Accounting for Not-for-Profit Organisation

This page contains the CBSE accountancy class 12 chapter Accounting for Not-for-Profit Organisation notes. You can find the questions/answers/solutions for the chapter 1 of CBSE class 12 accountancy in this page. So is the case if you are looking for CBSE class 12 Commerce related topic Accounting for Not-for-Profit Organisation. If you’re looking for numerical questions solutions you can find them at Accounting for Not-for-Profit Organisation Numerical Questions Solutions.

Test Your Understanding – I
State with reasons whether the following statements are TRUE or FALSE:
(i)
Receipt and Payment Account is a summary of all capital receipts and payments. (❌ FALSE)
(ii)
If there appears a sports fund, the expenses incurred on sports activities will be shown on the debit side of Income and Expenditure Account. (❌ FALSE)
(iii)
The balancing figure on credit side of Income and Expenditure Account denotes excess of expenses over incomes. (✔ TRUE)
(iv)
Scholarships granted to students out of funds provided by government will be debited to Income and Expenditure Account. (❌ FALSE)
(v)
Receipt and Payment Account records the receipts and payments of revenue nature only. (❌ FALSE)
(vi)
Donations for specific purposes are always capitalized. (✔ TRUE)
(vii)
Opening balance sheet is prepared when the opening balance of capital fund is not given. (✔ TRUE)
(viii)
Surplus of Income and Expenditure Account is deducted from the capital/general fund. (❌ FALSE)
(ix)
Receipt and Payment Account is equivalent to profit and loss account. (❌ FALSE)
(x)
Receipt and Payment Account does not differentiate between capital and revenue receipts. (✔ TRUE)

Do it Yourself
1. Subscriptions received by the health club during the year 2015 were as under
2014
3,000
2015
96,000
2016
2,000
1,01,000
Subscriptions Outstanding as on 31.12.14
5,000
Subscriptions Outstanding as on 31.12.15
12,000
Subscriptions received in advance in 2014 for 2015
5,000
Calculate the amount of subscriptions to be shown on the income side of Income and Expenditure A/c.
Books of health club
Income and Expenditure Account
for the year ending December 31, 2015
Expenditure
Amount
Income
Amount
Subscriptions
96,000
Received in advance
(in 2014)
5,000
1,01,000
Outstanding in 2015
(12,000 – 2000)
10,000
1,11,000
Working Notes:
Details
Amount
Subscriptions outstanding as on 31.12.14
5,000
Subscriptions received for 2014 in 2015
3,000
2014’s Subscriptions still outstanding in 2015
2,000
Total Subscriptions outstanding in 2015 (given in problem)
12,000
2014’s Outstanding subscriptions included in this
2,000
Outstanding subscriptions related to just 2015
10,000
2. During the year 2015, subscriptions received by a sports club were ₹ 80,000. These included ₹ 3,000 for the year 2014 and ₹ 6,000 for the year 2016. On March 31, 2016 the amount of subscriptions due but not received was ₹ 12,000. Calculate the amount of subscriptions to be shown in Income and Expenditure Account as income from subscription.
Books of sports club
Income and Expenditure Account
for the year ending March 31, 2016
Expenditure
Amount
Income
Amount
Total Subscriptions Received in 2015
80,000
Outstanding subscriptions for the year 2014
(3,000)
77,000
Advance subscriptions for the year 2016
(6,000)
71,000
Outstanding subscriptions
12,000
83,000
3. Subscriptions received during the year ended December 31, 2015 by Royal Club were as under:
2014
3,000
2015
93,000
2016
2,000
98,000

The club has 500 members each paying @ ₹ 200 as annual subscription. Subscriptions outstanding as on March 31, 2016 December 31, 2014 are ₹ 6,000. Calculate the amount of subscriptions to be shown as income in the Income and Expenditure Account for the year ended March 31, 2016 December 31, 2015 and show the relevant data in the Balance Sheet as on date.
Working Notes:
Details
Amount
Total Subscriptions due for 2015
500 × 200 = 1,00,000
1,00,000
Subscriptions received in 2015
(93,000)
Outstanding subscriptions in 2015
7,000
Outstanding subscriptions in 2014
6,000
2014’s outstanding subscriptions in 2015
(3,000)
2014’s subscriptions still outstanding in 2015
3,000
Books of Royal club
Income and Expenditure Account
for the year ending December 31, 2015
Expenditure
Amount
Income
Amount
Total Subscriptions Received in 2015
93,000
Outstanding subscriptions
for 2015
7,000
1,00,000
Balance sheet of Royal Club as on December 31, 2014
Liabilities
Amount
Assets
Amount
Outstanding subscriptions
6,000
Balance sheet of Royal Club as on December 31, 2015
Liabilities
Amount
Assets
Amount
Subscriptions
Outstanding for 2015
7,000
Outstanding from 2014
3,000
10,000

Test Your Understanding – II
How would you treat the following items in the case of a ‘not-for-profit’ organisation?
1.
Tournament Fund ₹ 40,000. Tournament Expenses ₹ 14,000. Receipts from Tournament ₹ 16,000.
2.
Table Tennis match expenses ₹ 4,000.
3.
Prize Fund ₹ 22,000. Interest on Prize fund Investments ₹ 3,000. Prizes given ₹ 5,000. Prize fund Investments ₹ 18,000.
4.
Receipts from Charity Show ₹ 7,000. Expenses on Charity Show ₹ 3,000.

1. How would you treat the following item in case of a ‘not-for-profit’ organisation?
Tournament Fund ₹ 40,000. Tournament Expenses ₹ 14,000. Receipts from Tournament ₹ 16,000.
As this involves specific capital fund namely Tournament fund, it’ll be treated as follows in the balance sheet.
Balance sheet
Liabilities
Amount
Assets
Amount
Tournament Fund
40,000
Receipts from tournament
16,000
56,000
Tournament Expenses
(14,000)
42,000
2. How would you treat the following item in case of a ‘not-for-profit’ organisation?
Table Tennis match expenses ₹ 4,000.
As this does not involve any specific fund, the amount incurred on Table Tennis match expenses ₹ 4,000 would be shown on the debit side of Income and Expenditure Account. It is the case of expenses independent of any specific fund.
3. How would you treat the following item in case of a ‘not-for-profit’ organisation?
Prize Fund ₹ 22,000. Interest on Prize fund Investments ₹ 3,000. Prizes given ₹ 5,000. Prize fund Investments ₹ 18,000.
As there is a specific fund i.e. prize fund, these will be treated under liabilities side of the balance sheet.
Balance sheet
Liabilities
Amount
Assets
Amount
Prize Fund
22,000
Prize fund investments
18,000
Interest on prize fund
3,000
25,000
Interest on prize fund
3,000
20,000
Note: As the scope of the problem is just to display the amounts, the balance sheet is not totalled/balanced.
4. How would you treat the following item in case of a ‘not-for-profit’ organisation?
Receipts from Charity Show ₹ 7,000. Expenses on Charity Show ₹ 3,000.
There is no specific fund. Receipts from Charity Show would be shown on the credit side and expenses on charity show are deducted from the receipts and the net amount would be shown on the credit side of Income and Expenditure Account.

Short Answer Questions
1. What is meant by ‘Not-for-Profit’ Organisations?
‘Not-for-Profit’ Organisations are the organisations that are
Set up as charitable institutions.
used for the welfare of the society.
and function without any profit motive.
aimed at providing service to a specific group or the public at large.
2. State the meaning of Receipt and Payment Account.
The following is the meaning of the Receipt and Payment Account.
Receipt and Payment Account is the summary of cash and bank transactions under various heads.
They give the summarised picture of various receipts and payments irrespective of whether they pertain to the current period, previous period or succceeding period or whether they are of capital or revenue in nature.
It helps in the preparation of Income and Expenditure Account and Balance Sheet.
3. State the meaning of Income and Expenditure Account.
The following is the meaning of Income and Expenditure Account.
It is the summary of income and expenditure for the accounting year.
It is similar to the profit and loss account that is prepare on accrual basis in case of the business organisations.
All the revenue items relating the current period are shown in this account. The expenses and losses are shown on the expenditure side. The incomes and gains are shown on the income side of the account.
It includes only revenue items. So, the net operating result is in the form of surplus(excess of income over expenditure) or deficit(excess of expenditure over income).
The net operating result i.e. surplus or deficit is transferred to the capital fund shown in the balance sheet.
4. State the feature of Receipt and Payment Account.
The following are the features of Receipt and Payment Account.
1. Nature: It is summary of the cash book and is very similar in form to cash book. The receipts are recorded on the debit side and payments are recorded on the credit side. It is a real account.
2. Accounting Period: It shows the total amounts of all the receipts and payments regardless of the period they belong to i.e. it shows the receipts and payments belonging to the previous accounting periods, current accounting period and also succeeding accounting periods.
3. Nature of items: It includes The receipts and payments regardless of whether they are of capital or of revenue in nature.
4. Mode of Transaction: Receipts and payments made in either cash or bank are treated in the same way. The only exception to this is to the opening and closing balances which are shown separately for cash and/or bank.
5. Non-cash items: Non-cash items like depreciation or outstanding expenses or accrued income are not included in the Receipt and Payment Account.
6. Opening and Closing balance:It begins with the opening balance of cash in hand and/or cash at bank (or bank overdraft). It ends with the year end balance of cash in hand and/or cash at bank (or bank overdraft)
7. Purpose: It projects the cash position of an organisation.
5. What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account?
The following are the steps taken to prepare Income and Expenditure Account from a Receipt and Payments Account.
1.
The opening balances of cash in hand and cash at bank are entered on the debit side. If there is a bank overdraft at the beginning of the year, it is entered on the credit side.
2.
The total amounts of all the receipts are shown on the debit side. The receipts can be capital or revenue in nature. They can also belong to the past, current and future accounting periods.
3.
The total amounts of all the payments are shown on the credit side. The payments can be capital or revenue in nature. They can also belong to the past, current and future accounting periods.
4.
The receivable income and payable expense are excluded from entering this account as they do not involve any inflow or outflow of cash.
5.
The difference of the total of the debit side and the total of the credit side are calculated. Then
If the total of the debit side is more than the total of the credit side, it is entered on the credit side as the closing balance.
If the total of the credit side is more than the total of the debit side, it is entered on the debit side as bank overdraft
6.
Close the account.
6. What is subscription? How is it calculated?
Subscription: Subscription is a membership fee paid by the members of a Not-for-profit organisation periodically (monthly, quarterly, half-yearly, yearly etc.). It is the main source of income for Not-for-Profit organisations. It is
shown as receipt in Receipt and Payment Account. In Receipt and Payment Account, it is shown as the total amount of subscription actually received during the year.
shown as income in Income and Expenditure account. In Income and Expenditure account, it is shown as the amount related to the current period irrespecitve of the fact whether it is received or not i.e. it includes accrued and outstanding subscriptions.
In Receipt and Payment Account it is calculated as the total of subscriptions received for the previous year, current year and next year.
Receipts
Amount
Payments
Amount
Subscriptions received
for the previous year
(in the current year)
xxxxx
Subscriptions received
for the current year
(in the current year)
xxxxx
Subscriptions received
for the next year
(in the current year)
xxxxx
xxxxxx
It is calculated in the Income and Expenditure account as follows:
Income
Amount
Expenditure
Amount
Total Subscriptions received in the current year
xxxxxx
Advance Subscriptions
for the current year
(received previous year)
xxxxx
Outstanding subscriptions
for the current year
xxxxx
xxxxxx
Outstanding subscriptions
for the previous year
(received during current year)
xxxxx
Advance subscriptions
for the next year
(received in the current year)
xxxxx
yyyyyy
7. What is meant by Capital Fund? How is it calculated?
Capital fund, also called as General Fund, comprises the funds raised by the Not-for-Profit organisations through various sources. In addition to this, the surplus generated in the form of excess of income over expediture is also simply added to the capital fund. In case there is any deficit, it is deducted from the capital fund.
It is also a common practice to add some of the capitalised items like legacies, entrance fees and life membership fees directly to the capital fund.
The capital fund related entries are not considered in the Income and Expenditure account. They are directly moved to the balance sheet.
The capital fund is calculated as follows.
Liabilities
Amount
Assets
Amount
Capital fund as per the opening balance sheet
xxxxx
Add/Less: Surplus/Deficit from Income and Expenditure Account
xxxxx
Entrance fees
xxxxx
Legacies
xxxxx
Life membership fees
xxxxx
Capital fund (closing)
xxxxx
Long Answer Questions

1. Explain the statement: “Receipt and Payment Account is a summarised version of Cash Book”.
The source of the Receipt and Payment Account is the cash receipts and cash payments recorded in the cash book. However, the individual rececipts and payments are not trasferred directly into the Receipt and Payment Account. Instead, the individual receipts and payments are summarised and the resulting total is transferred into the Receipt and Payment Account. So, the Receipt and Payment Account gives summarised picture of various receipts and payments, regardless of whether they belong to the previous accounting period, current accounting period or the next accounting period. For example, subscriptions received from the members on different dates which appear on the debit side of the cash book, shall be shown on the receipts side of the Receipt and Payment Account as one item with its total amount. Similarly, salaries, rent, electicity charges paid from time to time are recorded on the credit side of the cash book but the total salary paid, total rent paid, total electricity charges paid during the accounting period appear on the payment side of the Receipt and Payment account
The opening balance in Receipt and Payment Account represents the cash in hand/cash at bank which is shown on the receipts side. The closing balance of this account represents cash in hand and bank balance at the end of the accounting period and is represented on the credit side of the Receipt and Payment Account. In case, there is any bank overdraft at the end of the accounting period, it will be recorded on the debit side as the last item.
The non-cash items like depreciation, accrued income, outstanding expenses etc which are not part of the cash book are also not part of the Receipt and Payment Account.
The following is a comparison of the cash book and Receipt and Payment Account
Basis
Cash Book
Receipt and Payment Account
1. Account Type
Real
Real
2. Type of Transactions
Cash as well as bank transactions
Totals of Cash as well as bank transactions
3. Nature of Transactions recorded
Capital and revenue based transactions
Totals of Capital and revenue based transactions
4. Limitations
Non-Cash items like depreciation, accrued income, outstanding expenses are not recorded.
Non-Cash items like depreciation, accrued income, outstanding expenses are not recorded.
5. Opening Balance
Opened with cash and bank balances/bank overdraft
Opened with cash and bank balances/bank overdraft
6. Closing Balance
Cash and bank balances/bank overdraft
Cash and bank balances/bank overdraft
7. Purpose
Reflects the cash position of the organisation.
Reflects the cash position of the organisation.
Considering the above similarities, we can say that the Receipt and Payment account is a summarised version of Cash Book.

2. “Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern”. Explain the statement.
The Income and Expenditure Account of a Not-for-Profit orgainisation is the summary of the income and expenditure account for the accounting year. It is just like a profit and loss account prepared on the accrual basis in case of the business organisations. It includes only revenue items and the balance at the end which represents surplus or deficit. The income and Expenditure account serves the same purpose as that of the profit and loss account of a business organisation. It includes all the revenue items relating to the current period. The expenses and losses are shown on the expenditure side and incomes and gains are shown on the income side of the account. It represents 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). The surplus/deficit is transferred to the capital fund shown in the balance sheet.
The following is a comparison of the Profit and Loss and Income and Expenditure Account
Basis
Profit and Loss Account
Income and Expenditure Account
1. Account Type
Nominal
Nominal
2. Basis of Transactions
Accrual
Accrual
3. Nature of Transactions recorded
Income and expenditure that are revenue in nature.
Income and expenditure that are revenue in nature.
4. Limitations
Capital entries are excluded.
Capital entries are excluded.
5. Scope of Transactions
Only the transactions that are related to the current accounting period.
Only the transactions that are related to the current accounting period.
6. Limitations of Scope
Transactions other than the current accounting period are not recorded.
Transactions other than the current accounting period are not recorded.
7. Ajustment of entries
Adjustments are done for items like
Depreciation
Accrued Income
Advance Income
Prepaid Expenses
Outstanding Expenses

Adjustments are done for items like
Depreciation
Accrued Income
Advance Income
Prepaid Expenses
Outstanding Expenses

From the above similarities, we can say that the Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern

3. Distinguish between Receipt and Payment Account and Income and Expenditure Account.
The following are the differences between Receipts and Payments and Income and Expenditure Account.
Basis
Receipt and Payment Account
Income and Expenditure Account
1. Definition
Summary of cash and bank transactions under various heads
Summary of income and expenditure for the current year.
2. Source
It is prepared on the basis of cash receipts and cash payments recorded in the cash book.
It is prepared on the basis of cash receipts and cash payments recorded in the Receipt and Payment Account. It also considers the non-cash items like depreciation etc.
3. Nature
Its form is identical to the cash book and it contains the summary of totalled cash book transactions.
It is similar to the Profit and Loss prepared on accrual basis in case of the business organisations.
4. Nature of items
Includes receipts and payments which are both capital and revenue entries
Includes only those receipts and payments which are revenue in nature.
5. Accounting period
All the receipts and payments irrespecitve of whether they belong to the previous accounting period or current accounting period or next accounting period.
Only those entries that belong to the current accounting period.
6. Debit side
Debit side of this account records receipts.
Debit side of this account records the expenses and losses.
7. Credit side
Credit side of this account records payments.
Credit side of this account records income and gains.
8. Non-Cash Items
Not included
Considers the non-cash items like.
Depreciation
Accrued Income
Advance Income
Prepaid Expenses
Outstanding Expenses
9. Opening Balance
Balance in the beginning represents cash in hand / cash at bank or bank overdraft at the beginning.
There is no opening balance.
10. Closing Balance
Closing balance represents the cash in hand/bank balance (or bank overdraft)
Balance at the end represents excess of income over expenditure or vice-versa.
11. Type of account
Real
Nominal
12. Basis of Transactions
Cash-based
Accrual based
13. Purpose
To reflect the cash position of the organisation.
To calculate the surplus/deficit in the current accounting period.
14. Transfer of Closing Balance
Transferred to the succeeding account period. The balance is also shown on the assets side of the balance sheet.
The surplus/deficit is transferred to the balance sheet and added/subtracted from the capital fund.

4. Explain the basic features of Income and Expenditure Account and of Receipt and Payment Account.
Income and Expenditure Account: The income and expenditure account prepared for the Not-for-Profit organisations is similar to the Profit and Loss account prepared for the business organisations. It is prepared with the help of the Receipt and Payment Account. The expenditures are on the debit side and records the expenses and losses. The income side is on the credit side and records the revenues and gains. Income and Expenditure account is a nominal account. All the entries are made on the accrual basis. Once the Income and Expenditure account is prepared the closing balance represents either surplus/defict and is added/subtracted to/from the capital or general fund.
The following are the basic features of Income and Expenditure Account.
1. Nature: It is similar to the Profit and Loss prepared on accrual basis in case of the business organisations.
2. Nature of items: It includes only those receipts and payments which are revenue in nature.
3. Accounting Period: Only those entries that belong to the current accounting period.
4. Debit side: Debit side of this account records the expenses and losses.
5. Credit side: Credit side of this account records the incomes and gains.
6. Non-Cash Items: Considers the non-cash items like
Depreciation
Accrued Income
Advance Income
Prepaid Expenses
Outstanding Expenses
7. Opening Balance: There is no opening balance.
8. Closing Balance: Balance at the end represents excess of income over expenditure or vice-versa.
9. Type of account: It is a nominal account.
10. Basis of Transactions: The transactions are accrual based.
11. Purpose:To calculate the surplus/deficit in the current accounting period.
12. Transfer of Closing Balance: The surplus/deficit is transferred to the balance sheet and added/subtracted from the capital fund.
Receipt and Payment Account: The Receipt and Payment Account is the summary of cash and bank transactions which helps in the preparation of Income and Expenditure Account and the balance sheet. It is prepared at the end of the accounting period on the basis of cash receipts and cash payments recorded in the cash book. It is summary of cash and bank transactions under various heads. It gives a summarised picture of various receipts and payments, irrespective of whether they pertain to the previous accounting period, current accounting period or succeeding accounting period or whether they are capital or revenue in nature. The Receipt and Payment Account does not show any non cash items like depreciation. The opening balance in Receipt and Payment Account represents cash in hand/cash in bank and is entered on the receipts side. If there is bank overdraft, it is entered in the payments side. The closing balance represents the cash in hand or cash at bank at the end of the accounting period and is entered on the payments side. If there is a bank overdraft it is entered on the debit side.
The following are the features of the Receipt and Payment Account.
1. Nature: It is summary of the cash book and is very similar in form to cash book. The receipts are recorded on the debit side and payments are recorded on the credit side. It is a real account.
2. Accounting Period: It shows the total amounts of all the receipts and payments regardless of the period they belong to i.e. it shows the receipts and payments belonging to the previous accounting periods, current accounting period and also succeeding accounting periods.
3. Nature of items: It includes the receipts and payments regardless of whether they are of capital or of revenue in nature.
4. Mode of Transaction: Receipts and payments made in either cash or bank are treated in the same way. The only exception to this is to the opening and closing balances which are shown separately for cash and/or bank.
5. Non-cash items: Non-cash items like depreciation or outstanding expenses or accrued income are not included in the Receipt and Payment Account.
6. Opening and Closing balance:It begins with the opening balance of cash in hand and/or cash at bank (or bank overdraft). It ends with the year end balance of cash in hand and/or cash at bank (or bank overdraft)
7. Purpose: It projects the cash position of an organisation.

5. Show the treatment of the following items by a not-for-profit organisation:
(i)
Annual subscription
(ii)
Specific donation
(iii)
Sale of fixed assets
(iv)
Sale of old periodicals
(v)
Sale of sports materials
(vi)
Life membership fee
5.(i) Show the treatment of the item Annual Subscription by a not-for-profit organisation
The following is the treatment of the item Annual Subscription by a not-for-profit organisation
Subscription is a membership fee paid by the member on annual basis
It is the main source of income of Not-for-Profit organisation.
Subscription paid by the member is shown
as receipt in the in the Receipt and Payment Account as the total amount of subscription actually received during the year.
as income in the Income and Expenditure Account as the figure related to the current accounting period only, irrespective of the fact whether it has been received or not.
In Receipt and Payment Account it is calculated as the total of subscriptions received for the previous year, current year and next year.
Receipts
Amount
Payments
Amount
Subscriptions received
for the previous year
(in the current year)
xxxxx
Subscriptions received
for the current year
(in the current year)
xxxxx
Subscriptions received
for the next year
(in the current year)
xxxxx
xxxxxx
It is calculated in the Income and Expenditure account as follows:
Income
Amount
Expenditure
Amount
Total Subscriptions received in the current year
xxxxxx
Advance Subscriptions
for the current year
(received previous year)
xxxxx
Outstanding subscriptions
for the current year
xxxxx
xxxxxx
Outstanding subscriptions
for the previous year
(received during current year)
xxxxx
Advance subscriptions
for the next year
(received in the current year)
xxxxx
yyyyyy
Alternatively, income received from subscriptions can be calculated by preparing a Subscriptions account.
5.(ii) Show the treatment of the item Specific Donation by a not-for-profit organisation
The following is the treatment of the item Specific Donation by a not-for-profit organisation
It is the donation received to utilize to achieve a specified purpose.
The specific purpose can be
Extension of the existing building
Construction of a new computer laboratory
Creation of a book bank etc.
These donations have to be capitalised and should be shown on the liabilities side of the Balance Sheet irrespective of the fact whether the amount is big or small.
They are intended to be utilised for the specific purpose only.
5.(iii) Show the treatment of the item Sale of fixed asset by a not-for-profit organisation
The following is the treatment of the item Sale of fixed asset by a not-for-profit organisation
When a fixed asset is sold, the amount received should appear in the Receipt and Payment Account of the accounting period in which it is sold.
Any gain or loss on the sale of asset is credited or debited in the Income and Expenditure Account of the year.
While showing the asset in the balance sheet, its book value should be deducted from the total book value.
5.(iv) Show the treatment of the item Sale of old periodicals by a not-for-profit organisation
The following is the treatment of the item Sale of old periodicals by a not-for-profit organisation
The amount received from sale of old periodicals is revenue of recurring nature.
The amount received is recorded on the debit/receipts side of the Receipt and Payment Account.
As this income is of revenue in nature, it is recorded on the credit/income side of the Income and Expenditure account.
5.(v) Show the treatment of the item Sale of sports materials by a not-for-profit organisation
The following is the treatment of the item Sale of sports materials by a not-for-profit organisation
The sale of sports materials like old balls, bats, nets etc is a regular activity with any sports club.
The amount received from the sale of old sports material is revenue of recurring nature.
The amount received is recorded on the debit/receipts side of the Receipt and Payment Account.
As this income is of revenue in nature, it is recorded on the credit/income side of the Income and Expenditure account.
5.(v) Show the treatment of the item Life Membership Fees by a not-for-profit organisation
The following is the treatment of the item Life Membership Fees by a not-for-profit organisation
It is the lump sum amount paid by some members as a life membership fee instead of paying periodic subscription.
The amount received as Life Membership fees is recorded on the debit/receipts side of the Receipt and Payment Account.
As this is capital receipt it is recorded as capital fund on the liablities side in the balance sheet.

6. Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.
The funds raised by Not-for-Profit organisations are credited to capital fund or general fund. Among the various funds received/collected by the Not-for-Profit organisations, few funds like sports fund, building fund, tournament fund, endowment fund, Government Grant for specific purpose etc are called as specific funds. These specific funds are donated to the Not-for-Profit organisations and they should be used only for the specific purpose for which they are donated/granted for. In other words, they should meet the requirement of the contributors/donors such as building fund, sports fund etc. They should not be used for any other purpose. These funds are capital receipts and hence they are not recorded as income in the Income and Expenditure accounts. Instead they should be recorded in the liabilities side of the balance sheet under specific fund category irrespective of the fact whether the amount is big or small.
Not-for-Profit organisations create specifal funds for certain purposes/activities such as prize funds, match funds and sports funds etc. These funds are invested in securities and the income received through these investements is added to the respective fund. The income on these investments is not credited to the Income and Expenditure account. Similarly, the expenses incurred on such specific purposes are also deducted from the specific fund and not shown as an expense in the Income and Expenditure account.
These special funds are shown in the 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.
The consideration of the special funds while preparing various books is given below. It gives an understanding of the treatment of items of Income and Expenditure Account when there is a specific fund for those items.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
Expenses
(Specific fund related expenses like Building expenses, Prize expenses, Tournament expenses, Sports expenses etc)
Balance b/d
Income
(Income earned through investment of funds)
Balance c/d
(Refer to the analysis below)
—–(a)
Income and Expenditure A/c
(Refer to the analysis below)
—–(b)
Analysis of (a): In case of specific funds, if the receipts exceed the expenses then the surplus is added to the specific fund in the Liabilities side of the Balance Sheet as depicted below.
Balance sheet
Liabilities
Amount
Assets
Amount
Specific Fund (Building Fund, Prize fund, Tournament fund, Sports fund etc)
xxxxxx
Specific Fund investment
xxxxxx
Surplus (a)
xxxxxx
xxxxxx
Analysis of (b): In case of specific funds, if the expenses exceed the income, then the difference moved to the Income and Expenditure Account
Income and Expenditure Account
Expenditure
Amount
Income
Amount
Expenses (b)
(Building expenses, Prize expenses, Tournament expenses, Sports expenses etc)
xxxxx



7. What is Receipt and Payment Account? How is it different from Income and Expenditure Account?
The following is the meaning of the Receipt and Payment Account.
Receipt and Payment Account is the summary of cash and bank transactions under various heads.
They give the summarised picture of various receipts and payments irrespective of whether they pertain to the current period, previous period or succceeding period or whether they are of capital or revenue in nature.
It is prepared at the end of the accounting year on the basis of cash receipts and cash payments recorded in the cash book
It does not include the non-cash items like depreciation etc.
The opening balance Receipt and Payment Account represents cash in hand/cash at bank. It is shown on the debit/receipts side. If it is bank overdraft it is shown on the credit/payments side.
The closing balance represetnts cash in hand and bank balance at the end of the year. It is shown on the credit/payments side. If it is bank overdraft it is shown on the debit/receipts side.
It helps in the preparation of Income and Expenditure Account and Balance Sheet.
It is different from the Income and Expenditure account in various aspects as specified below.
Basis
Receipt and Payment Account
Income and Expenditure Account
1. Definition
Summary of cash and bank transactions under various heads
Summary of income and expenditure for the current year.
2. Source
It is prepared on the basis of cash receipts and cash payments recorded in the cash book.
It is prepared on the basis of cash receipts and cash payments recorded in the Receipt and Payment Account. It also considers the non-cash items like depreciation etc.
3. Nature
Its form is identical to the cash book and it contains the summary of totalled cash book transactions.
It is similar to the Profit and Loss prepared on accrual basis in case of the business organisations.
4. Nature of items
Includes receipts and payments which are both capital and revenue entries
Includes only those receipts and payments which are revenue in nature.
5. Accounting period
All the receipts and payments irrespecitve of whether they belong to the previous accounting period or current accounting period or next accounting period.
Only those entries that belong to the current accounting period.
6. Debit side
Debit side of this account records receipts.
Debit side of this account records the expenses and losses.
7. Credit side
Credit side of this account records payments.
Credit side of this account records income and gains.
8. Non-Cash Items
Not included
Considers the non-cash items like.
Depreciation
Accrued Income
Advance Income
Prepaid Expenses
Outstanding Expenses
9. Opening Balance
Balance in the beginning represents cash in hand / cash at bank or bank overdraft at the beginning.
There is no opening balance.
10. Closing Balance
Closing balance represents the cash in hand/bank balance (or bank overdraft)
Balance at the end represents excess of income over expenditure or vice-versa.
11. Type of account
Real
Nominal
12. Basis of Transactions
Cash-based
Accrual based
13. Purpose
To reflect the cash position of the organisation.
To calculate the surplus/deficit in the current accounting period.
14. Transfer of Closing Balance
Transferred to the succeeding account period. The balance is also shown on the assets side of the balance sheet.
The surplus/deficit is transferred to the balance sheet and added/subtracted from the capital fund.
8. Distinguish between profit and not-for-profit organisation.
Basis
For-Profit Organisation
Not-for-Profit organisation
1. Aim
Their aim is to make profits and distribute these profits among the owners and shareholders.
Their aim is welfare of the society and to provide to a specific group or the public at large.
2. Motive
Their motive is to maximize revenues and minimize costs, there by maximizing profits.
They are set up as charitable institutions which function witout any profit motive and service the society or public at large.
3. Form of organisation
Sole proprietorship, Partnership firm or company.
Clubs, charitable institutions, schools, religious organisations, trade unions, welfare societies and societies for the promotion of art and culture.
4. Ownership
The founders/owners and other stakeholders.
No owners. They are membership based.
5. Commencement
The capital contributed by the founders/owners.
Specific/general funds, subscriptions, Government grants etc.
6. Management
Sole proprietor, partners or directors and so.
Trustees, committees or governing bodies
7. Operations
They manufacture, purchase or sell goods.
They do not manufacture, purchase or sell goods.
8. Credit Transactions
They involve in credit transactions.
They may not have any credit transactions.
9. Books of Account
They have to maintain many books of account like Profit and Loss Account etc.
They do not have to maintain as many books of account as a profit organisation.
10. Revenue
Their major sources of income are by selling goods and provide services.
Member donations, grants-in-aid, income from investments etc.
11. Source of Capital
Investments from the owners and other stake holders.
Annual fees and other funds.
12. Financial Statements
Income Statement
Balance Sheet
Cash flow Statement
Receipt and Payment Account
Income and Expenditure Account
Balance Sheet
13. Surplus
Distributed among the owners.
Added to the capital and other funds.
14. Tax
It is an obligation to pay taxes.
Exempted from tax under specific conditions.