Accounting for Not for Profit Organisation, Accounting for Special Items
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A Not for Profit Organisation prepares their financial statements in the following form:
- i) Income & Expenditure Account & ii) Balance sheet
Generally, such organizations also prepare a Receipt & Payment Account.
Accounting for Not for Profit Organisation
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What’s Income and Expenditure Account?
- Income & Expenditure Account – is just like a profit & Loss account.
- All the Expenses for that year i.e., related to that year, will be debited to it &
- All the incomes related to that year will be credited to it.
- If the credit side is more, the balance is known as “Surplus”(Profit) &
- If the debit side is more the balance is known as “Deficit” (Loss).
- Balance sheet shows the financial position of the entity as at a particular point of time.44
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What’s Receipt and Payment Account?
- Receipt & Payment Account – is a summarized cash book.
- All receipts in that year may be loan, a capital receipt or an income will be debited to Receipt & Payment Account.
- Similarly all payments made in this year should be credited to Receipt & Payment Account.
- The Balance of this Account is the closing cash and bank balance and will appear in the balance sheet.
Accounting for Special Items
- The Associations collects 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 Income & Expenditure account.
- But the entrance fees 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 Income & Expenditure account.
- Otherwise the entrance fees can be Capitalized & 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” & Part-part amount can be written off every year by transferring to Income & Expenditure Account in proportion to the benefit extended to the members, estimated on some suitable basis.
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- 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 separate Account & shown in the Balance sheet on the liability side.
- It can be deferred and credited to I&E Account in proportion of depreciation charged on that asset.
- In the 2nd case, it will be credited as income in Income & Expenditure Account because corresponding expense is also debited in income and expenditure Account.
- Donations are the voluntary contribution provided by the well wishers for general or specific purpose.
- If donations are received for a particular purpose then it will be credited to that particular fund Account say donation received for construction of building credited to Building fund Account.
- Otherwise general donations will be credited to Income & Expenditure Account.
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- 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 student scholarship Account will be debited and hence in general it will not appear in financial statement.
- In case of schools/colleges, there may be credit balance in Scholarship Account which represents Scholarship received from Govt. etc but yet to be distributed to the students. This should be shown as liability in the Balance sheet.