This document provides an overview of accounting for not-for-profit organizations. It discusses key concepts like receipts and payments account, income and expenditure account, and accounting treatment of special items. Receipts and payments account summarizes cash transactions, while income and expenditure account summarizes revenue transactions regardless of cash flows. Entrance fees are usually treated as revenue, while life membership fees and donations may be transferred to capital or specific funds depending on intentions. Subscriptions received are split between periods and the net amount transferred to income and expenditure account.
This document provides an overview of accounting for not-for-profit organizations. It discusses key concepts like receipts and payments account, income and expenditure account, and accounting treatment of special items. Receipts and payments account summarizes cash transactions, while income and expenditure account summarizes revenue transactions regardless of cash flows. Entrance fees are usually treated as revenue, while life membership fees and donations may be transferred to capital or specific funds depending on intentions. Subscriptions received are split between periods and the net amount transferred to income and expenditure account.
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Chapter-14 Accounting for Not For Profit Organization.pdf
This document provides an overview of accounting for not-for-profit organizations. It discusses key concepts like receipts and payments account, income and expenditure account, and accounting treatment of special items. Receipts and payments account summarizes cash transactions, while income and expenditure account summarizes revenue transactions regardless of cash flows. Entrance fees are usually treated as revenue, while life membership fees and donations may be transferred to capital or specific funds depending on intentions. Subscriptions received are split between periods and the net amount transferred to income and expenditure account.
This document provides an overview of accounting for not-for-profit organizations. It discusses key concepts like receipts and payments account, income and expenditure account, and accounting treatment of special items. Receipts and payments account summarizes cash transactions, while income and expenditure account summarizes revenue transactions regardless of cash flows. Entrance fees are usually treated as revenue, while life membership fees and donations may be transferred to capital or specific funds depending on intentions. Subscriptions received are split between periods and the net amount transferred to income and expenditure account.
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CHAPTER – 14
ACCOUNTING FOR NOT FOR PROFIT ORG.
TABLE OF CONTENTS I. Preliminary II. Distinction between III. Accounting of Special Terms IV. Special Aspects in accounting V. Practical Problems
1. PRELIMINARY
Non-Profit making organizations like schools, clubs, charitable institutions etc. do not carry the activities with an intention of earning profits. Their prime objective is to render services. Hence they do not prepare Trading and Profit & Loss Account. The final accounts of these institutions comprise of - i. Receipts and Payments Account ii. Income and Expenditure Account iii. Balance Sheet Principles involved for preparing Income and Expenditure Account are the same as of Trading and Profit and Loss Account.
2. DISTINCTION BETWEEN RECEIPT & PAYMENT ACCOUNT AND INCOME &
EXPENDITURE ACCOUNT
POINT OF RECEIPTS AND PAYMENTS ACCOUNT INCOME AND EXPENDITURE ACCOUNT DIFFERENCE Summary of cash transactions Summary Summary of revenue transactions A statement Type An account Only cash transactions are included. Includes all revenue expenses and Transaction Outstanding expenses and outstanding incomes irrespective of their cash flows. Recorded income are not taken into consideration. Capital as well as revenue receipts and Capital / Only revenue income and expenses are payments are considered. Revenue considered. It includes receipts and payments relating It includes revenue income and expenses to preceding period, current year and Periodicity only for the current year. subsequent period. Real (Cash) and Personal (Bank) Account Accounts Nominal / Revenue Account It commences with opening cash and bank It does not commence with any opening Opening balance and ends with closing cash and balance, but difference between two sides Balance bank balance. represents net surplus or deficit for the
-: 176 :- CA – FOUNDATION: PRINCIPLES & PRACTICE OF ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL POINT OF RECEIPTS AND PAYMENTS ACCOUNT INCOME AND EXPENDITURE ACCOUNT DIFFERENCE current year. Receipts are recorded on the left side and Expenditure is recorded on the debit side Ruling payments are recorded on the right side. and Income is recorded on the credit side. It may not be accompanied with any other Accompanied It is always accompanied with Balance statement. with Sheet.
3. ACCOUNTING OF SPECIAL TERMS
1. Entrance fees: Fees are collected only once i.e. at the time of admission of a member, hence Entrance Fees should be treated as ‘Capital receipt’. But for the organization, the amount is received periodically, as every year there will be admission of new members. Therefore it is customary practice to treat the fees as ‘Revenue Receipt’. The Rules or Bye laws of an institution may provide for the basis of accounting. Method of accounting should be followed consistently.
2. Life Membership Fees:
There are two types of members viz., Life members and ordinary members. Life Members pay lumpsum amount as life membership fees instead of periodic payment. Such fees are credited to ‘Capital Fund’. Alternatively the life membership fees may be credited to a special account and periodic transfer may be made to subscription account equal to an amount of annual subscription. Any balance remaining at the time of death of the member is then transferred to ‘Capital Fund’ Account. It is usual practice to credit Life Membership to `Capital Fund' Account.
3. Donations: Donation is the amount received from well-wishers by way of a gift. It may be received in kind also. The accounting treatment depends on the intention of the donor. a. If the donation is received to meet operational deficit or for incurring revenue expenditure or without any specific purpose, it is treated as revenue income and credited to Income and Expenditure Account. b. If the donation is received with a specific objective e.g. construction of Building, purchase of Library Books, purchase of Equipment etc., it should be credited to ‘Respective Fund Account’. Amount spent is debited to either ‘Fund Account’ or Respective assets Account’. c. In absence of any specific intention of the donor, donation being a non-periodic receipt, it is not treated as a revenue income. Hence it is transferred to capital fund. However rules of an institution or Governing Body may decide upon appropriation of such donations. Note: The word ‘Fund’ denotes liability and is represented by specific assets.
4. Subscriptions: Subscription is a periodic payment received from ordinary members. Subscriptions received during the year should be split into - - relating to preceding year/s - relating to current year -: 177 :- Follow CA CS Anshul Agrawal Sir on Unacademy, Facebook, Instagram and Twitter To watch Unacademy’s special classes use Invitation code ‘ANSHUL’ - relating to subsequent year/s After adjustment of subscriptions received in advance relating to the current year and outstanding subscription at the end of the year balance in Subscription Account is transferred to ‘Income and Expenditure Account.’ The following chart makes the entries clear:
Total Subscription received
Relating to Relating to Relating to
previous year/s current year subsequent year/s Add
1. Adjustment of subscription already received in advance
2. Subscription due but not received = Transfer to Income and Expenditure Account
A consolidated Subscription Account may alternatively be prepared if year wise break up of
subscription received is not available - Transfer of subscription to Income and Expenditure Account: Rs. Subscription received during the year ....... Add: 1. Outstanding at the end ....... 2. Received in advance at the beginning ....... _____ Less: 1. Outstanding at the beginning ....... 2. Received in advance at the end ....... _____ Transfer to Income and Expenditure Account _____ Accounting Entries: 1. Subscription received during the year: Bank A/c ....Dr. To Subscription Account 2. Adjustment of subscription received in advance at the beginning: Subscription Received in Advance A/c ....Dr. To Subscription Account 3. Adjustment of subscription outstanding at the beginning: Subscription A/c ....Dr. To Outstanding subscription A/c 4. Adjustment of subscription received in advance at the end Subscription A/c ....Dr. To Subscription Received in Advance A/c 5. Adjustment of subscription outstanding at the end: Outstanding Subscription A/c ....Dr. To Subscription A/c 6. Transfer of Subscription:
-: 178 :- CA – FOUNDATION: PRINCIPLES & PRACTICE OF ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Subscription A/c ....Dr. To Income and Expenditure Account 5. Income accruing on Fund Investment and Expenditure incurred to carry out the objective of the fund: Fund should always be represented by specific asset. Any income arising out of fund investments should be credited to respective Fund Account e.g. Interest on Prize Fund Investments. Similarly expenditure incurred to carry out the objectives of the fund should be charged to the respective fund Account e.g. distribution of prizes.
6. Legacy: It is an amount given as per the will of a deceased person. It is like a donation. Being a non-recurring receipt it is directly added to ‘Capital Fund’.
4. SPECIAL ASPECTS INVOLVED IN ACCOUNTING OF CERTAIN INSTITUTIONS
1. Educational Institutions: The Institutions are mostly registered as societies under Indian Societies Registration Act, 1860. In some of the States they are also registered under the State Public Trust Act. The part of the expenses are met from the funds raised by the educational institutions themselves either by way of donation or from charities collected from benevolent citizens. The State Government through grant-in-aid codes have involved different patterns of giving assistance to the educational institutions. Thus there are following three main sources through which amounts are collected by the educational institutions. i. Donations from Public ii. Fees in the form of tuition fees/term fees/admission fees/library fees etc. iii. Grants received from the Government (Maintenance grant, Equipment Grant, Building Grant etc.) The Bombay Public Trust Act, requires submission of statements to the Charity Commissioner in a consolidated form of a society or trust, which controls multiple institutions.
2. Hostels: The following are the usual expenses and income heads - Sr. Sr. Expenditure Income No. No. 1. Repairs and Maintenance 1. Room rent 2. Electricity and water etc. 2. Rent of furniture, appliances etc. 3. Establishment charges 3. Electric and water charges 4. Depreciation 4. Library/Reading room fee 5. Rent of Building (if hired) 5. Medical fees 6. Newspapers, magazines etc. 6. Mess charges 7. Expenditure on sports 7. Admission fees 8. Mess expenditure 9. Medical expenses
-: 179 :- Follow CA CS Anshul Agrawal Sir on Unacademy, Facebook, Instagram and Twitter To watch Unacademy’s special classes use Invitation code ‘ANSHUL’ Note: Caution Money and Mess Deposit/Advance is kept in a separate account. This is refundable when student leaves the hostel.
5. PRACTICAL PROBLEMS
Q1. R & P A/c Only REG. PAGE NO.
The receipts and payments for the Swaraj Club for the year ended March 31, 2016 were: Entrance fees Rs. 300; Membership Fees Rs. 3,000; Donation for Club Pavilion Rs. 10,000, Foodstuff sales Rs. 1,200; Salaries and Wages Rs. 1,200 Purchase of Foodstuff Rs. 800; Construction of Club Pavilion Rs. 11,000; General Expenses Rs.600; Rent and Taxes Rs. 400; Bank Charges Rs. 160. Cash in hand-April. 1st Rs. 200, March. 31st Rs. 350 Cash in Bank-April. 1st Rs. 400; March. 31st Rs. 590 You are required to prepare Receipts and Payment Account.
Q2. Calculation of Subscription REG. PAGE NO.
During 2016, subscription received in cash is Rs. 42,000. It includes Rs. 1,600 for 2015 and Rs. 600 for 2017. Also, Rs. 3,000 has still to be received for 2016. Required Calculate the amount to be credited to Income and Expenditure Account in respect of subscription. Q3. Calculation of Salaries Due REG. PAGE NO. Suppose salaries paid during 2016 were Rs. 23,000. The following further information is available: Rs. Salaries unpaid on 31st March 2015 1,400 Salaries pre-paid on 31st March 2015 400 Salaries un-paid on 31st March 2016 1,800 Salaries pre-paid on 31st March 2016 600 Required Calculate the amount to be debited to Income and expenditure account in respect of salaries and also show necessary ledger accounts.
Q4. Calculation of Subscription Due REG. PAGE NO.
During the year ended 31st March, 2016, Sachin Cricket Club received subscriptions as follows: Rs. For year ending 31st March, 2015 12,000 For year ending 31st March, 2016 6,15,000 For year ending 31st March, 2017 18,000 Total 6,45,000 There are 500 members and annual subscription is Rs. 1,500 per member. On 31st March, 2016, a sum of Rs. 15,000 was still in arrears for subscriptions for the year ended 31st March, 2015. Ascertain the amount of subscriptions that will appear on the credit side of Income and Expenditure Account for the year ended 31st March, 2016. Also show how the items would appear in the Balance Sheet as on 31st March, 2015 and the Balance Sheet as on 31st March, 2016.
-: 180 :- CA – FOUNDATION: PRINCIPLES & PRACTICE OF ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL _____________________________________________________________________________________________________________________________
