Accounting for Not for Profit Organisations, Accounting for Special Items

Accounting for Not for Profit Organisations, CheckAccounting for non-profit organizations, A Not for Profit Organisation prepares their financial statements in the following form:

• i) Income and Expenditure Account and ii) Balance sheet

Generally, such organizations also prepare a Receipt and Payment Account.

Accounting for Not for Profit Organisation

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What’s the Income and Expenditure Account?

• Income and Expenditure Account – is just like a profit and Loss account.
• All the Expenses for that year i.e., related to that year, will be debited to it and
• All the income related to that year will be credited to it.
• If the credit side is more, the balance is known as “Surplus”(Profit) and
• If the debit side is more the balance is known as “Deficit” (Loss).

What’s a balance sheet?

• The balance sheet shows the financial position of the entity at a particular point in time.44

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What’s a Receipt and Payment Account?

• Receipt and Payment Account – is a summarized cash book.
• All receipts in that year may be a loan, a capital receipt or an income will be debited to the Receipt and Payment Account.
• Similarly, all payments made this year should be credited to the Receipt and Payment Account.
• The Balance of this Account is the closing cash and bank balance and will appear in the balance sheet.

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Accounting for Special Items

Entrance fees:

• The Associations collect entrance fees from the new members at the time of their admission.
• It is different from the membership fees/subscriptions, which are received every year and hence treated as revenue income and transferred to the Income and Expenditure account.
• But the entrance fee is received only once from a member, hence it can be treated as follows:
• If the amount is just sufficient to recover the expenditure incurred while admitting any member then it will be treated as revenue income and transferred to the Income and Expenditure account.
• Otherwise, the entrance fees can be Capitalized and transferred to the Trust Fund Account. OR;
• Entrance fees may be treated as deferred Income and shown in the Balance Sheet under the head “Entrance Fees Account” The part-part amount can be written off every year by transferring to the Income and Expenditure Account in proportion to the benefit extended to the members, estimated on some suitable basis. Must Read Users of Accounting Information.

Grants/ Subsidies:

• Accounting of Grants/Subsidies will depend upon the purpose for which it is received.
• Grants/Subsidies may be for (1) Capital expenditure or (2) Revenue expenditure.
• In the 1st case, it will be credited to a separate Account and shown in the Balance sheet on the liability side.
• It can be deferred and credited to the IandE Account in proportion to the depreciation charged on that asset.
• In the 2nd case, it will be credited as income in the Income and Expenditure Account because the corresponding expense is also debited in the Income and Expenditure Account.

Donations:

• Donations are voluntary contributions provided by the well-wishers for general or specific purposes.
• If donations are received for a particular purpose then they will be credited to that particular fund Account Donations received for the construction of a building are credited to the Building fund Account.
• Otherwise, general donations will be credited to the Income and Expenditure Account. You may also like Users of Accounting Information.

Scholarships:

• Scholarship is the monetary benefit given to students under certain schemes by Govt. or other authorities etc.
• When received scholarship Account will be credited and when paid to the student scholarship Account will be debited hence in general it will not appear in the financial statement.
• In the case of schools/colleges, there may be a credit balance in the Scholarship Account which represents the Scholarship received from Govt. etc but yet to be distributed to the students. This should be shown as a liability in the Balance sheet. Must Read Material Requisition.