Chapter

Not For Profit Organisations

ACCOUNTANCY

Class XII

Not For Profit Organisations

Organisations which are formed not for earning profits but for a charitable or social purpose are called as not for profit organisations.
FEATURES:1) Separate legal entity 2) Service motive 3) Form 4) Profit- not a motivator 5) Funding 6) Accounts

Separate legal entity

According to the principle of separate legal entity, a not for profit organisation is an separate entity independent of its members.

These are the separate entity promoted by individuals or companies, but these are not owned by the promoters or managers.

Service Motive
These organisations are formed For welfare of the society. For providing services to its members. Main motive is to provide services.

Form
Charitable hospitals Schools Trusts Colleges Clubs Hospitals Societies

Profit not a motivator

NPOs do not operate with the objective of earning profits. Their aim is to promote art, science, commerce, religion, culture, education, charity, sports etc. Some NPOs may involve in trading activities Main objective is not to earn the profit but to benefit the members and society. Any excess of income over expenditure is termed as SURPLUS while any excess of expenditure over income is termed as DEFICIT.

Funding
The main sources of income of such organisations are: Subscriptions from members, Donations, Legacies, Grant-in-aid, Income from investments, etc.

Accounts
The Not-for-Profit Organisations are also required to prepare financial statements at the end of the each accounting period. They have to prepare their final accounts at the end of the accounting period and the general principles of accounting are fully applicable in their preparation. The final accounts of a not-for-profit organisation consist of the following:
 Receipt and Payment Account  Income and Expenditure Account, and  Balance Sheet.

Receipt and Payment A/c

Features Summary of the cash book. Receipts are recorded on the debit side Payments are entered on the credit side. Records all cash transactions irrespective of the period. Includes all receipts and payments whether they are of capital nature or of revenue nature. No distinction is made in receipts/payments made in cash or through bank. No non-cash items such as depreciation outstanding expenses accrued income, etc. are shown in this account. It begins with opening balance of cash in hand and cash at bank (or bank overdraft) and closes with the year end balance of cash in hand/ cash at bank or bank overdraft.

Steps: Receipt & Payment A/c

Steps in preparation of Receipt & Payment A/c Take the opening balances of cash in hand and cash at bank & enter them on the debit side. In case there is a bank overdraft in beginning of the year, it will be recorded on credit side. Show the total amounts of all receipts on its debit side irrespective of their nature (whether capital or revenue) & whether they belong to past, present or future. Show the total amounts of all payments on its credit side irrespective of their nature & time period. None of the receivable income or payable expense is to be entered in this account. Find out the total of debit side & credit side of the account & enter the same on the credit side of cash/bank. If a balance comes out to be on debit side, take it as closing balance of bank overdraft.

Format

Dr. Receipts

Receipt & Payment A/c for the year ended _________ Amount Payments Xxx Xxx Xxx xxx By Bal b/d (Bank O/D) By Revenue Payments By Capital Payments By Bal Bank xxx Cash xxx

Cr. Amount Xxx Xxx Xxx xxx

To Bal b/d Cash xxx Bank xxx To Revenue Receipts To Capital Receipts To Bal c/d (Bank O/D)

A detailed & comprehensive Receipt & Payment A/c may appear as:

Receipts To Bal b/d Cash Bank To Revenue Receipts Subscription General Donations Sale of newspaper Sale of periodicals Sale of old sports material Locker rent Sale of scraps Proceeds of show Miscellaneous Receipts Entrance fee Grant in aid To Capital Receipts Legacies Life Membership fees Specific Donation Sale of Investment Sale of fixed assets Endowment Fund To Bal c/d (Bank O/D)

Amount Payments By Bal b/d (Bank O/D) By Revenue Payments Wages & Salaries Rent, Rates & Taxes Insurance Printing & Stationary Postage Advertising Sundry Expenses Telephone charges Audit fees Honorarium Conveyance Newspapers Repairs By Capital Payments Purchase of fixed Assets Purchase of investments Fixed deposits By Bal Bank Cash

Amount

A club has kept its accounts on cash basis and the figures for 2009 are given below. You are required to prepare receipts & payments A/c for the year 2005. Subscription Received 5,90,600
Entrance fee Admission fee Secretarys salary Investment bought during the years Expenses paid Cash in hand (1.1.09) 80,000 32,000 60,000 2,22,000 1,54,500 94,700 16,250 1,50,000

Solution:Dr. Receipts

Locker rent received General Donation

Receipts & payments A/c Rs. 94,700 5,90,600 80,000 32,000 16,250 1,50,000 9,63,550 Payments By Secretary Salary By Investment By Expenses By bal. c/d (balancing figure) Rs.

Cr.

To balance b/d To subscription To Entrance fee To Admission fee To Lockers Rent To General Donation

60,000 2,22,000 1,54,500 5,27,050

9,63,550

Class Practice Question

Q. On 1/1/06, the opening balance was Rs. 18,000 of J. M. Trust, Delhi. The following transactions were held for the year ended 31/3/08. From these particulars, prepare a Receipts & payments account. Subscription received for current year 8,50,000 Subscription received for next year Life Membership fees Investments Furniture purchased Purchase of sports material General Expenses including unpaid expenses Rs. 3,800 Depreciation on Furniture @ 10% 30,000 80,000 2,50,000 30,000 1,50,000 33,800

Solution
Dr
Receipts To balance b/d To subscription Current Year 8,50,000 Next Year 30,000 To Life Membership fee

Receipt & Payment A/c

Rs. Payments 18,000 By Investment By Furniture By Sports Materials 8,80,000 By General Expenses 33,800 80,000 Less Unpaid Expenses 3,800 By bal. c/d (balancing figure) 9,78,000

Cr
Rs. 2,50,000 30,000 1,50,000 30,000 5,18,000 9,78,000

Income & Expenditure A/c

It is a nominal account. Debit all expenses & credit all incomes will be followed while preparing it. Opening & closing balance of cash at bank are not shown in it. It does not take into consideration both capital receipts & capital payments. Closing balance, if comes on debit side is known as surplus & on credit side, deficit. All non-cash adjustments like depreciation, outstanding or prepaid expenses & accrued or advance income, provision, etc. need to be adjusted through this account. It must be accompanied by Balance sheet in which personal & real accounts are recorded.

Steps
Steps in preparation of Income & Expenditure A/c Pursue the Receipts & Payments Account thoroughly. Exclude opening & closing balance of cash & bank as they are not the income. Exclude the capital receipts & capital payments. Consider only revenue receipts to be shown on income side (credit side) of this account for the current year whether received or not. Take all revenue expenses of current year on debit side of this account whether paid or not. Non-Cash item like Deprecation, provisions profit / Loss on sale of assets etc. should be taken into consideration. Balance if any in debit side resembles surplus but on credit side it shows deficit.

Format
Income & Expenditure A/c For the year ended Expenditures To all revenue payments (current year whether paid or not) To Depreciation To Bad debts To Loss on sale of fixed assets To Consumed part of medicine, stationery, spot equipments etc. To Surplus (Excess of income over Expenditure) Amount Incomes By all revenue receipts (current year whether received or not) By profit on sale of fixed assets By Deficit (Excess of expenditure over Income). Amount

Calculation of revenue expenditure from revenue payments:payments:Particulars Revenue payments for expenses as per payment side of Receipts & Payments Account () O/s expenses in the beginning () Prepaid expenses in the end Amount XXXX

XXX XXX XXXX

(+) O/s expense in the end (+) Prepaid expense in the beginning Revenue expenditure transfer to income and expenditure Account

XXX XXX XXXX

Calculation of revenue income from revenue receipts:receipts:Particulars Revenue receipts as per receipt side of receipts & Payments account () Accrued income / Income due in the beginning () Unaccrued income / Income received in advance in the end. (+) Accrued income / Income due in the end (+) Unaccrued Income / Income received in advance in the Beginning of the year Income for the year to be shown in income & expenditure account. Amount XXXX XXX XXX XXXX XXX XXX XXXX

Example
Q. How will you deal with the given items while preparing the final accounts of a club for the year ended 31st March, 2007: Particulars Outstanding Locker Rent Advance Locker Rent 31.3.2006 Rs. 920 600 31.3.2007 Rs. 1260 800

Locker Rent received during the year 2006-07 Rs. 6400

Particulars
Locker rent received during the year () Outstanding / Accrued locker rent in the beginning () Unaccrued / prepaid / advance locker rent in the end (+) Outstanding / Accrued locker rent in the end (+)Unaccrued / prepaid / advance locker rent in the beginning Locker rent credited to income and expenditure account

Amount
6400 920 800 1260 600

6540

Example
Q. Miscellaneous expenses paid during the year ended March 31, 2007 amount to Rs. 16,500. Information about prepaid and outstanding expenses is as under: Rs. Prepaid expenses on March 31, 2006 1,500 Expenses unpaid on March 31, 2006 2,300 Expenses unpaid on March 31, 2007 2,500 Prepaid expenses on March 31, 2007 1,400 Ascertain the expenses to be debited to the Income and Expenditure Account for the year ended March 31, 2007.

Solution: Step 1. Determine the current year Step 2. Solve the problem as:
Particulars Amount

Expenses paid in 2007 (-) Outstanding expenses in the beginning (-) Prepaid expense in the end. (+) Outstanding expenses in the end. (+) Prepaid expenses in the end. Expenditure incurred Debited to income & expenditure A/c.

16,500 2,300 1,400 2,500 1,500 16,800

Example
Prepare an income & expenditure Account for the year ended 31st March, 2006 from Receipts & payments Account. Receipts Cash in hand Subscription Miscellaneous Income Sale of old furniture (Book value 390) Sale of old Newspaper Amount 9,600 2,48,000 14,800 6,300 500 2,79,200 Additional Information: 1. Subscription includes Rs. 28,000 received form 2004-05. 2. Subscription still in arrears for 2005-06 is Rs. 20,000. 3. Rent unpaid Rs. 3,600. 4. Honorarium Outstanding Rs. 9,800. Payments Rent Honorarium to Clark Postage & stationary Printing charges Donation Cash in hand Amount 42,400 61,200 5,300 61,200 11,000 98,100 2,79,200

Solution
Income and Expenditure account Expenditure To Rent Add- O/s Rent To Honorarium 42,400 3,600 61,200 71,000 5,300 61,200 11,000 700 60,100 2,55,300 2,55,300 Amount Income 46,000 By Subscription 2,48,000 Less O/s subscription (04-05) 28,000 Add O/s Subscription (05-06) 20,000 By Income from Advertisement By Sale of old Newspaper Amount

Add Outstanding 9,800 To postage & stationery To printing charges To Donation To loss on sale of furniture To Surplus (excess of income over expenditure)

2,40,000 14,800 500

DIFFERENCE
Basis 1. Nature 2. Nature of Items 3. Period Receipt & Payment A/c
It is the summary of cash Book It records receipts & payments of revenue as well as capital nature

Income & Expenditure A/c

It is like profit & loss A/c It records incomes & expenditures of revenue nature only.

It includes receipts & Its items relate to current Payments for preceding & year only. succeeding years Receipts are recorded Payments are recorded Not recorded Opening balance of cash & bank Expenditure are recorded Incomes are recorded Recorded No opening balance

4. Debit side 5. Credit side 6.Depreciation 7. Opening Balance 8. Closing Balance

Closing balance of cash & Surplus or Deficit. bank

Balance Sheet
The preparation of their Balance Sheet is on the same pattern as that of the business entities. It shows assets and liabilities as at the end of the year. Assets are shown on the right hand side and the liabilities on the left hand side. However, there will be a Capital Fund or General Fund in place of the Capital. The surplus or deficit as per Income and Expenditure Account shall be added to/deducted to this fund. It is also a common practice to add some of the capitalised items like legacies, entrance fees and life membership fees directly in the capital fund.

Balance Sheet
Following procedure is adopted to prepare the Balance sheet. Take the capital fund as per opening balance sheet & add surplus or deduct deficit as per income & expenditure account. Further, add legacy, life membership fees, endowment fund received during the year. Take all fixed assets (not sold or destroyed) add additions made during the year les depreciation for assets used during the year. Compare items on receipt side of receipt & payment A/c with items on income side of income & expenditure A/c to determine advances & dues. Similarly, compare items of payments side of receipt & payment A/c with items of expenditure side of income & expenditure account to determine prepaid or outstanding expenses. Balance sheet resembles the position statement of the organization & is a true indicator of growth potential.

Opening Balance Sheet

Balance sheet as on Amount Assets Cash Bank Fixed assets Current assets Accrued Incomes Prepaid Expenses

Liabilities Current liabilities Outstanding expenses Incomes in Advances Capital fund (Balancing Figure)

Amount

Balance Sheet: At End

Closing balance sheet is prepared at the end of the year after preparing Income & expenditure account. It maybe shown as:Liabilities Capital fund Add Surplus Less Deficit Add life Membership Fees, Legacy, Endowment Fund Income in advance Specific Donations Outstanding Expenses Incomes in Advance Specific Funds Amount Assets Closing Balance Cash Bank Net Fixed Assets Current Assets (closing Balances) Investments Prepaid Expenses Accrued Incomes. Amount

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 1

Opening balance of Cash and Bank is transferred to Opening Balance Sheet and Closing balances of Cash and Bank are transferred to Closing Balance Sheet.

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 2 Items on the receipt side of Receipt & Payment A/c give the Components for Income Side for Income & Expenditure A/c.

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 3

Items on the payment side of Receipt & Payment A/c give the components for Expenditure side for Income & Expenditure A/c.

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 4
Items of revenue nature (recurring too) are carried from Receipt & Payment A/c and after analysing adjustments if any, total amount for the Current year is transferred to Income & Expenditure A/c.

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 5

Items of Capital nature are adjusted through Balance Sheet.

PROCEDURE
How to make income and expenditure A/c and Balance Sheet using Receipt & Payment A/c. STEP 6

Adjustments on Capital Nature Items are not to be considered while preparing Income & Expenditure A/c.

PROCEDURE

Result The balance on Debit Side of Income & Expenditure A/c will show SURPLUS while that on Credit Side will show DEFICIT. This will be transferred to Closing Balance Sheet and Added/Subtracted as the case may be.

Question
Following is Receipt & payment of Stanford trust, prepare Income & Expenditure and balance sheet for the year ended 31/12/05 and 31/12/06. Receipts Amount Payments Amount Cash in hand Cash at bank Subscription 2005 : 5,000 2006 : 83,000 2007 : 3,000 Sale of Investment Interest on Investment Sale of furniture (book value 3,400) 14,000 Rent 60,000 Salary Postage Electricity charges Purchase of Furniture 91,000 Books 90,000 Defence bonds 2,000 Charity Cash in Hand 3,200 Cash at bank 2,60,200 6,000 12,000 300 6,000 20,000 3,000 1,50,000 22,000 10,900 30,000 2,60,200

Adjustments: 1) Subscription for 2006 still owing were 7,000. 2) Interest due on defence bonds was Rs. 7,000. 3) Rent still owing was Rs. 1,000. 4) Investment sold valued Rs. 80,000, Rs. 30,000 of Investment were still in hand. 5) Salary paid for the year 2007 is Rs. 2,000.

Solution
Income and Expenditure account Expenditure Rent 6,000 7,000 Amount Income Subscription 2006 : 83,000 Add O/s Subscription: 7,000 10,000 300 6,000 22,000 200 63,500 1,09,000 1,09,000 Interest on Investment Interest on defence bonds Profit on sale of investment 90,000 2,000 7,000 10,000 Amount

Add O/s Rent 1,000 Salary 12,000 Less paid for 2007: 2,000 Postage Electricity charges Charity Loss on sale of furniture Surplus

Solution
WORKING NOTES: Balance Sheet As n 31st March 2006 Amount 1,92,400 Assets Cash in Hand Cash at bank Subscription Furniture Investment 1,92,400 Amount 14,000 60,000 5,000 3,400 1,10,000 1,92,400

Liabilities Capital fund

Solution
Balance Sheet Liabilities Capital fund 1,92,400 Add Surplus 63,500 2,55,900 1,000 3,000 Outstanding rent Subscription for 2007 Amount Assets Cash in Hand Cash at bank Subscription Furniture Books Defence bonds Investment Accrued interest Prepaid salary 2,59,900 Amount 10,900 30,000 7,000 20,000 3,000 1,50,000 30,000 7,000 2,000 2,59,900

Terminology for NPOs

 Subscription  Donation  Legacy  Life membership fee  Entrance fee  Honorarium  Grants and subsidies  Stationery  Sale of old assets  Sale of periodicals  Endowment fund  Special funds

Subscription
Subscription is a membership fee paid by the member on annual basis. This is the main source of income of such Organisations. Subscription paid by the members is shown as receipt in the Receipt and Payment Account and as income in the Income and Expenditure Account. Receipt and Payment Account shows the total amount of subscription actually received during the year. The amount shown in Income and Expenditure Account is confined to the figure related to the current period only irrespective of the fact whether it has been received or not.

Subscription
HOW TO CALCULATE SUBSCRIPTION FOR THE YEAR WHEN SOME OTHER ITEMS RELATED TO SUBSCRIPITON ARE GIVEN

Subscription received during the year Less: Subscription outstanding in the beginning of the current year Less: Subscription in advance at end of the current year Add: Subscription outstanding at end of the current year Add: Subscription in advance in the beginning of the current year Subscription for the current year

XXXXX XXX XXX XXX XXX XXXXX

Subscription A/c
FORMAT Dr. Particulars To Balance b/d (outstanding) To Income and Expenditure A/c (balancing figure) To Balance c/d (advance) SUBSCRIPTION A/c Amount Particulars To Balance b/d XXX (advance) By Receipts and Payments A/c XXX By Balance c/d (outstanding) XXX XXXX XXXX XXX Cr. Amount XXX

XXX

As per Receipt & Payment A/c for the year ended March 31, 2007, the subscriptions received were Rs. 12, 50,000. It is also given that: 1. Subscriptions Outstanding on 1.4.2006 Rs. 80,000 2. Subscriptions Outstanding on 31.3.2007 Rs. 85,000 3. Subscriptions Received in Advance as on 1.4.2006 Rs. 45,000 4. Subscriptions Received in Advance as on 31.3.2007 Rs. 60,000 Calculate the amount to be shown in income & Expenditure A/c for the year 2006 07 and show relevant items in balance sheet also.
Details Amount

Subscriptions Received as per Receipt and Payment A/c Add: Subscriptions outstanding on 31.3.2007 Add: Subscriptions received in advance on 1.4.2006 Less: Subscriptions outstanding on 1.4.2006 Less: Subscriptions received in advance on 31.3.2007 Income from subscription for the year 2006-07

12,50,000 85,000 45,000 13,80,000 80,000 13,00,000 60,000 12,40,000

Alternately, income received from subscriptions can be calculated by preparing a Subscriptions account as under.

Date Particulars

Amount (Rs.)

Date Particulars By Balance b/d (advance) By Receipts and Payments A/c By Balance b/d (outstanding)

Amount (Rs.) 45,000

To Balance b/d 80,000 (outstanding) To Income and Expenditure A/c (balancing figure) 12,40,000 To Balance c/d (advance) 60,000 13,80,000

12,50,000 85,000 13,80,000

Relevant items of subscription can be shown in the opening and closing balance sheet as under: Balance sheet as on march 31, 2006 Liabilities Subscriptions received in advance Amount (Rs.) Assets Amount (Rs.) 80,000

45,000 Subscription outstanding

Balance sheet as on march 31, 2007 Liabilities Amount Assets (Rs.) Subscriptions received in advance 60,000 Subscriptions outstanding

Amount (Rs.) 85,000

Calculate Subscription amount to be shown in income & expenditure A/c from the following:
A club received Rs. 1,20,000 as subscriptions during the year 2007-08 of which Rs.13,000 relate to year 2006-07 and Rs.22,000 to 2008-09, and at the end of the year 2007-08 Rs.26,000 are still receivable. Find subscription received for the year 2007-08. Particulars Subscriptions received in 2007-08 Less: Subscriptions for the year 2006-07 Rs. 1,20,000 13,000 1,07,000 Less: Subscription for the year 2008-09 22,000 85,000 Add: Subscriptions outstanding for the year 2007-08 Income from subscriptions for the year 2007-08 26,000 1,11,000

The above amount of subscriptions can also be ascertained by preparing the subscription account as follows:
Dr. Particulars Balance b/d (outstanding at the beginning) Income & Expenditure A/c (balancing figure) Balance c/d (received in advance) Subscription Account Amount Particulars Cr. Amount Nil

13,000 Balance b/d (received in advance) Cash (subscription received) 1,11,000 Balance c/d (outstanding at the 22,000 end) 1,46,000

1,20,000 26,000 1,46,000

Donations
It is a sort of gift in cash or property received from some person or organisation. It appears on the receipts side of the Receipts and Payments Account. Donation can either be specific or general: 1. Specific Donations: Received for specified purpose like extension of the existing building, construction of new computer laboratory, creation of a book bank, etc.  Such donation is to be capitalized and shown on the liabilities side of the Balance Sheet. 2. General Donations: Such donations are to be utilised to promote the general purpose of the organisation.  These are treated as revenue receipts as it is a regular source of income hence, it is taken to the income side of the Income and Expenditure Account of the current year.

Donation

General donations Generally credited to Income & expenditure account values & otherwise stated in the question.

Specific donations

(A) Donation for the (B) Donation for capital. maintenance of Expenditure (such as revenue expenditure for the building etc.) (such as donation for prizes, matches, etc Both are treated in balance sheet.

Legacy
It is the amount received as per the will of a deceased person. It appears on the receipts side of the Receipt and Payment Account and is directly added to capital fund/general fund in the balance sheet, because it is not of recurring nature. However, legacies of a small amount may be treated as income and shown on the income side of the Income and Expenditure Account.

Life Membership Fees

Some members prefer to pay lump sum amount as life membership fee instead of paying periodic subscription. Such amount is treated as capital receipt and credited directly to the capital/general fund.

Entrance Fees
Entrance fee also known as admission fee is paid only once by the member at the time of becoming a member. In case of organisations like clubs and some charitable institutions, number of members is limited and the amount of entrance fees is quite high. Hence, it is treated as non-recurring item and credited directly to capital/general fund. However, for some organisations like educational institutions, the entrance fees is a regular income and the amount involved may also be small. In their case, it is customary to treat this item as a revenue receipt. However, if there is specific instruction, it is advisable to treat the entire amount as capital receipt and the relevant amount should be directly added to capital/general fund.

Honorarium
It is the amount paid to the person who is not the regular employee of the institution. Payment to a surgeon called for some specific operation or to some artist for giving performance at the club is an example of honorarium. This payment of honorarium is shown on the expenditure side of the Income and Expenditure Account.

Grants and Subsidies

Schools, colleges, public hospitals, etc. depend upon government grant and subsidies for their activities. The recurring grants in the form of maintenance grant is treated as revenue receipt (i.e. income of the current year) and credited to Income and Expenditure account. However, grants such as building grant are treated as capital receipt and transferred to the building fund account. It may be noted that some Not-for-Profit organisations receive cash subsidy from the government or government agencies. This subsidy is also treated as revenue income for the year in which it is received.

Stationery
Normally expenses incurred on stationary, a consumable items are charged to Income and Expenditure Account. But in case stock of stationery (opening and/or closing) is given, the approach would be make necessary adjustments in purchases of stationery and work out cost of stationery consumed and show that amount in Income and Expenditure Account and its stock in the balance sheet. For example, the Receipt and Payment Account shows a payment for stationery amounting to Rs. 40,000 and there is an opening and closing stationery amounting to Rs. 12,000 and Rs. 15,000. Rs. 37,000 will be transferred to Income & Expenditure A/c as stationery consumed.

Step .1 Calculation of total stock purchased on credit & cash. Payment for stock in the current year as per receipts & payments account (+) O/s expenses in the end (+) Prepaid expenses in the beginning () O/s expenses in the beginning () Prepaid expenses in the end Credit Purchases. (+) Cash Purchases (If specifically Mentioned in receipts & payments account on payment side) Total Purchases. xxx xxx xxx xxx (xx) (xx) Xxx Xxx

Xxxx

Step-2

Calculation of Stock consumed. xxx xxx (xx) (xx) Xxx

Opening Stock of consumable stores (+) Total purchases as per step -1

() Closing stock of consumable stores Stock consumed and debited to income & expenditure a/c

Q. How will you deal with the following items while preparing the Income & Expenditure A/c for the year ended on March 31, 2007. As at As at 1.4.2006 31.32007 Rs. Rs. Stock of stationery Creditors for stationery Advance paid for stationery on March 31, 2007 Advance paid for stationery carried from 2005-06 Amount paid for stationery during 2006-07 3000 2000 500 1300 1300 200 10800

Step 1. Calculation of purchases Amount paid for stationery (+) Creditor for stationery (O/s) in the end (+) Advance paid for stationery (prepaid) in the beginning () Creditor for stationery (O/s) in the beginning () Advance paid for stationery (prepaid) in the end Purchases Step 2. Calculation of stationery consumed. Opening stock of stationery (+) Purchases as per step 1 () Closing stock of stationery Stock of stationery consumed debited to income & expenditure

10,800 300 200 (2000) (1300) 9000

3000 9000 (500) 11,500

Extract of a Receipt and Payment Account for the year ended on march 31, 2006: Payments: Creditors for Stationery Rs. 68,000 Additional information: Details 1 April, 2005 March 31, 2006 Stock of stationery 14,000 13,000 Creditor for stationery 19,000 12,500

Stock of Stationery A/c Particulars To Opening Stock To Purchases Amount Particulars Amount 62,500 13,500 75,500 14,000 By Stationery Consumed 61,500 By Closing Stock 75,500

Creditors of Stationery A/c Particulars To Cash To Balance c/d Amount Particulars 68,000 By Balance b/d 12,500 By Purchases 80,500 Amount 19,000 61,500 80,500

Details Payment made for the purchase of stationery as per Receipts and Payments A/c Less: Payment for 2004-05 ( creditors in the beginning) Payment made for the year 2005-06 Add: payment not yet made (i.e. creditors at the end) Stationery Purchased for the year 2005-06 Add: Stock in the beginning Stationery Available for consumption during 2005-06 Less: Stock at the end Stationery consumed during 2005-06 to be taken to the Expenditure side of the income and Expenditure account

Amount (Rs.) 68,000 19,000 49,000 12,500 61,500 14,000 75,500 13,000 62,500

Class Practice Question

Find out the cost of medicines consumed during 2006-07 from the following information: Details Payment for purchase of medicines Creditors for medicines purchased: On 1.4.2006 On 31.3.2007 Stock of Medicines: On 1.4.2006 On 31.3.2007 Advance to suppliers of medicines: On 1.4.2006 On 31.3.2007 Amount (Rs.) 6,70,000 1,25,000 1,17,000 92,000 1,04,000 41,500 38,000

Stock of Medicines A/c Particulars Opening Stock To Purchases Amount Particulars Amount 6,53,500 1,04,000 7,57,500 92,000 By Medicines Consumed 6,65,500 By Closing Stock 7,57,500

Creditors of Medicines A/c Particulars To Balance b/d (Advances) To Cash To Balance c/d (Creditors) Amount Particulars Amount 1,25,000 6,65,500 38,000 8,28,500 41,500 By Balance b/d (Creditors) 6,70,000 By Purchases (Balancing 1,17,000 figure) By Balance c/d (Advances) 8,28,500

Sale of old assets

 Receipts from the sale of an old asset appear in the Receipts and Payments Account of the year in which it is sold. But any gain or loss on the sale of asset is taken to the Income and Expenditure Account of the year.  For example, if an item furniture with a book value of Rs. 800 is sold for Rs. 700, this amount of Rs. 700 will be shown as receipt in Receipts and Payments Account and Rs. 100 on the expenditure side of the Income and Expenditure Account as a loss on sale of old asset and while showing furniture in the balance sheet Rs. 800 will be deducted from its total book value.

Sale of periodicals
It is an item of recurring nature and shown as the income side of the Income and Expenditure Account

Endowment fund
It is a fund arising from a bequest or gift, the income of which is devoted for a specific purpose. Hence, it is a capital receipt and shown on the Liabilities side of the Balance Sheet as an item of a specific purpose fund.

Special funds
The Not-for-Profit Organisations office create special funds for certain purposes/ activities such as 'prize funds', 'match fund' and 'sports fund', etc. Such funds are invested in securities and the income earned on such investments is added to the respective fund, not credited to Income and Expenditure Account . Similarly, the expenses incurred on such specific purposes are also deducted from the special fund. For example, a club may maintain a special fund for sports activities. In such a situation, the interest income on sports fund investments is added to the sports fund and all expenses on sports deducted there from. The special funds are shown in balance sheet. However, if, after adjustment of income and expenses the balance in specific or Special fund is negative, it is transferred to the debit side of the Income and Expenditure Account or adjusted as per prescribed directions.

Opening balance sheet Liabilities Rs. Prize fund (opening XXX balance if given in adjustment) Closing balance Sheet. Liabilities Prize fund XXX (opening balance) (+) Donations XX (+) Interest Received on prize fund investment XX (+) Accrued Interest XX
On prize fund investment

Assets Rs. Prize fund investment XXX (opening balance. If given in adjustment)

Rs.

Assets. Prize fund investment (op. bal.) XXX (+) Purchase XX Accrued interest on prize fund. Investment XX

Rs.

XXX

(-) Prize awarded (XX)

XXX

Show how you would deal with the following items in the final account of a club: Details Debit Credit Prize fund Prize Fund investments Income from Prize fund investments Prizes awarded. Solution Liabilities Prize fund 90,000 Add: Income from Investments 9,000 99,000 Less: Prizes Awarded 7,000 Amount (Rs.) Assets Prize fund Investments 90,000 90,000 9,000 7,000 Amount (Rs.) 90,000

92,000

(a) Show the following information in financial statements of a Not-for-Profit Organization Details Match Expenses Match fund Donation for Match fund Sale of match tickets Amount 30,000 15,000 9,000 13,000

(b) What would happen if match expenses go up to Rs. 9,000 other things remaining the same?

Liabilities Match fund 15,000 Add: Donation 9,000 (Specific) Add: Sale of match Tickets 13,000 37,000 Less: Match Expenses 30,000

Amount Assets

Amount

7,000

7,000 (b) If match expenses go up to Rs. 9,000, the net balance of the match fund becomes negative i.e. Debit exceeds the Credit, and the resultant debit balance of Rs. 2,000 shall be charged to the Income and Expenditure Account of that year.

Incidental Trading Activities

Sometimes, trading activities such as chemist shop, hospital, canteen, bar etc. also take place in such organizations to provide certain facilities to members or public in general. In such a situation a trading account is prepared to calculate profit or loss from that trading aspect. Procedure: It is very important to take into consideration following two points: Profit or loss calculated by preparing trading A/c must be transferred to Income & expenditure A/c. Incomes & expenses related to that incidental activity, which is not recorded in trading A/c, are also to be considered while preparing. Income & expenditure A/c.

The assets and liabilities on the Millennium Cricket Club on April 1, 2007 were: Club house and ground Rs. 10, 00,000; Creditors for bar supplies Rs. 3,41,000; Equipment Rs. 3,45,000; Bank Rs. 1,34,500; Bar stocks Rs. 92,240. Receipts Balance b/d Bar Takings Subscriptions Amount 1,34,500 8,85,000 9,15,000 Payments Equipment Ground maintenance Creditors for Bar supplies Sundry Expenses Balance c/d Amount 3,12,000 1,25,000 2,35,500 3,18,000 9,44,000 19,34,500

19,34,500

At the end of March 2008, the following further information was available: (a)Subscriptions Rs. 35,000 received this year related to the next year. (b)Creditors for bar supplies Rs. 3,50,000. (c)Bar stocks Rs. 84,380. (d)Depreciate equipment by Rs. 65,000 Prepare for the Millennium Cricket Club: (i) the bar Trading Account for the year ended March 31, 2007; (ii) the Income and Expenditure Account for the year ended march 31, 2007; and (iii) the Balance Sheet as on March 31, 2007.

Income and Expenditure A/c Expenditure To Ground Maintenance To Sundry expenses To Depreciation To Surplus Amount Income Amount 8,80,000 4,32,640 12,82,640 1,25,000 By Subscription 9,15,000 3,18,000 Less. For next year 35,000 65,000 By Surplus from bar Trading 8,04,640 12,82,640 Bar Trading A/c Particulars To Opening Stock To Purchases To Surplus on bar trading Amount Particulars Amount 8,85,000 84,380 9,69,380 92,240 By Bar Takings 4,44,500 By Closing Stock 4,32,640 9,69,380 Creditors for Bar A/c Particulars To Cash To Closing Stock Amount Particulars Amount 3,41,000 4,44,500 7,85,500 2,35,500 By Opening Stock 5,50,000 By Purchases (Bal. Fig.) 7,85,500

Balance Sheet (Closing) Liability Subscription in Advance Creditors for bar supplies Capital Fund 12,30,740 Add Surplus 8,04,640 Amount Assets Amount 9,44,000 35,000 Bank 5,50,000 Sports equipments 3,45,000 Add Purchases 3,12,000 20,35,380 Less Depreciation 65,000 Bar stocks Club house and ground 26,20,380 Balance Sheet (opening) Liability Creditors for bar supplies Capital Fund Amount Assets Amount 1,34,500 3,45,000 92,240 10,00,000 15,71,740 3,41,000 Bank 12,30,740 Sports equipments Bar stocks Club house and ground 15,71,740

5,92,000 84,380 10,00,000 26,20,380

Thank You