Accounting for Non Profit Organization Class 12- Part 1

introductory part of the chapter

1. Accounting for NON-PROFIT Organization Ms. AARTI 1-Apr-2020 1

2. Meaning of Non Profit organization. Features of NPO Difference between NPO and Business Firm Financial Statements of Not-For-Profit Organizations Receipt & Payment A/c Income & Expenditure A/c Balance Sheet 4/5/2020 2

3. Meaning of Non Profit Organization The organizations which do not run with the motive to earn PROFITS from their business. They Run for CHARITABLE purpose To promote Culture, Education, Health, Religious activities etc. Example – School Colleges, Public Hospitals. 4/5/2020 3

4. Features of NPOs Run by Group of Individuals. Run for Charity Purpose. NO Profit Motive. Separate legal entity, Not owned by the Individual. Funding by Donation, Government Grants, Membership Fees, Subscription Fees etc. 4/5/2020 4

5. Difference Between Profit Earning and NON-Profit Organization BASIS NPO Business Firm Purpose To Promote Cultural, Education, Religious activities To Earn Profit Funds Raised by MEMBERSHIP FEES, DONATIONS etc. Raised by issuing Share Capital. Surplus/Profit Balanc e is Either Surplus of Deficit Net Profit/ Net Loss 4/5/2020 5

6. Business Firms Trading & P/L Account Balance Sheet Receipt & Payment A/c Income & Expenditure A/c Balance Sheet NPOs Profit Motive NO Profit Motive Financial Statements 4/5/2020 6

7. Financial Statements of Not-For-Profit Organizations RECEIPT AND PAYMENTS ACCOUNT INCOME AND EXPENDITURE ACCOUNT BALANCE SHEET 4/5/2020 7

8. RECEIPT & PAYMENTS A/C Summery of Cash received and Paid. Similar to CASH BOOK Two sides –Debit and Credit Debit side- Receipts Credit side- Payments 4/5/2020 8

9. Cont ’ Closing Balance 4/5/2020 9 TO Bal b/d Cash in Hand Cash at Bank By Bal b/d ( Bank Overdraft) To Bal c/d ( Bank Overdraft) By Bal C/d Cash in Hand Cash at Bank Opening Balance

10. Cont ’ Every nature of receipt or payment is shown i.e. Revenue or Capital Receipts & Payments of previous year, Current year or Next year are recorded. 4/5/2020 10

11. Cont ’ Revenue Nature Capital Nature Recurring Nature Non Recurring Nature Revenue Expenditure - Short Term expenses for specific period e.g. Repairs or maintenance expenses. Capital Expenditure - Long Term acquisition of Assets. Revenue Income- Small donations, Rents etc. Capital Receipts- Lump Sum or Huge Donations such as Donation of Building. 4/5/2020 11

12. Specimen of Receipt & Payment A/c 4/5/2020 12

13. Question From the following information prepare Receipts & Payments A/c Cash Balance on 1 st April 2019 Rs . 20,000 Subscriptions Rs , 3,00,000 Donations Rs . 80,000 Entrance Fees Rs . 10.000 Rent from club Hall Rs . 50,000 Electricity Charges Rs . 30,000 Taxes Rs . 5,000 Salaries & Wages Rs . 2,00,000 Printing & Stationery Rs . 3,500 Insurance Premium Paid Rs , 3,000 Petty Expenses Rs . 5,000 Honorarium to Guest Rs . 20,000 4/5/2020 13

14. Solution 4/5/2020 14 Receipts Amount Payments Amount To bal b/d (Cash) 40,000 By Electricity Charges 30,000 To Subscriptions 3,00,000 By taxes 5,000 To Donations 80,000 By salaries & wages 2,00,000 To entrance Fees 10,000 By Printing & Stationery 3,500 To rent 50,000 By Petty Expenses 5,000 By insurance Premium 3,000 By honorarium to Guest 20,000 By balance C/d (B/F) 2,13,500 4,80,000 4,80,000 In the Books of ABC Club Receipt & Payment A/c for the year ended 311st march 2019 Dr. Cr .

15. 2. Income & Expenditure A/c Instead of preparing Profit & Loss A/c , NPOs prepare Income & Expenditure A/c. Balance of the A/c will be Surplus or Deficit. (Do not Use the terms Net Profit or Loss in case of NPO). It is of Nominal Nature. Dr. Side- Expenditure Cr. Side- Incomes 4/5/2020 15

16. Cont ’ Prepared on Accrual Basis of Accounting. Means, Revenue Expenses/Incomes are taken, Whether paid/received or not. Capital Expenditures/ Incomes are not recorded in it because they are shown in Balance Sheet. 4/5/2020 16

17. Opening Balance- It does not have Opening Balance. Closing Balance- Surplus or Deficit It record items of Current period only. 4/5/2020 17 Cont ’

18. Specimen of Income & Expenditure A/c 4/5/2020 18

19. 3. Balance Sheet it shows the Financial position of the organization on a particular date. it is similar to the balance sheet statement of Business Firm. It is prepared after Income & Expenditure A/c Surplus/ Deficit of I&E A/c is transferred to Capital Fund. 4/5/2020 19

20. Liabilities Amount Assets Amount Bank Overdraft xxx Cash In Hand xxx Outstanding Expenses xxx Cash at Bank xxx Advance Subscription xxx Fixed Assets xxx Capital Fund (B/F) xxx Investment xxx Outstanding Subscription xxx Prepaid Expenses xxx xxxx xxxx 4/5/2020 20 When the capital Fund is not given, prepare Opening Balance Sheet to find. Capital Fund = Total Assets- Total Liabilities FORMAT OF OPENING BALANCE SHEET

21. Preparation of Final Balance Sheet Fixed Assets FA appearing in the opening Balance sheet should be adjusted for purchase, sale or depreciation charged during the year. Then the adjusted amount should be transferred to the final/Closing Balance Sheet. 4/5/2020 21 A. Recording of Assets

22. Cont ’ For example: Opening balance of Furniture= Rs . 1,00,000 Furniture having book value of Rs . 20,000 is sold for Rs . 25,000. 4/5/2020 22 Closing Value of Furniture? Profit/Loss on sale ?

23. Cont ’ a) Furniture = 1,00,000 Book Value of sold Funriture = (20,000) Furniture at the end (B/Sheet) = 80,000 b) Profit / Loss on sale of Furniture= Book Value- Sale Value B.V. = 20,000 S.V. = 25,000 Profit = 5,000 (Income, Shown on Credit side of Income & Expenditure A/c) 4/5/2020 23

24. Are shown in both opening and closing Balance Sheet. 4/5/2020 24 Prepaid expenses and Accrued Incomes Opening/Closing Balance of Cash and Bank Opening balance which is given on the debit side of Receipts and payment A/c must be shown in the Opening Balance Sheet. Closing balance given on the cr. Side of R&P A/c must be shown in the closing Balance sheet.

25. opening balance of such items must be shown in opening B/Sheet Closing Balance in Closing Balance Sheet. 4/5/2020 25 Any balance of stock, Refreshment, sports Items and stationery items.

26. Capital Fund (calculated in opening balance sheet) shall be increase/ decrease by Adding Surplus or Deducting Deficit. 4/5/2020 26 B . Recording of Liabilities Liabilities Amount Capital Fund XXXX +/- : Surplus/ Deficit xxxx xxxx

27. CONT’ Loan appearing on the liability side of Opening Balance Sheet is shown in closing balance sheet after the adjustment of: Repayment of loan ( to be deducted ) Further loan Taken ( to be added ) (which are given in the Dr. and Cr. Side of Receipts & Payment A/c) 4/5/2020 27

28. Cont ’ All capital Receipts such as Donations, Scholarship; Specific Funds such as prize fund, Tournament Fund, Election fund must be shown in the B/Sheet. life membership Fees, Legacies, Entrance Fees (When Capitalized) must be shown on the liability side. Outstanding expenses and Incomes received in advance at the end of the accounting period should be shown as a liability in the closing Balance. 4/5/2020 28

29. Format of Balance Sheet 4/5/2020 29

30. Next Update soon on: Fund Based and Non Fund bases Accounting. Accounting Treatment of some Items and conversion of receipt and payment A/c into Income & Expenditure A/c. 4/5/2020 30 Good Luck !