Accounts of Not-for-Profit Concerns
Statements and fund accounting
Not-for-profit concerns, such as clubs and societies, do not aim at profit. They prepare a Receipts and Payments A/c, an Income and Expenditure A/c and a Balance Sheet. Receipts and Payments records actual cash and bank flows. Income and Expenditure records accrual-based income and expenses and shows surplus or deficit. Capital fund is the excess of assets over liabilities. General donations, subscriptions and interest are usually revenue receipts; specific donations, legacies and life membership fees are generally capitalised.
Worked example
Subscriptions received are ₹60,000. Opening outstanding subscriptions are ₹5,000; closing outstanding are ₹8,000; opening advance subscriptions are ₹3,000; closing advance subscriptions are ₹4,000. Subscription income = ₹60,000 + ₹8,000 − ₹5,000 + ₹3,000 − ₹4,000 = ₹62,000. Reasoning: closing outstanding is income not yet received, so add it; opening outstanding was received this year but belongs to the previous year, so subtract it; opening advance belongs to this year, so add it; closing advance belongs to next year, so subtract it.
Traps that cost marks
Do not treat a Receipts and Payments A/c as an Income and Expenditure A/c. A cash receipt may not be income. Specific donations and legacies may be capital receipts. Do not show subscriptions gross without adjusting outstanding and advance amounts. Honorarium is an expense, not a donation. Life membership fees are usually capitalised. A surplus is not profit and a deficit is not a loss.