Accounting for Not-for-Profit Entities and Incomplete Records
This domain tests receipts and payments accounts, income and expenditure accounts, subscriptions, and profit calculation from incomplete records. Exam questions require conversion from cash records to accrual figures and reconstruction of capital, sales or purchases.
Core rules
- Not-for-profit entities prepare receipts and payments accounts on a cash basis and income and expenditure accounts on an accrual basis.
- Subscriptions income is adjusted for opening and closing prepayments and accruals.
- Donations and legacies may be income or capital, depending on conditions.
- Accumulated funds replace capital; surplus or deficit replaces profit or loss.
- Incomplete records: profit = closing capital + drawings - opening capital - capital introduced.
- Mark-up is based on cost; margin is based on selling price.
Worked example
Subscriptions received in cash are 20,000. Opening prepaid subscriptions are 1,000; closing accrued subscriptions are 2,000; ignore other adjustments. Income = 20,000 + 1,000 + 2,000 = 23,000. The opening prepayment was income received last year for this year; the closing accrual is income earned this year but not yet received. For incomplete records, opening capital 10,000, closing capital 14,000 and drawings 3,000 give profit = 14,000 + 3,000 - 10,000 = 7,000.
Traps
- Treating capital donations as income without checking conditions.
- Treating drawings as an expense.
- Confusing mark-up with margin.
- Ignoring opening and closing subscription adjustments.