Non-Profit Organisation

Non profit organisation are established for the

purpose of rendering service. They are not expected to

earn profit, but organised mainly for social, educational,

religious or charitable purpose.

A non profit making entity is defined as “a non-

profit seeking entity which does not usually engaged in

trading activities,but engages in rendering services to its

members and society.

Features of non-profit making organisation

• Main objective is to render services to its members.

• They are not expected to profit.

• Do not normally engage in trading activity.

• Credit transaction are not usually made.

• Daily transaction are recorded in cash book.

• They prepare a summery of cash book at the end is called Receipt and payment account.

• No trial balance is prepared.

• Do not prepare trading and profit and Loss A/c , but prepares income and expenditure accounts.

• Do not have capital, but have only capital fund.

Final account of non profit organisation consists of;

Receipt and Payment Account.

Income and Expenditure account.

Balance Sheet.

Receipt and Payment Account.

• Receipt and payment account is a statement prepared

at the end of an accounting year giving a summary of

all receipts and payments recorded in cash book.

• It is debited with all items of receipts and credited

with all items of Payments.

• Both ‘revenue’ and ‘Capital’ items are recorded in it.

• It records all receipts and payments relating to

previous, current and subsequent years.

Difference between receipt and payment A/c and Income & Expenditure account

Receipt & Payment Account

Entries are not made in date

wise

All entries are made in

classified form.

This account is opened by

non – trading concern only.

Income & Expenditure A/c

Entries are not made in date

wise.

All entries are made in

details.

This account is opened in

both trading and non

trading concerns.

Income and expenditure Account.

• Income and expenditure account is a nominal account

prepared by a non –profit seeking organisation, in

order to ascertain the surplus or deficit by recording

revenue items of particular period.

• All expenses and losses are debited and all incomes

and gains are credited to it.

• The surplus or deficit is transferred to Capital Fund.

Relevant Terms

• Entrance Fees: The fee charged for admitting a person as a member in an institution is called admission fee or entrance fee.

• Since it is paid by the member only once – it is a Capital item.

• Since the institution receives it every year when new admission take place – it is treated as Revenue item.

Relevant Terms

• Subscription:- It should be credited to Income and Expenditure

Account. Subscription collected for any special purpose, it should

be shown as a separate fund on liability side of balance sheet.

• Donation: If it is for general purpose, it should be credited to

income and expenditure account. If it is for any special purpose,

it should be shown as a separate fund on liability side of balance

sheet.

• Legacy: It is the amount received by the non profit organisation

on the death of a person as per his ‘will’.

– If it is a large amount, it is capitalised

– If it is small amount, it should be credited to Income and Expenditure

Account.

Relevant Terms• Life membership fees: Lump sum amount received

from a member- it is usually credited to capital fund

account.

• Sale of old newspaper, sale of sports materials-

Recurring in nature. it is usually credited to Income

and Expenditure Account.

• Sale of old asset: The book value of asset sold is

deducted from asset in the balance sheet. Any profit

or loss on such sales should be transferred to income

and expenditure account.

Procedure in the preparation of balance sheet

1. Preparation of statement of affairs To find out capital

fund at the beginning.

2. Surplus, if any, added to ‘capital fund’. Deficit should be

deducted from capital fund in the closing balance sheet.

3. Outstanding liabilities (income received in advance,

outstanding expenses) as on the closing date be shown

on the liability side.

4. Outstanding assets (income receivable, prepaid

expenses) must be shown on the asset side.

Procedure in the preparation of balance sheet

5.The balance of receipt and payment account (cash & Bank) must

be shown on the assets side.

6.Bank balance (Cr.) should be shown on the liability side of

balance sheet.

7.Assets in existence at the beginning should be adjusted for

additions, disposal. if any, and also for depreciation.

8.New assets acquired during the year should be shown on the

assets side of balance sheet.

9.Any special collection of non – recurring nature should be shown

on the liability side of the closing balance sheet.

Prepared by

PRADEEP T R

GHSS SASTHAMCOTTA,

KOLLAM