Not for Profit Organization
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Organization, which are formed not for earning profits but for a charitable or social purpose are called as not for profit organization
- Set up for providing service to its members and the public in general
- Clubs, charitable institutions, schools, religious organizations, trade unions, welfare societies and societies for promotion of art and culture
- Service as the main objective and not the profit like business organization
Managed by Trustee Who is Fully Accountable for That
- Major sources of their income are subscription from their members donations, grants-in-aid, income from investments, legacies etc.
- Funds collected from there are credited to capital fund or general fund account
- The main objective of keeping the records in such organization is to meet the statutory requirement and help them in exercising control over utilization of their funds.
- Financial statement- submit them to the statutory authority called registrar of societies
- Earns reputation on the basis of their contributions to the welfare of the society rather than customers or owners satisfaction
Accounting Records
- Cash book where all receipts and payments are duly recorded
- Example of cash transaction:
- Ledger- containing the accounts of all incomes, expenses, assets and liabilities which facilitates the preparation of financial statement
- Stock register – to keep complete record of all fixed assets and the consumables
- Capital fund a/c – goes on accumulating due to surpluses generated, life membership fees, donations, legacy etc.
Financial Statements
- Receipts and payments accounts
- Income and expenditure account
- Balance sheet
General Principles of Accounting Are Fully Applicable
Receipts and Payments Accounts
- It is a real account
- Summary of cash and bank transactions which helps in preparation of Income and exp. And Balance sheet
- Receipts on the debit side and Payments on the credit side
- Records all cash transaction irrespective of the period
- Includes all receipts and payments whether they are of capital nature or of revenue nature
- Does not show any non-item like depreciation
- NO distinction is made whether it is cash or bank transaction
- Legal requirement to prepare
- Submitted to the registrar of societies along with Income and exp. And Balance sheet.
- It begins with opening balance and closes with the year-end balance of cash in hand or bank Overdraft
- Opening balance represents cash in hand/cash at bank
- Closing balance shows cash in hand at the end of the year
- Prepared at the end of the year on the basis of cash book
Steps to Prepare Receipts and Payment Account
Format of Receipts and payment account
Income and Expenditure Account
- Nominal a/c
- Summary of income and expenditure for the accounting year
- Serves same purpose as P & L a/c for businesses
- All the revenue items for the current period are shown
- Incomes and gains on the income side and expenses and losses are shown on expenditure side
- Net operating result in the form of Surplus (excess of income over Expenditure) or Deficit (Excess of Expenditure over Income) that is transferred to Capital fund in Balance sheet.
- It is prepared on accrual basis
- Items included in this a/c are:
- Depreciation of fixed assets
- Provision for doubtful debt, if required
- Profit or loss on sale of fixed asset
Difference between Income and Expenditure Method & Receipts and Payments Account
Difference between Receipts and Payments account and Income and Expenditure account | |
---|---|
Receipts and Payments account | Income and Expenditure account |
Summary of Cash book | Like P & L account |
Records Receipts and Payments of revenue as well as capital nature | Records Income and Expenditure of revenue nature only |
Relate to preceding and succeeding periods | Relate only to current period |
Do not includes non -cash item such as Depreciation | Includes Depreciation |
It has opening and closing balance | There is no opening balance |