarium and depreciation are expenses.
Worked example
Subscriptions received ₹1,20,000. Opening outstanding ₹8,000; closing outstanding ₹12,000; opening advance ₹5,000; closing advance ₹3,000. Income = 1,20,000 - 8,000 + 12,000 - 3,000 + 5,000 = ₹1,26,000. The opening advance belongs to this year; the closing advance belongs to next year and is deducted.
Traps
Do not show capital receipts in I&E. Do not treat life membership as annual income. Do not ignore opening outstanding. A special fund's income and expense go to that fund, not I&E. Charge depreciation on fixed assets even if they were donated; the donation is capital, but depreciation is an expense.