Public Sector and Not-for-Profit Accounting
What the exam tests
This domain tests accounting for public-sector entities and not-for-profit organisations: fund accounting, budgets, receipts and payments, accrual-based statements under IPSAS, and accountability for restricted resources.
Core rules
- Public-sector entities report on stewardship of public funds; IPSAS provides accrual and cash-basis standards. Not-for-profit entities have no share capital; their aim is surplus, not profit.
- Receipts and payments accounts record cash movements; accrual accounts record income earned and expenses incurred.
- Funds may be unrestricted or restricted; restricted donations and grants are recognised only when conditions are met and are not available for general use.
- Subscription income is recognised when receivable; expenses include depreciation if accrual accounting is used.
- Budget comparison and variances are important accountability disclosures.
Worked example
A club receives cash subscriptions of N1,200,000 and pays expenses of N900,000; opening cash is N150,000. Closing cash = 150,000 + 1,200,000 - 900,000 = N450,000. On an accrual basis, subscription income earned is N1,000,000 and expenses incurred are N700,000, giving a surplus of N300,000. The N200,000 difference in subscriptions is cash received in advance or accrued income, and the N200,000 difference in expenses is unpaid expenses or prepayments. Both statements can be correct for different purposes.
Traps
Do not treat restricted grants as general income. Do not call a surplus profit or distribute it. Do not ignore depreciation simply because the entity is not profit-oriented. Cash receipts are not the same as income earned.