Not For Profit Organisations

SOUMENDRA ROY
NIMS
ACCOUNTANCY Class XII
 Not For Profit Organisations

Organisations which are formed not for

earning profits but for a charitable or social
purpose are called as not for profit
organisations.
FEATURES:-
1) Separate legal entity
2) Service motive
3) Form
4) Profit- not a motivator
5) Funding
6) Accounts
 Separate legal entity

 According to the principle of separate legal

entity, a not for profit organisation is an
separate entity independent of its members.

 These are the separate entity promoted by

individuals or companies, but these are not
owned by the promoters or managers.
 Service Motive

These organisations are formed

• For welfare of the society.

• For providing services to its members.

• Main motive is to provide services.

 Form

• Charitable hospitals
• Schools
• Trusts
• Colleges
• Clubs
• Hospitals
• Societies
 Profit – not a motivator

• NPOs do not operate with the objective of

earning profits.
• Their aim is to promote art, science,
commerce, religion, culture, education, charity,
sports etc.
• Some NPOs may involve in trading activities
• Main objective is not to earn the profit but to
benefit the members and society.
• Any excess of income over expenditure is
termed as SURPLUS while any excess of
expenditure over income is termed as DEFICIT.
 Funding

The main sources of income of such

organisations are:
• Subscriptions from members,
• Donations,
• Legacies,
• Grant-in-aid,
• Income from investments, etc.
 Accounts

• The Not-for-Profit Organisations are also

required to prepare financial statements at the
end of the each accounting period.
• They have to prepare their final accounts at the
end of the accounting period and the general
principles of accounting are fully applicable in
their preparation.
• The final accounts of a ‘not-for-profit
organisation’ consist of the following:
 Receipt and Payment Account
 Income and Expenditure Account, and
 Balance Sheet.
 Receipt and Payment A/c
Features
• Summary of the cash book.
– Receipts are recorded on the debit side
– Payments are entered on the credit side.
• Records all cash transactions irrespective of the
period.
• Includes all receipts and payments whether they are
of capital nature or of revenue nature.
• No distinction is made in receipts/payments made in
cash or through bank.
• No non-cash items such as depreciation outstanding
expenses accrued income, etc. are shown in this
account.
• It begins with opening balance of cash in hand and
cash at bank (or bank overdraft) and closes with the
year end balance of cash in hand/ cash at bank or
bank overdraft.
 Steps: Receipt & Payment A/c

Steps in preparation of Receipt & Payment A/c

• Take the opening balances of cash in hand and cash at
bank & enter them on the debit side. In case there is a
bank overdraft in beginning of the year, it will be
recorded on credit side.
• Show the total amounts of all receipts on its debit side
irrespective of their nature (whether capital or revenue)
& whether they belong to past, present or future.
• Show the total amounts of all payments on its credit
side irrespective of their nature & time period.
• None of the receivable income or payable expense is to
be entered in this account.
• Find out the total of debit side & credit side of the
account & enter the same on the credit side of
cash/bank. If a balance comes out to be on debit side,
take it as closing balance of bank overdraft.
 Format

Receipt & Payment A/c

Dr. for the year ended _________ Cr.
Receipts Amount Payments Amount
To Bal b/d Cash xxx By Bal b/d (Bank O/D) Xxx
Bank xxx Xxx By Revenue Payments Xxx
To Revenue Receipts Xxx By Capital Payments Xxx
To Capital Receipts Xxx By Bal Bank xxx
To Bal c/d (Bank O/D) xxx Cash xxx xxx

A detailed & comprehensive Receipt & Payment A/c may appear as:
Receipts Amount Payments Amount
To Bal b/d Cash ×××× By Bal b/d (Bank O/D) ×××
Bank ×××× ××× By Revenue Payments
To Revenue Receipts Wages & Salaries ×××
Subscription ××× Rent, Rates & Taxes ×××
General Donations ××× Insurance ×××
Sale of newspaper ××× Printing & Stationary ×××
Sale of periodicals ××× Postage ×××
Sale of old sports material ××× Advertising ×××
Locker rent ××× Sundry Expenses ×××
Sale of scraps ××× Telephone charges ×××
Proceeds of show ××× Audit fees ×××
Miscellaneous Receipts ××× Honorarium ×××
Entrance fee ××× Conveyance ×××
Grant in aid ××× Newspapers ×××
To Capital Receipts Repairs ×××
Legacies ××× By Capital Payments ×××
Life Membership fees ××× Purchase of fixed Assets ×××
Specific Donation ××× Purchase of investments ×××
Sale of Investment ××× Fixed deposits ×××
Sale of fixed assets ××× By Bal Bank ×××
Endowment Fund ××× Cash ××× ××××
To Bal c/d (Bank O/D) ×××
A club has kept its accounts on cash basis and the figures for 2009 are
given below. You are required to prepare receipts & payments A/c for the
year 2005. Subscription Received 5,90,600
Entrance fee 80,000
Admission fee 32,000
Secretary’s salary 60,000
Investment bought during the years 2,22,000
Expenses paid 1,54,500
Cash in hand (1.1.09) 94,700
Locker rent received 16,250
Solution:- General Donation 1,50,000

Dr. Receipts & payments A/c Cr.

Receipts Rs. Payments Rs.
To balance b/d 94,700 By Secretary Salary 60,000
To subscription 5,90,600 By Investment 2,22,000
To Entrance fee 80,000 By Expenses 1,54,500
To Admission fee 32,000 By bal. c/d (balancing 5,27,050
To Locker’s Rent 16,250 figure)
To General Donation 1,50,000
9,63,550 9,63,550
 Class Practice Question

Q. On 1/1/06, the opening balance was Rs. 18,000 of J.

M. Trust, Delhi. The following transactions were held
for the year ended 31/3/08. From these particulars,
prepare a Receipts & payments account.
Subscription received for current year 8,50,000
Subscription received for next year 30,000
Life Membership fees 80,000
Investments 2,50,000
Furniture purchased 30,000
Purchase of sports material 1,50,000
General Expenses including unpaid 33,800
expenses Rs. 3,800
Depreciation on Furniture @ 10%
 Solution

Dr Receipt & Payment A/c Cr

Receipts Rs. Payments Rs.
To balance b/d 18,000 By Investment 2,50,000
To subscription By Furniture 30,000
Current Year 8,50,000 By Sports Materials 1,50,000
Next Year 30,000 8,80,000 By General Expenses 33,800
To Life Membership fee 80,000 Less Unpaid Expenses 3,800 30,000
By bal. c/d (balancing figure) 5,18,000

9,78,000 9,78,000
 Income & Expenditure A/c

• It is a nominal account. “Debit all expenses &

credit all incomes” will be followed while
preparing it.
• Opening & closing balance of cash at bank are
not shown in it.
• It does not take into consideration both capital
receipts & capital payments.
• Closing balance, if comes on debit side is
known as surplus & on credit side, deficit.
• All non-cash adjustments like depreciation,
outstanding or prepaid expenses & accrued or
advance income, provision, etc. need to be
adjusted through this account.
• It must be accompanied by Balance sheet in
which personal & real accounts are recorded.
 Steps

Steps in preparation of Income & Expenditure A/c

• Pursue the Receipts & Payments Account
thoroughly.
• Exclude opening & closing balance of cash & bank
as they are not the income.
• Exclude the capital receipts & capital payments.
• Consider only revenue receipts to be shown on
income side (credit side) of this account for the
current year whether received or not.
• Take all revenue expenses of current year on debit
side of this account whether paid or not.
• Non-Cash item like Deprecation, provisions profit /
Loss on sale of assets etc. should be taken into
consideration.
• Balance if any in debit side resembles surplus but
on credit side it shows deficit.
 Format

Income & Expenditure A/c

For the year ended

Expenditures Amount Incomes Amount

To all revenue By all revenue receipts
payments (current year whether
(current year whether received or not)
paid or not) By profit on sale of fixed
To Depreciation assets
To Bad debts By Deficit
To Loss on sale of (Excess of expenditure
fixed assets over Income).
To Consumed part of
medicine, stationery,
spot equipments etc.
To Surplus
(Excess of income
over Expenditure)
 Calculation of revenue expenditure
from revenue payments:-

Particulars Amount
Revenue payments for expenses as per XXXX
payment side of Receipts & Payments
Account
(−) O/s expenses in the beginning XXX
(−) Prepaid expenses in the end XXX
XXXX
(+) O/s expense in the end XXX
(+) Prepaid expense in the beginning XXX
Revenue expenditure transfer to income XXXX
and expenditure Account
 Calculation of revenue income from
revenue receipts:-

Particulars Amount
Revenue receipts as per receipt side of XXXX
receipts & Payments account
(−) Accrued income / Income due in the XXX
beginning
(−) Unaccrued income / Income received in XXX
advance in the end.
XXXX
(+) Accrued income / Income due in the end XXX
(+) Unaccrued Income / Income received in XXX
advance in the Beginning of the year
Income for the year to be shown in income & XXXX
expenditure account.
 Example
Q. How will you deal with the given items while preparing the final
accounts of a club for the year ended 31st March, 2007:

Particulars 31.3.2006 Rs. 31.3.2007 Rs.

Outstanding Locker Rent 920 1260
Advance Locker Rent 600 800
Locker Rent received during the year 2006-07 Rs. 6400

Particulars Amount
Locker rent received during the year 6400

(−) Outstanding / Accrued locker rent in the beginning 920

(−) Unaccrued / prepaid / advance locker rent in the end 800

(+) Outstanding / Accrued locker rent in the end 1260

(+)Unaccrued / prepaid / advance locker rent in the beginning 600

Locker rent credited to income and expenditure account 6540
 Example
Q. Miscellaneous expenses paid during the year ended March 31, 2007
amount to Rs. 16,500. Information about prepaid and outstanding expenses
is as under: Rs.
Prepaid expenses on March 31, 2006 1,500
Expenses unpaid on March 31, 2006 2,300
Expenses unpaid on March 31, 2007 2,500
Prepaid expenses on March 31, 2007 1,400
Ascertain the expenses to be debited to the Income and Expenditure
Account for the year ended March 31, 2007.
Solution: Step 1. Determine the current year
Step 2. Solve the problem as:
Particulars Amount
Expenses paid in 2007 16,500
(-) Outstanding expenses in the beginning 2,300
(-) Prepaid expense in the end. 1,400
(+) Outstanding expenses in the end. 2,500
(+) Prepaid expenses in the end. 1,500
Expenditure incurred Debited to income & expenditure A/c. 16,800
 Example

Prepare an income & expenditure Account for the year ended 31st
March, 2006 from Receipts & payments Account.
Receipts Amount Payments Amount
Cash in hand 9,600 Rent 42,400
Subscription 2,48,000 Honorarium to Clark 61,200
Miscellaneous Income 14,800 Postage & stationary 5,300
Sale of old furniture Printing charges
(Book value 390) 6,300 Donation 61,200
Sale of old Newspaper 500 Cash in hand 11,000
98,100
2,79,200 2,79,200
Additional Information:
1. Subscription includes Rs. 28,000 received form 2004-05.
2. Subscription still in arrears for 2005-06 is Rs. 20,000.
3. Rent unpaid Rs. 3,600.
4. Honorarium Outstanding Rs. 9,800.
 Solution

Income and Expenditure account

Expenditure Amount Income Amount
To Rent 42,400 By Subscription 2,48,000
Add- O/s Rent 3,600 46,000 Less O/s subscription
To Honorarium 61,200 (04-05) 28,000
Add O/s Subscription
Add Outstanding 9,800 71,000 (05-06) 20,000 2,40,000
To postage & stationery 5,300 By Income from
Advertisement 14,800
To printing charges 61,200
By Sale of old
To Donation 11,000 500
Newspaper
To loss on sale of
furniture 700
To Surplus
(excess of income
60,100
over expenditure)
2,55,300 2,55,300
 DIFFERENCE

Basis Receipt & Payment A/c Income & Expenditure A/c

1. Nature It is the summary of cash It is like profit & loss A/c
Book
2. Nature of It records receipts & It records incomes &
Items payments of revenue as expenditures of revenue
well as capital nature nature only.
3. Period It includes receipts & Its items relate to current
Payments for preceding & year only.
succeeding years
4. Debit side Receipts are recorded Expenditure are recorded
5. Credit side Payments are recorded Incomes are recorded
6.Depreciation Not recorded Recorded
7. Opening Opening balance of cash No opening balance
Balance & bank
8. Closing Closing balance of cash & Surplus or Deficit.
Balance bank
 Balance Sheet
• 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.
• The surplus or deficit as per Income and
Expenditure Account shall be added to/deducted to
this fund.
• It is also a common practice to add some of the
capitalised items like legacies, entrance fees and life
membership fees directly in the capital fund.
 Balance Sheet
Following procedure is adopted to prepare the Balance
sheet.
• Take the capital fund as per opening balance sheet & add
surplus or deduct deficit as per income & expenditure
account. Further, add legacy, life membership fees,
endowment fund received during the year.
• Take all fixed assets (not sold or destroyed) add
additions made during the year les depreciation for
assets used during the year.
• Compare items on receipt side of receipt & payment A/c
with items on income side of income & expenditure A/c to
determine advances & dues.
• Similarly, compare items of payments side of receipt &
payment A/c with items of expenditure side of income &
expenditure account to determine prepaid or outstanding
expenses.
• Balance sheet resembles the position statement of the
organization & is a true indicator of growth potential.
 Opening Balance Sheet

Balance sheet
as on
Liabilities Amount Assets Amount
Current liabilities Cash
Outstanding Bank
expenses Fixed assets
Incomes in Advances Current assets
Capital fund Accrued Incomes
(Balancing Figure) Prepaid Expenses
 Balance Sheet: At End
Closing balance sheet is prepared at the end of the year after
preparing Income & expenditure account. It maybe shown as:-
Liabilities Amount Assets Amount
Capital fund Closing Balance
Add Surplus Cash
Less Deficit Bank
Add life Membership Net Fixed Assets
Fees, Legacy, Current Assets
Endowment Fund (closing Balances)
Income in advance Investments
Specific Donations Prepaid Expenses
Outstanding Expenses Accrued Incomes.
Incomes in Advance
Specific Funds
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 1

Opening balance of Cash and

Bank is transferred to Opening
Balance Sheet and Closing balances of
Cash and Bank are transferred to
Closing Balance Sheet.
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 2

Items on the receipt side of

Receipt & Payment A/c give the
Components for Income Side for
Income & Expenditure A/c.
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 3

Items on the payment side of

Receipt & Payment A/c give the
components for Expenditure side for
Income & Expenditure A/c.
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 4

Items of revenue nature

(recurring too) are carried from
Receipt & Payment A/c and after analysing
adjustments if any, total amount for the
Current year is transferred to
Income & Expenditure A/c.
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 5

Items of
Capital nature
are adjusted through
Balance Sheet.
 PROCEDURE
How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.

STEP 6

Adjustments on Capital Nature

Items are not to be considered
while preparing
Income & Expenditure A/c.
 PROCEDURE

Result

The balance on Debit Side of

Income & Expenditure A/c will show
SURPLUS while that on Credit Side
will show DEFICIT. This will be transferred to
Closing Balance Sheet and
Added/Subtracted
as the case may be.
 Question
Following is Receipt & payment of Stanford trust, prepare Income &
Expenditure and balance sheet for the year ended 31/12/05 and 31/12/06.
Receipts Amount Payments Amount
Cash in hand 14,000 Rent 6,000
Cash at bank 60,000 Salary 12,000
Subscription Postage 300
2005 : 5,000 Electricity charges 6,000
2006 : 83,000 Purchase of Furniture 20,000
2007 : 3,000 91,000 Books 3,000
Sale of Investment 90,000 Defence bonds 1,50,000
Interest on Investment 2,000 Charity 22,000
Sale of furniture (book Cash in Hand 10,900
value 3,400) 3,200 Cash at bank 30,000
2,60,200 2,60,200
Adjustments:
1) Subscription for 2006 still owing were 7,000.
2) Interest due on defence bonds was Rs. 7,000.
3) Rent still owing was Rs. 1,000.
4) Investment sold valued Rs. 80,000, Rs. 30,000 of Investment were still in hand.
5) Salary paid for the year 2007 is Rs. 2,000.
 Solution
Income and Expenditure account
Expenditure Amount Income Amount

Rent 6,000 Subscription

Add O/s Rent 1,000 7,000 2006 : 83,000

Salary 12,000 Add O/s

Subscription: 7,000 90,000
Less
paid for 2007: 2,000 10,000 Interest on
Postage 300 Investment 2,000

Electricity charges 6,000 Interest on

defence bonds 7,000
Charity 22,000
Profit on sale of
Loss on sale of 10,000
investment
furniture 200

Surplus 63,500

1,09,000 1,09,000
 Solution

WORKING NOTES:
Balance Sheet
As n 31st March 2006
Liabilities Amount Assets Amount
Capital fund 1,92,400 Cash in Hand 14,000
Cash at bank 60,000
Subscription 5,000
Furniture 3,400
Investment 1,10,000

1,92,400 1,92,400
 Solution
Balance Sheet
Liabilities Amount Assets Amount

Capital fund 1,92,400 Cash in Hand 10,900

Add Surplus 63,500 2,55,900 Cash at bank 30,000
Outstanding rent Subscription 7,000
1,000
Furniture 20,000
Subscription for 2007 3,000
Books 3,000
Defence bonds 1,50,000
Investment 30,000
Accrued interest 7,000
Prepaid salary 2,000
2,59,900 2,59,900
 Terminology for NPOs

 Subscription
 Donation
 Legacy
 Life membership fee
 Entrance fee
 Honorarium
 Grants and subsidies
 Stationery
 Sale of old assets
 Sale of periodicals
 Endowment fund
 Special funds
 Subscription

• Subscription is a membership fee paid by the member

on annual basis.
• This is the main source of income of such
Organisations.
• Subscription paid by the members is shown as receipt
in the Receipt and Payment Account and as income in
the Income and Expenditure Account.
• Receipt and Payment Account shows the total amount
of subscription actually received during the year.
• The amount shown in Income and Expenditure
Account is confined to the figure related to the current
period only irrespective of the fact whether it has been
received or not.
 Subscription

HOW TO CALCULATE SUBSCRIPTION FOR THE YEAR

WHEN SOME OTHER ITEMS RELATED TO SUBSCRIPITON
ARE GIVEN
Subscription received during the year XXXXX
Less: Subscription outstanding in the beginning
of the current year XXX
Less: Subscription in advance at end of the
current year XXX
Add: Subscription outstanding at end of the
current year XXX
Add: Subscription in advance in the beginning
of the current year XXX
Subscription for the current year XXXXX
 Subscription A/c

FORMAT

Dr. SUBSCRIPTION A/c Cr.

Particulars Amount Particulars Amount
To Balance b/d To Balance b/d
(outstanding) XXX (advance) XXX

To Income and By Receipts and

Expenditure A/c Payments A/c XXX
(balancing figure) XXX
By Balance c/d
To Balance c/d (outstanding) XXX
(advance) XXX
XXXX XXXX
As per Receipt & Payment A/c for the year ended March 31, 2007, the
subscriptions received were Rs. 12, 50,000. It is also given that:
1. Subscriptions Outstanding on 1.4.2006 Rs. 80,000
2. Subscriptions Outstanding on 31.3.2007 Rs. 85,000
3. Subscriptions Received in Advance as on 1.4.2006 Rs. 45,000
4. Subscriptions Received in Advance as on 31.3.2007 Rs. 60,000
Calculate the amount to be shown in income & Expenditure A/c for the year
2006 – 07 and show relevant items in balance sheet also.

Details Amount
Subscriptions Received as per Receipt and Payment A/c 12,50,000
Add: Subscriptions outstanding on 31.3.2007 85,000
Add: Subscriptions received in advance on 1.4.2006 45,000
13,80,000
Less: Subscriptions outstanding on 1.4.2006 80,000
13,00,000
Less: Subscriptions received in advance on 31.3.2007 60,000
Income from subscription for the year 2006-07 12,40,000
Alternately, income received from subscriptions can be calculated by
preparing a Subscriptions account as under.

Date Particulars Amount Date Particulars Amount

(Rs.) (Rs.)
To Balance b/d By Balance b/d
(outstanding) 80,000 (advance) 45,000
To Income and By Receipts
Expenditure A/c and Payments
(balancing figure) 12,40,000 A/c 12,50,000
To Balance c/d By Balance b/d
(advance) 60,000 (outstanding) 85,000

13,80,000 13,80,000
Relevant items of subscription can be shown in the opening
and closing balance sheet as under:
Balance sheet as on march 31, 2006
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Subscriptions 45,000 Subscription 80,000
received in outstanding
advance
Balance sheet as on march 31, 2007
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Subscriptions 60,000 Subscriptions 85,000
received in outstanding
advance
Calculate Subscription amount to be shown in income &
expenditure A/c from the following:
A club received Rs. 1,20,000 as subscriptions during the year 2007-08
of which Rs.13,000 relate to year 2006-07 and Rs.22,000 to 2008-09,
and at the end of the year 2007-08 Rs.26,000 are still receivable. Find
subscription received for the year 2007-08.
Particulars Rs.
Subscriptions received in 2007-08 1,20,000
Less: Subscriptions for the year 2006-07 13,000
1,07,000
Less: Subscription for the year 2008-09 22,000
85,000
Add: Subscriptions outstanding for the year 2007-08 26,000

Income from subscriptions for the year 2007-08 1,11,000

The above amount of subscriptions can also be
ascertained by preparing the subscription account as
follows:
Dr. Subscription Account Cr.

Particulars Amount Particulars Amount

Balance b/d 13,000 Balance b/d Nil
(outstanding at the (received in
beginning) advance)
Income & Cash (subscription
Expenditure A/c received)
(balancing figure) 1,11,000 1,20,000
Balance c/d
Balance c/d (outstanding at the
(received in 22,000 end) 26,000
advance)
1,46,000 1,46,000
 Donations

It is a sort of gift in cash or property received from some

person or organisation. It appears on the receipts side of
the Receipts and Payments Account. Donation can either be
specific or general:
1. Specific Donations: Received for specified purpose
like extension of the existing building, construction of
new computer laboratory, creation of a book bank, etc.
 Such donation is to be capitalized and shown on the
liabilities side of the Balance Sheet.

2. General Donations: Such donations are to be utilised

to promote the general purpose of the organisation.
 These are treated as revenue receipts as it is a regular
source of income hence, it is taken to the income side
of the Income and Expenditure Account of the current
year.
 Donation

General donations Specific donations

Generally credited to
Income & expenditure
account values & otherwise
stated in the question.

(A) Donation for the (B) Donation for capital.

maintenance of Expenditure (such as
revenue expenditure for the building etc.)
(such as donation for
prizes, matches, etc
Both are treated in balance sheet.
 Legacy

• It is the amount received as per the will of a

deceased person. It appears on the receipts
side of the Receipt and Payment Account and
is directly added to capital fund/general fund in
the balance sheet, because it is not of
recurring nature.

• However, legacies of a small amount may be

treated as income and shown on the income
side of the Income and Expenditure Account.
 Life Membership Fees

• Some members prefer to pay lump sum

amount as life membership fee instead of
paying periodic subscription.

• Such amount is treated as capital receipt and

credited directly to the capital/general fund.
 Entrance Fees

• Entrance fee also known as admission fee is paid only

once by the member at the time of becoming a member.

• In case of organisations like clubs and some charitable

institutions, number of members is limited and the
amount of entrance fees is quite high. Hence, it is treated
as non-recurring item and credited directly to
capital/general fund.

• However, for some organisations like educational

institutions, the entrance fees is a regular income and the
amount involved may also be small. In their case, it is
customary to treat this item as a revenue receipt.

• However, if there is specific instruction, it is advisable to

treat the entire amount as capital receipt and the relevant
amount should be directly added to capital/general fund.
 Honorarium

• It is the amount paid to the person who is not

the regular employee of the institution.

• Payment to a surgeon called for some specific

operation or to some artist for giving
performance at the club is an example of
honorarium.

• This payment of honorarium is shown on the

expenditure side of the Income and
Expenditure Account.
 Grants and Subsidies

• Schools, colleges, public hospitals, etc. depend

upon government grant and subsidies for their
activities.
• The recurring grants in the form of maintenance
grant is treated as revenue receipt (i.e. income of
the current year) and credited to Income and
Expenditure account.
• However, grants such as building grant are
treated as capital receipt and transferred to the
building fund account.
• It may be noted that some Not-for-Profit
organisations receive cash subsidy from the
government or government agencies.
• This subsidy is also treated as revenue income
for the year in which it is received.
 Stationery

• Normally expenses incurred on stationary, a

consumable items are charged to Income and
Expenditure Account.
• But in case stock of stationery (opening and/or
closing) is given, the approach would be make
necessary adjustments in purchases of stationery
and work out cost of stationery consumed and
show that amount in Income and Expenditure
Account and its stock in the balance sheet.
• For example, the Receipt and Payment Account
shows a payment for stationery amounting to Rs.
40,000 and there is an opening and closing
stationery amounting to Rs. 12,000 and Rs. 15,000.
Rs. 37,000 will be transferred to Income &
Expenditure A/c as stationery consumed.
Step .1 Calculation of total stock purchased on credit & cash.
Payment for stock in the current year as per xxx
receipts & payments account
(+) O/s expenses in the end xxx
(+) Prepaid expenses in the beginning xxx
xxx
(−) O/s expenses in the beginning (xx)
(−) Prepaid expenses in the end (xx)
Credit Purchases. Xxx
(+) Cash Purchases (If specifically Mentioned Xxx
in receipts & payments account on
payment side)
Total Purchases. Xxxx
 Step-2 Calculation of Stock consumed.

Opening Stock of consumable stores xxx

(+) Total purchases as per step -1 xxx
(xx)
(−) Closing stock of consumable stores (xx)
Stock consumed and debited to income & expenditure a/c Xxx
Q. How will you deal with the following items while preparing the
Income & Expenditure A/c for the year ended on March 31, 2007.
As at As at
1.4.2006 31.32007
Rs. Rs.
Stock of stationery 3000 500
Creditors for stationery 2000 1300
Advance paid for stationery on March 31, 2007 1300
Advance paid for stationery carried from 2005-06 200
Amount paid for stationery during 2006-07 10800
Step 1. Calculation of purchases
Amount paid for stationery 10,800
(+) Creditor for stationery (O/s) in the end 300
(+) Advance paid for stationery (prepaid) in the beginning 200
(−) Creditor for stationery (O/s) in the beginning (2000)
(−) Advance paid for stationery (prepaid) in the end (1300)
Purchases 9000

Step 2. Calculation of stationery consumed.

Opening stock of stationery 3000

(+) Purchases as per step 1 9000
(−) Closing stock of stationery (500)
Stock of stationery consumed debited to income & 11,500
expenditure
Extract of a Receipt and Payment Account for the year ended
on march 31, 2006:
Payments:
Creditors for Stationery Rs. 68,000
Additional information:
Details 1 April, 2005 March 31, 2006
Stock of stationery 14,000 13,000
Creditor for stationery 19,000 12,500
 Stock of Stationery A/c
Particulars Amount Particulars Amount
To Opening Stock 14,000 By Stationery Consumed 62,500
To Purchases 61,500 By Closing Stock 13,500

75,500 75,500

Creditors of Stationery A/c

Particulars Amount Particulars Amount
To Cash 68,000 By Balance b/d 19,000
To Balance c/d 12,500 By Purchases 61,500

80,500 80,500
Details Amount
(Rs.)
Payment made for the purchase of stationery as per
Receipts and Payments A/c 68,000
Less: Payment for 2004-05 ( creditors in the beginning) 19,000
Payment made for the year 2005-06 49,000
Add: payment not yet made (i.e. creditors at the end) 12,500
Stationery Purchased for the year 2005-06 61,500
Add: Stock in the beginning 14,000
Stationery Available for consumption during 2005-06 75,500
Less: Stock at the end 13,000
Stationery consumed during 2005-06 to be taken to the 62,500
Expenditure side of the income and Expenditure
account
 Class Practice Question
Find out the cost of medicines consumed during 2006-07 from
the following information:
Details Amount
(Rs.)
Payment for purchase of medicines 6,70,000
Creditors for medicines purchased:
On 1.4.2006 1,25,000
On 31.3.2007 1,17,000
Stock of Medicines:
On 1.4.2006 92,000
On 31.3.2007 1,04,000
Advance to suppliers of medicines:
On 1.4.2006 41,500
On 31.3.2007 38,000
 Stock of Medicines A/c
Particulars Amount Particulars Amount
Opening Stock 92,000 By Medicines Consumed 6,53,500
To Purchases 6,65,500 By Closing Stock 1,04,000
7,57,500 7,57,500

Creditors of Medicines A/c

Particulars Amount Particulars Amount
To Balance b/d (Advances) 41,500 By Balance b/d (Creditors) 1,25,000
To Cash 6,70,000 By Purchases (Balancing
To Balance c/d (Creditors) 1,17,000 figure) 6,65,500
By Balance c/d (Advances) 38,000
8,28,500 8,28,500
 Sale of old assets

 Receipts from the sale of an old asset appear

in the Receipts and Payments Account of the
year in which it is sold. But any gain or loss on
the sale of asset is taken to the Income and
Expenditure Account of the year.

 For example, if an item furniture with a book

value of Rs. 800 is sold for Rs. 700, this
amount of Rs. 700 will be shown as receipt in
Receipts and Payments Account and Rs. 100
on the expenditure side of the Income and
Expenditure Account as a loss on sale of old
asset and while showing furniture in the
balance sheet Rs. 800 will be deducted from its
total book value.
 Sale of periodicals

• It is an item of recurring nature and shown as

the income side of the Income and Expenditure
Account
 Endowment fund

• It is a fund arising from a bequest or gift, the

income of which is devoted for a specific
purpose.
• Hence, it is a capital receipt and shown on the
Liabilities side of the Balance Sheet as an item
of a specific purpose fund.
 Special funds

• The Not-for-Profit Organisations office create special funds

for certain purposes/ activities such as 'prize funds', 'match
fund' and 'sports fund', etc.
• Such funds are invested in securities and the income
earned on such investments is added to the respective
fund, not credited to Income and Expenditure Account .
• Similarly, the expenses incurred on such specific purposes
are also deducted from the special fund.
• For example, a club may maintain a special fund for sports
activities. In such a situation, the interest income on sports
fund investments is added to the sports fund and all
expenses on sports deducted there from.
• The special funds are shown in balance sheet. However, if,
after adjustment of income and expenses the balance in
specific or Special fund is negative, it is transferred to the
debit side of the Income and Expenditure Account or
adjusted as per prescribed directions.
Opening balance sheet

Liabilities Rs. Assets Rs.

Prize fund (opening XXX Prize fund investment XXX
balance if given in (opening balance. If
adjustment) given in adjustment)
Closing balance Sheet.
Liabilities Rs. Assets. Rs.
Prize fund XXX Prize fund investment
(opening balance) (op. bal.) XXX
(+) Donations XX (+) Purchase XX
(+) Interest Received on Accrued interest on
prize fund investment prize fund. Investment XXX
XX XX
(+) Accrued Interest XX
On prize fund investment
(-) Prize awarded (XX) XXX
Show how you would deal with the following items in the final
account of a club:
Details Debit Credit
Prize fund 90,000
Prize Fund investments 90,000
Income from Prize fund investments 9,000
Prizes awarded. 7,000
Solution
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Prize fund 90,000 Prize fund 90,000
Add: Income from Investments
Investments 9,000
99,000
Less: Prizes Awarded
7,000 92,000
(a) Show the following information in financial statements
of a ‘Not-for-Profit’ Organization
Details Amount
Match Expenses 30,000
Match fund 15,000
Donation for Match fund 9,000
Sale of match tickets 13,000
(b) What would happen if match expenses go up to Rs. 9,000
other things remaining the same?
 Liabilities Amount Assets Amount
Match fund 15,000
Add: Donation 9,000
(Specific)
Add: Sale of match
Tickets 13,000
37,000 7,000
Less: Match Expenses
30,000
7,000
(b) If match expenses go up to Rs. 9,000, the net balance of
the match fund becomes negative i.e. Debit exceeds the
Credit, and the resultant debit balance of Rs. 2,000 shall be
charged to the Income and Expenditure Account of that year.
 Incidental Trading Activities
Sometimes, trading activities such as chemist shop,
hospital, canteen, bar etc. also take place in such
organizations to provide certain facilities to members or
public in general. In such a situation a trading account
is prepared to calculate profit or loss from that trading
aspect.
Procedure:
It is very important to take into consideration
following two points:
Profit or loss calculated by preparing trading A/c
must be transferred to Income & expenditure A/c.
Incomes & expenses related to that incidental activity,
which is not recorded in trading A/c, are also to be
considered while preparing. Income & expenditure A/c.
The assets and liabilities on the Millennium Cricket Club on April 1, 2007 were:
Club house and ground Rs. 10, 00,000; Creditors for bar supplies Rs. 3,41,000;
Equipment Rs. 3,45,000; Bank Rs. 1,34,500; Bar stocks Rs. 92,240.
Receipts Amount Payments Amount
Balance b/d 1,34,500 Equipment 3,12,000
Bar Takings 8,85,000 Ground maintenance 1,25,000
Subscriptions 9,15,000 Creditors for Bar supplies 2,35,500
Sundry Expenses 3,18,000
Balance c/d 9,44,000
19,34,500 19,34,500
At the end of March 2008, the following further information was available:
(a)Subscriptions Rs. 35,000 received this year related to the next year.
(b)Creditors for bar supplies Rs. 3,50,000.
(c)Bar stocks Rs. 84,380.
(d)Depreciate equipment by Rs. 65,000

Prepare for the Millennium Cricket Club: (i) the bar Trading Account for the
year ended March 31, 2007; (ii) the Income and Expenditure Account for the
year ended march 31, 2007; and (iii) the Balance Sheet as on March 31, 2007.
 Income and Expenditure A/c
Expenditure Amount Income Amount
To Ground Maintenance 1,25,000 By Subscription 9,15,000
To Sundry expenses 3,18,000 Less. For next year 35,000 8,80,000
To Depreciation 65,000 By Surplus from bar Trading 4,32,640
To Surplus 8,04,640
12,82,640 12,82,640

Bar Trading A/c

Particulars Amount Particulars Amount
To Opening Stock 92,240 By Bar Takings 8,85,000
To Purchases 4,44,500 By Closing Stock 84,380
To Surplus on bar trading 4,32,640
9,69,380 9,69,380

Creditors for Bar A/c

Particulars Amount Particulars Amount
To Cash 2,35,500 By Opening Stock 3,41,000
To Closing Stock 5,50,000 By Purchases (Bal. Fig.) 4,44,500
7,85,500 7,85,500
 Balance Sheet (Closing)
Liability Amount Assets Amount
Subscription in Advance 35,000 Bank 9,44,000
Creditors for bar supplies 5,50,000 Sports equipments 3,45,000
Capital Fund 12,30,740 Add Purchases 3,12,000
Add Surplus 8,04,640 20,35,380 Less Depreciation 65,000 5,92,000
Bar stocks 84,380
Club house and ground 10,00,000
26,20,380 26,20,380

Balance Sheet (opening)

Liability Amount Assets Amount
Creditors for bar supplies 3,41,000 Bank 1,34,500
Capital Fund 12,30,740 Sports equipments 3,45,000
Bar stocks 92,240
Club house and ground 10,00,000
15,71,740 15,71,740
Thank You