Accounting for Not-for-Profit Organisations
Not-for-profit organisations exist to serve a purpose rather than to earn, and the exam tests the three statements and their different bases.
The three statements
The Receipts and Payments Account is a cash-basis summary of the cash book: it includes capital and revenue items together and shows opening and closing balances of cash and bank. The Income and Expenditure Account is prepared on the accrual basis and includes only revenue items of the current year. The Balance Sheet lists assets and liabilities, with the Capital Fund (general fund) as the balancing figure: opening fund plus surplus for the year (or minus deficit), plus items capitalised during the year such as life membership fees.
Typical adjustments
Current-year subscription income = amount received − opening outstanding − closing advance + closing outstanding. Specific donations, endowments and legacies are capital receipts, credited to the relevant fund or shown as a separate fund, not to the Income and Expenditure Account; general donations are income. Sale of old newspapers, old sports material or scrap is income. Life membership fees are capitalised. Depreciation on fixed assets is charged to the Income and Expenditure Account.
Worked example
Subscription received during the year ₹1,20,000; outstanding at the beginning ₹10,000; outstanding at the end ₹15,000; advance received for next year ₹5,000. Income for the year = 1,20,000 − 10,000 − 5,000 + 15,000 = ₹1,20,000.
Traps
Taking opening and closing cash balances into the Income and Expenditure Account; crediting a specific donation to income; forgetting depreciation on assets purchased from a special fund; recording purchase of a fixed asset in the Income and Expenditure Account.