CBSE Class 12 Accounts, Financial statements of Not-for-profits

NOTES

CHAPTER 1: Not-For-Profit Organisation

Characteristics or features of Not-For-Profit Organisation

  1. Entity: has a separate legal entity promoted by individuals.
  2. Purpose: is to further cultural, educational, religious, professional objectives and rendering service to people at large.
  3. Ownership: it is set up as charitable society or trust. Thus owned by an individual or group of individuals.
  4. Financial statements: it prepares its financial statement every year which includes receipts and payments account, income and expenditure and balance sheet.
  5. Funds: required for operations are given by its members and donors as entrance fee, membership fee, subscription and donations. It is supplemented by surplus from operations.

Receipts and payment account: is a summary of cash and bank transactions for a given period. It is prepared from the cash book at the end of financial year. All cash receipts are entered on the debit side and all the cash payments on the credit side.

Features:

  • It is a summary of cash and bank transactions
  • It can be inferred that the receipts and payment account is similar to a cash account
  • No distinction is made between capital and revenue items, and excludes all non-cash items.
  • It records all cash and bank transactions whether pertaining to the current period, previous period or succeeding period.
Dr. Cr.
Receipts Rs. Payments Rs.
To opening balance (bal b/d)
 Cash in hand
 Cash at bank
To capital receipts (subscriptions)
 For previous year
 For present year
 For next year
To grant for specific purpose
To general grants
To general donations
To rent received
To dividends
To interest received
To life membership fees
To sale of fixed assets
To balance c/d (bank overdraft)		 By balance b/d (opening bal)
By salaries
By rent
By repairs
By investment
By audit fee
By miscellaneous payments
By insurance
By drawings
By bank overdraft
By building
By books
By loan
By Balance c/d (closing balance)
 Cash in hand
 Cash at bank
Total Total

Income and Expenditure:- the surplus or deficit of a particular period for non-trading concern is determined by drawing up an income and expenditure account.

Features:

  • It is a revenue account prepared at the end of an accounting period to determine the surplus or deficit.
  • The expenses and revenue of the period are matched in order to determine deficit or surplus.
  • Both cash and non-cash items are considered.
  • The surplus in this account is not distributed among members, but added to the capital fund.
  • Excess of income over expenditure is a surplus and excess of expenditure over income is a deficit.
Expenditure Rs. Income Rs.
To salaries
 Add: outstanding at the end
 Less: outstanding in the beginning
To rent
To insurance premium
To printing and stationary
To sports expenses
To electricity charges
To loss on sale of furniture
To sundry expenses
To newspaper and periodicals
To depreciation on
 Furniture
 Sports material
To surplus taken to balance sheet		 By subscriptions
By entrance fees
By sports fees
By sale on old newspapers
By interest on investments
By deficit (taken to bal. sheet)
Total Total

Example 1:

From the under mentioned receipts and payments account for the year ending March 31st March, 2017 of Peoples club, prepare income and expenditure account for the same period:

Receipts and Payment Account
Dr. Cr.
Expenditure Rs. Payment Rs.
balance c/d bank
subscriptions
 2015 6,750.00
 2016 45,000.00
 2017 2,250.00
Donations
Rent of hall
Interest on bank deposits
Entrance fees

1,12,500.00
 
 
 
54,000.00
9,000.00
1,350.00
2,025.00
4,500.00
Purchase of furniture
Salaries
Telephone expenses
Electricity expenses
Postage and stationary
Purchase of books
Entertainment of expenses
Purchases of 5% govt. papers
Miscellaneous expenses
Balance c/d
 Cash
 Bank
 
22,500.00
9,000.00
1,350.00
2,700.00
675.00
11,250.00
4,050.00
36,000.00
2,700.00
1,350.00
91,800.00
1,83,375.00 1,83,375.00

The following information is available:

  1. Salaries outstanding
  2. Entertainment expenses outstanding
  3. Bank interest receivables
  4. Subscriptions accrued
  5. 50% of entrance fees is to be capitalized
  6. Furniture is to be depreciated at 10% per annum

Solutions:

Income & Expenditure Account
Dr. Cr.
Expenditure Amount Income Amount
Salaries 9,000
Add: outstanding 6,750
Telephone expenses
Electricity charges
Postage and stationary
Entertainment expenses 4,052
Add: outstanding 2,250
Miscellaneous expenses
Miscellaneous expenses depreciation on furniture
Surplus
 
 
1,350.00
2,700.00
675.00
 
6,300.00
2,700.00
1,687.50
31,837.50
Subscriptions
Donations
Entrance fees (50% of 4500)
Bank Interest 2,025
Add: outstanding interest 675
Interest on investment
Hall rent
46,800.00
9,000
2,250.00
 
2,700.00
900
1,350
63,000.00 63,000.00