Accounting For Non-Profit Making Org-1

INTRODUCTION TO FINANCIAL ACCOUNTING
Accounting for Non Profit

Organization
Prepared by
Godfred and Edem
Lecturers in Accounting
University of Ghana Business School
Learning Objectives
Explain the main differences between financial statements of

NPO’s and profit making organisations.
Prepare receipts and payments accounts, the income and

expenditure accounts and the balance sheets of NPO’s
Calculate profits/losses for special entities of NPOs
Make appropriate entries regarding subscriptions, life

membership accounts etc.
© Godfred and Edem, U.G.B.S.,

2
(Accounting Dept.)
Non-Profit Oriented Organizations
(NPOs)
• Organizations whose main purpose is not
trading or profit making e.g. charities, clubs,
associations, professional bodies etc.
• Their main financial statements are:

– Receipts and Payments account
– Income and Expenditure accounts &
Balance Sheet
3
(Accounting Dept.)
Receipts & Payments
• Is the summary of the Cashbook for the
accounting period.
• It records the cash receipts and payments.
• If the organization does not have other assets,

apart from cash, and liabilities as well and does
not intend showing the income and expense
differently, it will be enough to account for all
financial transactions that have taken place in the
period in the receipts and payments.
4
(Accounting Dept.)
Format of Receipt & Payments
Receipts ¢m Payments ¢m
Cash/Bank balance b/d xxxx Barmen’s wages Xxxx
Members dues Xxxx Clubhouse expenses Xxxx
Donations received Xxxx Honorarium to pastors Xxxx
Bar takings Xxxx Utilities Xxxx
Rent received Xxxx Donation to orphanages Xxxx
Cash/Bank balance c/d xxxx
xxxxx xxxxx
5
(Accounting Dept.)
Income & Expenditure Account
• It is the “Income statement” for a non-profit
organization to assess the growth or otherwise in its
“capital” termed as the Accumulated Fund.
• It is prepared with the same principle as normal
income statement of a trading organization.
• Only revenue receipts and revenue expenditures are
considered in the Income and Expenditure account.
• Capital receipts and expenditures go into the balance
sheet.

6
(Accounting Dept.)
Differences In Terminologies
Profit-oriented organization Non-profit-oriented organisation
Trading, profit and loss account Income and expenditure account
Net profit Excess of Income over Expenditure

(surplus)
Net loss Excess of expenditure over income

(deficit)

7
(Accounting Dept.)
Format of Income & Expenditure
¢m ¢m
Incomes:
Subscription xxx
Bar profit etc. xxx xx
Expenditure
stationery xxx
Donations etc. xxx xx

Excess of income over expenditure ( or vice versa) xxx
8
(Accounting Dept.)
Receipts & Payments Vrs Income &
Expenditure
Receipts and Payments Income and Expenditure
It records both capital and revenue It records only revenue expenditure,
expenditure capital expenditure goes to the balance
sheet
It has an opening balance It does not have opening balance
This is the cash book of the This is the “income statement” of the
organization organization
It records all cash receipts and It records only incomes and expenses
payments irrespective of the relating to the period under consideration.
period to which they relate.
Difference is the cash/bank balance Difference is the excess of

at a time income/expense over expense/income.
(i.e. surplus or deficit)
It is a real account It is a nominal account

9
(Accounting Dept.)
Sources of Finance for NPOs
• Membership dues
• Annual subscriptions
• Fund raising activities
• Special fund raising programs-Dinner dance
• Donations
• Trading activities of special entities as
supplement, e.g. running a bar/restaurant

10
(Accounting Dept.)
Key items to be considered
• Annual subscription
– Amount of money contributed and received from
members of the association on annual basis.
• Life membership dues
– Amount is paid to enjoy privileges of membership of the
organization for one’s lifetime.
• Donations
– Could be in cash or in kind such as an asset donated to it.
• Entrance fees
– normally paid by first timers

11
(Accounting Dept.)
Annual Subscription
¢m ¢m
Balance b/fwd (owing at beg.) xx Balance b/fwd (prepaid at beg) xx
Income and Expenditure (diff) xx Receipts and Payments(cash received) xx
Balance c/d (prepayment at xx Balance c/d (owing at end) xx

end)
xx xx

12
(Accounting Dept.)
Life Membership
• Should not be treated as income in the I & E
a/c only in the year it was paid
• Credit it to a life membership account and
transfers made to the I & E a/c of an
appropriate amount annually.
• The balance on the life membership account
at the end of each period should be shown as
a liability in the balance sheet.

13
(Accounting Dept.)
Summary of Procedure
• Prepare receipts and payments account, if not given
• Prepare subscription and other income accounts to
determine incomes earned.
• Prepare expense accounts to determine the amount incurred.
• Prepare special purpose profit and loss account to arrive at
the profit/loss to be transferred into the income and
expenditure account.
• Use opening balances to determine the Accumulated Fund in
a Statement of Affairs
• Prepare the Income and Expenditure Account
• Prepare the balance sheet

14
(Accounting Dept.)

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INTRODUCTION TO FINANCIAL ACCOUNTING

Accounting for Non Profit

Explain the main differences between financial statements of

Prepare receipts and payments accounts, the income and

Calculate profits/losses for special entities of NPOs

Make appropriate entries regarding subscriptions, life

© Godfred and Edem, U.G.B.S.,

• Their main financial statements are:

• It records the cash receipts and payments.

• If the organization does not have other assets,

Cash/Bank balance b/d xxxx Barmen’s wages Xxxx

Members dues Xxxx Clubhouse expenses Xxxx

Donations received Xxxx Honorarium to pastors Xxxx

Bar takings Xxxx Utilities Xxxx

Rent received Xxxx Donation to orphanages Xxxx

Cash/Bank balance c/d xxxx

© Godfred and Edem, U.G.B.S.,

Trading, profit and loss account Income and expenditure account

Net profit Excess of Income over Expenditure

Net loss Excess of expenditure over income

© Godfred and Edem, U.G.B.S.,

Bar profit etc. xxx xx

Donations etc. xxx xx

Difference is the cash/bank balance Difference is the excess of

It is a real account It is a nominal account

© Godfred and Edem, U.G.B.S.,

© Godfred and Edem, U.G.B.S.,

Balance b/fwd (owing at beg.) xx Balance b/fwd (prepaid at beg) xx

Income and Expenditure (diff) xx Receipts and Payments(cash received) xx

Balance c/d (prepayment at xx Balance c/d (owing at end) xx

© Godfred and Edem, U.G.B.S.,

© Godfred and Edem, U.G.B.S.,

© Godfred and Edem, U.G.B.S.,

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