Accountancy npo

11th class accountancy npo ppt

1. Financial Statements of Not for profit O rganisations Made By : Pradhyumn Somani

2. M eaning These are those organisations which are established for a charitable or social purpose and not with a view to earn profit. These also render services to their members and to the society on voluntary basis. These non-profit seeking entities exist with a primary motive of providing service. Such as, a club provides sports and recreational facilities; a hospital renders medical services; Pradhyumn Somani

3. Characterstics / Features SERVICE :- Such organisations are set up to provide service to a specific group or the public at large such as education, health care, sports, entertainment etc. The main aim of these organisations is to provide service either free of cost or at nominal rates and not to earn profit. FORM :- Since the basic objective of NPO is to render services such as social, religious, educational, charitable, etc. so they take the form of clubs, schools, colleges, societies, trusts or charitable bodies. SEPARATE LEGAL ENTITY:- As every organisation has distinct entity from its members, so has the NPO. Its name and entity is different from the people who have contributed towards its capital fund. It takes birth by law and winds up in the same way. MANAGEMENT BY ELECTED PERSONS:- Management of NPO is done by the people who have been elected by its members called managing/ executive committee. Pradhyumn Somani

4. NO PROFIT MOTIVE:- These institutions do not operate with a view to earn profit rather their aim is to promote education, sports, charity, religion, culture, etc. ACCOUNTS:- They prepare financial statements at the end of their accounting period in the form of RECEIPTS AND PAYMENT ACCOUNT, INCOME AND EXPENDITURE ACCOUNT and BALANCE SHEET. MAJOR SOURCES OF INCOME (FUNDING):- These organisations collect subscriptions from their members, grants from government, donations, income from investments etc. to meet the operating cost and cost of projects undertaken. SURPLUS NOT DISTRIBUTED AMONG ITS MEMBERS:- Current year’s surplus in the form of excess of income over expenditure is not distributed among its members. It is added to Capital Fund . Pradhyumn Somani

5. FINAL ACCOUNTS OF NPO…!!! NPO prepares annual or final accounts reflecting the financial transactions of the organisation . Final accounts of NPO includes : 1 . RECEIPTS & PAYMENT A/C 2 . INCOME & EXPENDITURE A/C 3 . BALANCE SHEET Pradhyumn Somani

6. RECEIPTS AND PAYMENTS A/c RECEIPTS AND PAYMENTS a/c is a summary of cash transactions . It records all receipts and payments , whether of revenue or capital nature , and irrespective of the period to which they relate. It begins with cash and bank balances in the beginning & ends with the cash & bank balances at the end of the accounting period . NOTE : No adjustments for o/s , depreciation , accrued Income , etc. are made in it. Pradhyumn Somani

7. SPECEIMEN OF RECEIPTS AND PAYMENTS A/C Pradhyumn Somani

8. Receipts Amount Payments Amount TO BALANCE B/D BY CAPITAL PAYMENTS To Subscription Building To Donation Furniture To Legacy Investments To Entrance Fee Tournaments expenses To Life membership fee Books To Endowment fund BY REVENUE PAYMENTS To Donation for Building Salary To Tournament Fund Honorarium To Lockers Rent Rent & Taxes To Sale of Assets Advertisements To Sale of old newspapers / periodicals Electricity To Proceeds from charity show BY BALANCE C/D RECEIPTS & PAYMENTS A/C Dr . For the year ending … Cr . Pradhyumn Somani

9. ILLUSTRATION From the following particulars , prepare receipts and Payments a/c of metro club , Delhi for the year ended Dec. 31st , 2008Opening balance of cash and bank on jan 1, 2008 was rs . 8,500 . Subscription received for current year Rs . 30,000,previous year Rs . 2,000 & future year Rs . 1,000. Life membership fees Rs.7,000 , investments Rs.30,000, Donations Rs.4,000, Tournament Fund Rs.4,000, Furniture Rs.15,000, Tournament expenses Rs.2,500, Salary Rs.7,000. Charge depreciation on furniture @ 10%p.a., Salary o/s Rs.400, Accured interest on investment Rs.500 . Pradhyumn Somani

10. RECEIPTS & PAYMENTS A/C Dr. For the year ended 31st dec. , Cr . Receipts Amount Payments Amount To bal b/d 8,500 By investments 30,000 To Subscription: Previous year 2,000 Current year 30,000 FutureYear 1,000 33,000 By furniture 15,000 To life membership fees 7000 By tournaments expenses 2,500 To Donations 4000 By salary 7,000 To Tournament fund 4000 By balance c/d 2,000 56,500 56,500 NOTE : Depreciation , salary o/s & accrued interest will not come as these are non – cash items. Pradhyumn Somani

11. INCOME AND EXPENDITURE ACCOUNT Income and Expenditure is like a Profit&Loss a/c of a business firm. It should be noted that Income & Expenditure a/c does not have an opening balance . Closing balance is either surplus or deficit, which is transferred to Capital Fund, shown in the Balance Sheet. Income & Expenditure A/c is prepared on accural basis so adjustments related to o/s expenses, prepaid expenses and accured income, income received in advance are made. Similarly, provision for doubtful debts, depreciation are made. Pradhyumn Somani

12. SPECIMEN OF INCOME AND EXPENDITURE A/C Pradhyumn Somani

13. INCOME AND EXPENDITURE A/C Dr. For the year ending … Cr. Expenditure Amount Income Amount To Salaries ADD: O/s at the end LESS: O/s in the beginning LESS: P/p at the end ADD: P/p at the beginning By Subscriptions ADD:O/s at the end LESS : O/s in the beginning LESS: adv. at the end ADD: adv.at the beginning To Rent By Entrance Fees To Insurance Premium By Donations To Printing & Stationary By Interest on Investments To Honorarium By Misc. Receipts To Depreciation By Sale of Old Newspapers To Loss on Sale of Assets By Profit on Sale Assets To Audit Fees By Deficit To Surplus Pradhyumn Somani

14. BALANCE SHEET It is a statement that shows the financial position of an organisation or enterprise as at a particular date. The method of preparing the Balance Sheet of a NPO is similar to that of a business firm. The surplus or deficit as per the Income & Expenditure A/c is transferred to the Capital Fund. Where Opening Balance of Capital Fund is not given, the same is arrived at by preparing the Opening Balance Sheet. Pradhyumn Somani

15. FORMAT OF BALANCE SHEET Of ‘NOT-FOR- PROFIT ORGANISATIONS’ Pradhyumn Somani

16. Balance Sheet Liabilities Amount Assets Amount CAPITAL FUND : FIXED ASSETS : Opening balance ADD: Surplus LESS: Deficit Building(op. Balance) ADD: Addition LESS: Depreciation Life Membership Fees FURNITURE : Donations for buildings Opening balance ADD: Purchased LESS: Sale(book value) LESS: Depreciation Legacy INVESTMENT Entrance Fees CURRENT ASSETS : SPECIAL FUNDS : Cash in hand Match Fund /tournament Fund/Prize Fund Stock of Consumable items like food stuff/stationery Opening balance ADD: income LESS: expenses Interest on Investment Accrued Bank O/D Subscription Outstanding O/S Expenses Prepaid Expenses Creditors Cash at Bank Subscription Rece . in adv. Pradhyumn Somani

17. SOME IMPORTANT ITEMS ENTRANCE / ADMISSION FEES:- It is the amount paid by a person at the time of becoming a member of a NPO. It is a revenue receipt and therefore is accounted as an INCOME and CREDITED to INCOME AND EXPENDITURE ACCOUNT. INCOME AND Dr. EXPENDITURE A/C Cr. Particulars Amount Particulars Amount By entrance fees 1000 Pradhyumn Somani

18. LIFE MEMBERSHIP FEE :- It is accounted as a Capital Receipt and added to Capital Fund on the liability side of the balance sheet. It would be improper to account Life membership fee as income because a Life Member makes one time payment and avails services all through his life. Balance Sheet LIABILITIES Amount ASSETS Amount Capital fund xxx Add : life membership fee xxx xxxx Pradhyumn Somani

19. LEGACY:- It is the amount which a not-for-profit organisation will receive as per the will of a deceased person . Since it is non-recurring in nature so it is capitalised and added to capital fund on the liabilities side of the balance sheet . However if it ,is for a specific purpose , it should be capitalised in the name of the ‘fund’. BALANCE SHEET liabilities Amount Asset Amount Legacy xxxx Pradhyumn Somani

20. SALE OF OLD ASSETS:- It appears on the debit side of Receipt and Payment a/c. It is a capital receipt and as such should not be transferred to Income and Expenditure a/c. However, the profit and loss on the sale of an asset must be taken to the Income and Expenditure a/c. For example, if the book value of furniture appearing in the books is Rs. 5000, out of which furniture of Rs. 1000 is sold for Rs. 400, the loss of Rs. 600 will be taken to the debit side of Income and Expenditure a/c and the furniture of Rs. 4000 (Rs. 5000 less Rs. 1000) will be shown on the Assets side of the Balance Sheet. Pradhyumn Somani

21. INCOME AND Dr. EXPENDITURE A/c Cr. BALANCE SHEET Particulars Amount Particulars Amount To furniture 600 Liability Amount Asset Amount Furniture 4000 Pradhyumn Somani

22. SALE OF OLD NEWSPAPERS AND SPORTS MATERIAL:- The sale of old newspapers is an income and is CREDITED to INCOME AND EXPENDITURE ACCOUNT. As regards sale of sports material is concerned, it is also considered as income of the organisation . Sports material consumed is in the nature of depreciation of sports material so it is shown on the DEBIT side of INCOME AND EXPENDITURE ACCOUNT. If this consumed sports material is sold, money realised is in the nature of income to be CREDITED to INCOME AND EXPENDITURE ACCOUNT. Pradhyumn Somani

23. INCOME AND Dr. EXPENDITURE A/C Cr. Particulars Amount Particulars Amount To depreciation on sports material xxx By sale of old newspapers xxx By sale of sports material xxx Pradhyumn Somani

24. HONORARIUM:- Special payment made to a person who is not the regular employee of organisation and rendered some special and extra ordinary service to the organisation is called Honorarium. This is made on regular basis that is why it is considered as revenue in nature and will be DEBITED to INCOME AND EXPENDITURE A/c. INCOME AND Dr. EXPENDITURE A/c Cr. Particulars Amount Particulars Amount To honorarium xxx Pradhyumn Somani

25. SUBSCRIPTION SUBSCRIPTION :- It is the amount paid by the members of NPO on periodical basis so that their membership is not cancelled. Thus, it is a recurring source of revenue from its members. It is the main source of revenue of NPO so it is CREDITED to INCOME AND EXPENDITURE A/c. It is appeared on the DEBIT side of RECEIPTS AND PAYMENT A/c. Pradhyumn Somani

26. Broadly, subscription received has the following FOUR adjustments :- SUBSCRIPTION O/S AT THE END OF CURRENT YEAR :- Since subscription has not been received so far, so on accrual basis it is ADDED to subscription received on the credit side of income and expenditure a/c and will be shown on asset side of b/s. SUBSCRIPTION O/S AT THE BEGINNING OF CURRENT YEAR :- It refers to o/s subscription of last year and it is DEDUCTED from the subscription received on the credit side of income and expenditure a/c and will not be shown in closing b/s. SUBSCRIPTION RECEIVED IN ADVANCE AT THE END OF CURRENT YEAR :- It refers to income received in advance and hence it is DEDUCTED from subscription received on credit side of income and expenditure a/c and will be shown on liability side of b/s. SUBSCRIPTION RECEIVED IN ADVANCE AT THE BEGINNING OF CURRENT YEAR :- It will be ADDED to subscription received on the credit side of income and expenditure a/c and will not be shown in closing b/s. Pradhyumn Somani

27. Subscription can be calculated in three ways :- By showing it in income & expenditure a/c itself. By preparing subscription account. By preparing statement of subscription. Pradhyumn Somani

28. INCOME AND Dr. EXPENDITURE A/c Cr. Particulars Amount Particulars Amount By subscription xxxx ADD: closing o/s subscription . xxxx ADD: opening advance subscription xxxx xxxx LESS: opening o/s subscription . xxxx LESS: closing advance subscription . xxxx xxxx Pradhyumn Somani

29. Dr. SUBSCRIPTION A/C Cr. Particulars Amount Particulars Amount To opening o/s subscription xxx By opening adv. Subscription xxx To income & expenditure a/c (b.f.) xxx By bank xxx To closing adv. subscription xxx By closing o/s subscription xxx xxxx xxxx Pradhyumn Somani

30. STATEMENT OF CURRENT YEAR’S SUBSCRIPTION Particulars Amount Subscription received during the year xxxx ADD : Closing o/s subscription xxx Opening advance subscription xxx xxxx LESS : Opening o/s subscription xxx Closing advance subscription xxx Subscription Income xxx Pradhyumn Somani

31. Common Balance Sheet in each case Liabilities Amount Assets Amount Advance subscription xxxx Accrued subscription xxxx Pradhyumn Somani

32. ILLUSTRATION :- Bombay Sports Club disclosed that it received Rs. 1,50,000 by way of subscription during the year ended 31st March 2006. Additional Information :- ( Rs.) Subscription o/s 2004-05 . 4,000 Advance subscription received in 31-3-05. 4,500 Advance subscription received in 31-3-06. 5,100 Subscription o/s on 31-3-06 for 2005-06. 3,800 Show the total subscription of Bombay Sports Club. Pradhyumn Somani

33. INCOME AND EXPENDITURE A/C Dr. For the year ending 31st March Cr. Particulars Amount Particulars Amount By subs. 1,50,000 ADD :closing o/s subs. 1,000 ADD: opening Subs. Rece.in advance 4,500 LESS: opening o/s Subs. 4,000 LESS: closing subs. Rece . in adv. 5,100 1,49,200 Pradhyumn Somani

34. Dr. SUBSCRIPTION ACCOUNT Cr. Particulars Amount Particulars Amount To opening o/s subscription 4,000 By opening adv. Subs. 4,500 To income & expenditure a/c (b.f.) 1,49,200 By bank 1,50,000 To closing advance subs. 5,100 By closing o/s subscription 3,800 1,58,300 1,58,300 Pradhyumn Somani

35. SOLUTION :- STATEMENT OF SUBSCRIPTION (for the year ending 31st March 2006) Particulars Amount Subscription 1,50,000 Add: Closing o/s subscription 3,800 Opening subs. rece . in advance 4,500 1,58,300 Less: Opening o/s subscription 4,000 Closing subs. rece . in advance 5,100 Subscription income 1,49,200 Pradhyumn Somani

36. BALANCE SHEET Liabilities Amount Assets Amount Closing adv. Subscription 4,500 Closing o/s subscription 6,000 Pradhyumn Somani

37. GENERAL FUND Vs. SPECIFIC FUND As, the excess of assets over liabilities in case of ‘ not-for-profit organisations ’ is called ‘ capital fund ‘. The balance of Income & Expenditure acc. in the form of surplus/deficit is transferred to capital fund every year. This fund is also called ‘ Accumulated Fund or General Fund’. Pradhyumn Somani

38. Specific Funds are those funds which have been constituted for some specific purpose like Prize Fund ,Match Fund ,Sports Fund, Building Fund etc. The income generated from these specific funds and expenses incurred related to these funds are directly adjusted from the concerned funds on the liabilities side of balance sheet and these are never adjusted in Income & Expenditure A/C. For instance, in the absence of match fund , match receipts & match expenses will be shown in the Income & Expenditure A/C . This will affect the surplus/ deficit & consequently ,it will be transferred to Capital Fund which is a ‘General Fund’ in contrast to ‘ Specific Fund’ Pradhyumn Somani

39. CAPITAL Vs. CAPITAL FUND CAPITAL CAPITAL FUND The term capital is used by business concern. Capital is contributed by the owners of the business entity. Capital can be withdrawn by the owners if they desire so. Capital is the contribution of the owners of the business. The term capital fund is used by NPO. Capital Fund is the excess of assets over liabilities of NPO. Capital Fund cannot be withdrawn by its members. It is made by capitalisation of capital receipts like legacy, surplus, etc. Pradhyumn Somani

40. FUND BASED ACCOUNTING When funds are created for some specific purposes such as sports fund, building fund, prize fund, etc. then receipts and income relating to that fund are credited to that fund and payments and expenses will be debited to that fund . So we can say fund based accounting is a book-keeping technique whereby separate self- balancing sets of assets, liability , income, expenses and fund balance accounts are maintained for each contribution for a specific purpose. Pradhyumn Somani

41. ILLUSTRATION Sports Fund 35,000 Sports Fund Investment 35,000 Income From Sports Fund Investment 4,000 Donations For Sports Fund 15,000 Sports Prizes Awarded 10,000 Expenses On Sports Events 4,000 Interest On General Fund Investments 20,000 Pradhyumn Somani

42. Expenditure Amount Income Amount By Interest on General Fund Investment 20,000 Liabilities Amount Assets Amount Sports fund 35,000 Add: Income from Sports fund Investment 4,000 Add: Donations For Sports Fund . 15,000 Less: Sports Prizes Awarded . 10,000 Less: Expenses on Sports events . 4,000 40,000 Sports Fund Investments 35,000 SOLUTION :- Income & Expenditure A/c. Dr. For the year ended 31st march 2013 Cr. nxcz `, ncmn Balance Sheet as on ….. Pradhyumn Somani

43. ILLUSTRATION Sports Fund 35,000 Sports Fund Investment 35,000 Income From Sports Fund Investment 4,000 Donations For Sports Fund 15,000 Sports Prizes Awarded 10,000 Expenses On Sports Events 49,000 Interest On General Fund Investments 20,000 Pradhyumn Somani

44. SOLUTION :- Income & Expenditure A/c. Dr. For the year ended 31st march 2013 Cr. nxcz `, ncmn Balance Sheet as on ….. Expenditure Amount Income Amount To Expenses on Sports Fund 49,000 By Interest on General Fund Investment 20,000 Liabilities Amount Assets Amount Sports fund 35,000 Add: Income from Sports fund Investment 4,000 Add: Donations For Sports Fund . 15,000 Less: Sports Prizes Awarded . 10,000 44,000 Sports Fund Investments 35,000 Pradhyumn Somani

45. ILLUSTRATION Expenditure on construction of Pavilion 6,00,000 Pavilion Fund (op.bal.) 8,00,000 Donation for Pavilion received 10,00,000 Capital Fund (opening bal.) 20,00,000 The construction work is in progress & not yet completed. Pradhyumn Somani

46. SOLUTION :- BALANCE SHEET as on …. Liabilities Amount Assets Amount Capital Fund : Opening Bal. 20,00,000 Add: Trans. From Pavilion Fund 6,00,000 26,00,000 Pavilion in Progress 6,00,000 Pavilion Fund : Opening Bal. 8,00,000 Add: Donation 10,00,000 18,00,000 Less: Trans. to Capital fund 6,00,000 12,00,000 Pradhyumn Somani

47. CATEGORIES OF FUNDS Pradhyumn Somani

48. UNRESTRICTED FUNDS :- This fund does not impose any restriction on its management. It is free to use the amount of fund for purpose of organisation . This fund is called as ‘General Fund’ or ‘Accumulated Fund’ or ‘Capital Fund ’. RESTRICTED FUND :- It is the fund, the use of which is restricted either by the management or the donor for a specified purpose. Examples of such funds are:- Endowment Fund, Annuity Fund, Loan Fund, Prize Fund, Sports Fund, etc. ENDOWMENT FUND :- This fund arises from a bequest or gift. It is a donation with a condition by the donor to use only the income earned from the investment of such funds for the specified purpose so that the original donated amount remains intact . ANNUITY FUND :- This fund is created from the contribution received for giving annuities to the beneficiary. However , the fund becomes the property of the organisation after the death of the beneficiary and fund can be used as per terms of agreement. LOAN FUND :- These funds are created for granting loans on revolving basis e.g., educational institutions may set up ‘Loan Fund’ to grant loans to needy students on revolving basis. Pradhyumn Somani