Financial statement of non - profit organisation

prepared by Pradeep t r,HSST Commerce,GHSS sasthamcotta
[email protected]

1. Non-Profit Organisation Non profit organisation are established for the purpose of rendering service. They are not expected to earn profit, but organised mainly for social, educational, religious or charitable purpose. A non profit making entity is defined as “a non-profit seeking entity which does not usually engaged in trading activities,but engages in rendering services to its members and society.

2. Features of non-profit making organisation Main objective is to render services to its members. They are not expected to profit. Do not normally engage in trading activity. Credit transaction are not usually made. Daily transaction are recorded in cash book. They prepare a summery of cash book at the end is called Receipt and payment account. No trial balance is prepared. Do not prepare trading and profit and Loss A/c , but prepares income and expenditure accounts. Do not have capital, but have only capital fund.

3. Final account of non profit organisation consists of; Receipt and Payment Account . Income and Expenditure account. Balance Sheet.

4. Receipt and Payment Account . Receipt and payment account is a statement prepared at the end of an accounting year giving a summary of all receipts and payments recorded in cash book. It is debited with all items of receipts and credited with all items of Payments . Both ‘ revenue’ and ‘ Capital’ items are recorded in it. It records all receipts and payments relating to previous , current and subsequent years.

5. Difference between receipt and payment A/c and Income & Expenditure account Receipt & Payment Account Entries are not made in date wise All entries are made in classified form. This account is opened by non – trading concern only. Income & Expenditure A/c Entries are not made in date wise. All entries are made in details . This account is opened in both trading and non trading concerns.

6. Income and expenditure Account. Income and expenditure account is a nominal account prepared by a non –profit seeking organisation, in order to ascertain the surplus or deficit by recording revenue items of particular period. All expenses and losses are debited and all incomes and gains are credited to it. The surplus or deficit is transferred to Capital Fund .

7. Relevant Terms Entrance Fees: The fee charged for admitting a person as a member in an institution is called admission fee or entrance fee. Since it is paid by the member only once – it is a Capital item . Since the institution receives it every year when new admission take place – it is treated as Revenue item .

8. Relevant Terms Subscription : - It should be credited to Income and Expenditure Account. Subscription collected for any special purpose, it should be shown as a separate fund on liability side of balance sheet. Donation : If it is for general purpose, it should be credited to income and expenditure account. If it is for any special purpose, it should be shown as a separate fund on liability side of balance sheet. Legacy : It is the amount received by the non profit organisation on the death of a person as per his ‘will’. If it is a large amount, it is capitalised If it is small amount, it should be credited to Income and Expenditure Account.

9. Relevant Terms Life membership fees : Lump sum amount received from a member- it is usually credited to capital fund account. Sale of old newspaper, sale of sports materials- Recurring in nature. it is usually credited to Income and Expenditure Account. Sale of old asset : The book value of asset sold is deducted from asset in the balance sheet. Any profit or loss on such sales should be transferred to income and expenditure account.

10. Procedure in the preparation of balance sheet Preparation of statement of affairs  To find out capital fund at the beginning. Surplus, if any, added to ‘capital fund ’. Deficit should be deducted from capital fund in the closing balance sheet. Outstanding liabilities (income received in advance, outstanding expenses) as on the closing date be shown on the liability side. Outstanding assets (income receivable, prepaid expenses) must be shown on the asset side .

11. Procedure in the preparation of balance sheet 5.The balance of receipt and payment account (cash & Bank) must be shown on the assets side. 6.Bank balance (Cr.) should be shown on the liability side of balance sheet. 7.Assets in existence at the beginning should be adjusted for additions, disposal. if any, and also for depreciation. 8.New assets acquired during the year should be shown on the assets side of balance sheet. 9.Any special collection of non – recurring nature should be shown on the liability side of the closing balance sheet.

12. Prepared by PRADEEP T R GHSS SASTHAMCOTTA, KOLLAM