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CBSE Quick Revision Notes and Chapter Summary

Class-11 Accountancy
Chapter 9 Financial Statement for Non Profit Organizations

Introduction
Some organisations who are not involved in Trading Activities and work for the welfare of the society
or its members are known as Not-for-Profit organisations. These organisations are formed to promote
the, Art, Sports, Culture or Cultural activities, Religion, Education etc. These organisations are mostly
managed by the trustees. It is the duty of the trustees to keep a proper record of every Receipt and
payment in form of Accounts i.e., Receipts and Payments A/c ; income and expenditure Account and
Balance Sheet. The main sources of income for these organisations are ; Donations , Grant-in-Aid,
Income from investments, Membership fees etc. at the end of each financial year these organisations
prepare the final accounts or financial statements to know the financial position and incomes and
expenditures after preparing financial statements it is the responsibility of the trustees to submit a
copy of these accounts to the Registrar.

Meaning and Definition

Non profit organisation are those who do not operate with the aim of profit. such organisations
are : schools, hospitals, charitable institutions, welfare societies, clubs, public libraries, resident
welfare association, sports club etc. These organisations provide services to their members and to
the public in general. A non profit organisation receives donation, membership fees, grants and
subscriptions etc. these are the main source of income for these type of organisations.
According to William pickles : Receipts and payments account is nothing more than a summary of the cash
book (cash and bank transactions) are a certain period, analyzed and classified under suitable headings. It is the
form of account most commonly adopted by the treasurers of societies, clubs and associations etc. when
preparing the results of the years workings.

Key Points :
i) Main objective of Not-for-Profit organization is the welfare of the society.
ii) Main source of income is ; Donation, Membership fees, Grants, income from investments
etc.
iii) Main Accounts Prepared by these organizations are : Receipt and payment A/c ; income
and expenditure A/c and Balance Sheet.
iv) Receipts and Payments A/c is a summary of Cash Book.
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v) Income and expenditure account is a summary of Profit and Loss A/c.

vi) Opening Balance Sheet is prepared to calculate the Capital Fund.
vii) A copy of financial statements should be submitted to the Registrar.
viii)

Accounting records of not for profit organizations:

Not for profit organizations do not prepare trading and profit and loss account [as the
trading concerns do] not for-profit organizations are also required to prepare the financial
statements at the end of the each accounting period. The final accounts of the Not for-profit
organization consists of the following;
1. Receipt and payment account
2. Income and expenditure account, and
3. Balance sheet

Difference between profit-making and not for profit-making organizations

not for-profit organization
Profit organization
1. Main object of such organization is to work
for the welfare of the society or its
members.

Main object of such organizations is to earn

profit

2. They do not maintain any capital account

instead they maintain capital fund which
includes legacies, life membership fees,
surplus etc.

These organizations maintain capital account.

3. the net result shown by income and

expenditure account is either surplus or
deficit.

The net result shown by profit and loss account

is either net profit on net loss.

4. Financial statements of such organizations

include:
1. receipts and payment account
2. income and expenditure account
3. balance sheet

Financial statements of these organizations

include:
1. manufacturing/trading account
2. profit and loss account
3. balance sheet

Capital expenditure
Outlay resulting in the increase or acquisition of an asset or increase in the earning capacity of
the business are capital expenses. -----------William pickles

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Revenue expenditure
Mostly benefit of this expenditure we [business] enjoy only within the current year. Expenses of
administration, manufacturing, selling expense, Office expense and all day to day expenses of the
current year, are example of revenue expenditure.
According to Kohlar, it is an expenditure charged against operation: a term used to contrast
with capital expenditure.

Main features of receipts and payments account

1. It is the summary of cash book.
2. It is a real account.
3. All cash receipts are recorded on the debit side and all cash payments are recorded on the
credit side.
4. It does not show any non-cash item like depreciation, loss on sale of fixed assets, gain on
sale of fixed assets.
5. It starts with the opening balance and ends with the closing balance.
6. No adjustments are made in this account regard to outstanding and prepaid incomes and
expenses.
7. It records all cash receipts and payments whether related to the current year, previous
years or next year.
8. It always shows a debit balance.
9. It is not necessary that balance sheet should be prepared with it.

Proforma of Receipt & Payments Account

Receipts

Amount

Payments

To balance b/d:

By printing and stationery

cash in hand

By newspapers, magazines,

Cash at bank

periodicals

To subscriptions

By postage

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Amount

To general donations

By repairs

To general grant

By advertisement

To proceeds from entertainment

By Charity

To interest/dividend on general investment

By maintenance

To sales of newspapers or grass

By audit fee

To rent received

By salary, fee

To miscellaneous receipts

By entertainment expenses

capital receipts [actual cash receipts]

By rent paid

To legacies

By insurance

To endowment fund receipts

By Honorarium

To entrance fee

By municipal taxes

To life membership fee

By bar purchases and expenses

To subscriptions and donations for

By gardening

specified purposes

capital payments

To receipts on account of special funds i.e.,

By books

prize fund, match fund, tournament fund

by building purchased

etc.

By sports equipment

To sales of fixed assets i.e., furniture,

by land

sports equipment, investment etc.

by investment

To interest on special funds

by government loan
by furniture
by drawings
by balance c/d
cash in hand
Cash at bank

Income & Expenditure Account

income and expenditure account is the summary of incomes and expenditures of an accounting
period. It is like a profit and loss account prepared on accrual basis. It includes only revenue items
and balance at the end represents surplus or deficit.

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Expenditure
Expenses Paid
xxxx
Add : Outstanding at the end xxxx
xxxx
Less : Outstanding at beginning xxxx
xxxx
Add: Prepaid at beginning
xxxx
xxxx
Less : Prepaid at the end
xxxx
Treatment of consumable items :
( Suppose Stationary )
Opening stock of stationary
xxxx
Add: Purchase during year
xxxx
Add : Creditors for stationary
At the end
xxxx
Add: Advance payment for
Stationary last year
xxxx
Less : Creditors for stationary
In the beginning
xxxx
Less : Advance payment for
Stationary current year xxxx
Less : Closing stock of stationary xxxx
( Value of stationary consumed )
To Advertisement Expense
To loss on sale of fixed assets
To newspapers and magazines
To electricity and water
To postage and telephone
To Printing and Stationary
To Audit Fees
To Depreciation on fixed Assets
To Rent, Rates and Taxes
To insurance premium
To sundry Expenses
To Bank Charges
To Honorarium
To Upkeep of Lawns
To Surplus i.e.
(Excess of incomes over expenditure)

Amount

xxxx

Income

By subscription Received
Add : outstanding at end
Add : Advance received
In beginning
Less : outstanding at
Beginning
Less : Advance received
At end

Amount

xxxx
xxxx
xxxx
xxxx
xxxx
xxxx

By Life membership fees

( only Revenue portion)
By Donation ( Only Revenue)
By Entrance fees ( only Revenue)
By dividend & interest
By profit on sale of fixed Assets
By Rent of club hall
By sale of old newspapers
By sundry Receipts

xxxx

By Deficit i.e.
(excess of expenditure over income)

x
x
x
x
x
x
x
x
x
x
x
x
x
x
x

xxxx

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x
x
x
x
x
x
x
x
x

xxxx

1. Subscription
Subscription is the amount paid by the members to the organisation. This is the main
source of income and generally contributed annually.
2. Entrance fees or Admission fees
Amount charged from a new person admitted to the organisation is called Entrance fees or
admission fees.
3. Life membership fees
Life membership fees is the amount charged once in the life time of a member. It is shown
in Balance Sheet liabilities side.
4. Legacy
it is the amount received by a nonprofit concern as per the will of a deceased person.
Amount received as legacy is treated as capital receipt. It appears on the debit side of the
receipts and payments accountIt is like a special donation and shown in the liabilities side
of balance sheet.
5. Honorarium
Honorarium is the amount paid To the person who is not a permanent employee of the
institution and rendered services to the institution. Amount paid to him is called
honorarium.
6. Specific Donation
Donation received for the specific purpose by a nonprofit concern is called specific
donation.
7. General Donation
The amount received as general donation may be utilized for any purpose. General
donation is a regular source for any nonprofit organization.
Endowment Fund
Accoring to Eric.L.Kohlar, it is a fund arising from a bequest or gift, the income of which is devoted for a specific
purpose.

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