Accounting for Non Profit Organisations.pptx

it shows the accouting treatment for NPOs

1. Accounting for Non-Profit Organisations

2. Features It is real account It starts with opening balance of cash in hand and at bank Nature of items recorded on debit side Nature of items recorded on credit side Closing balance of this account shows closing balance of cash in hand and at bank Non cash items are not recorded in this account Purpose

3. Receipts and Payments Account Vs. Cash Book Basis Receipts and Payments A/c Cash Book Base It is prepared on the basis of cash book Prepared on the basis of each cash receipt and cash payment Period Prepared at the end of accounting year On daily basis Part of double entry system No Yes Debit and credit side Has receipts and payments sides Has debit and credit side Ledger folio column No Yes Institutions Prepared by NPOs By all organisations

4. Income and Expenditure Account It is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations . It includes only revenue items and the balance at the end represents surplus or deficit. The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organisation does.

5. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.

6. Basis Receipts and Payments A/c Income and Expenditure A/c Nature Summary of cash book Like a profit and loss a/c Sides Debit side records receipts and credit side records payments Debit side records expenses and losses and credit side records incomes and gains Type of account Real account Nominal account Opening balance It starts with opening balance of cash and bank It has no opening balance Closing balance Closing balance represents the closing cash in hand and at bank or overdraft Closing balance indicates either excess of income over expenditure (surplus) or excess of expenditure over income (deficit) Capital and revenue items Records receipts and payments both of capital and revenue nature Incomes and expenditure of only revenue nature Period of income and expenses Records all receipts and payments made during the year whether relating to current, previous or next year Only of current year

7. Basis Receipts and Payments A/c Income and Expenditure A/c Balance sheet Not necessarily be accompanied by balance sheet Must accompany a balance sheet Adjustments Adjustments are not considered as it is prepared on cash basis Are considered as it is prepared on accrual basis Transfer of closing balance Closing balance of this account is transferred to receipt and payment account of next period To capital fund in the balance sheet

8. Balance Sheet ‘ Not-for-Profit’ Organisations prepare Balance Sheet for ascertaining the financial position of the organisation . The preparation of their Balance Sheet is on the same pattern as that of the business entities. It shows assets and liabilities as at the end of the year. Assets are shown on the right hand side and the liabilities on the left hand side. However, there will be a Capital Fund or General Fund in place of the Capital and the surplus or deficit as per Income and Expenditure Account which is either added to/deducted from the capital fund, as the case may be.

9. Some times it becomes necessary to prepare Balance Sheet as at the beginning of the year in order to find out the opening balance of the capital/general fund.

10. Subscriptions: Subscription is a membership fee paid by the member on annual basis. This is the main source of income of such orgnisations . Subscription paid by the members is shown as receipt in the Receipt and Payment Account and as income in the Income and Expenditure Account.

11. a club received Rs. 20,000 as subscriptions during the year 2014-15 of which Rs.3,000 relate to year 2013-14 and Rs.2,000 to 2015-16, and at the end of the year 2014-15 Rs.6,000 are still receivable. In this case, the Receipt and Payment Account will show Rs.20,000 as receipt from subscriptions. But the Income and Expenditure Account will show Rs. 21,000 as income from subscriptions for the year 2014-15, the calculation of which is given as below: