SUBECT: ACCOUNTANCY

CLASS: XII(SESSION 2020-21)

UNIT 1 – FINANCIAL STATEMENTS OF Not-for-the-Profit ORGANISATIONS
Handout -1

Not-for-Profit Organisations are those organisations whose objective is not to earn profit but to render services
to its members and to the society.
Not-for-profit organisations refers to the organisations that are used for the welfare of the society and are set up
as charitable institutions which function without any profit motive.

MAIN CHARACTERISTICS:

1. They are formed for providing service.

2. They are organised as charitable trusts and managed by executive committee elected by the members
3. The main sources of income are
a) Subscriptions
b) Donations/ Legacies
c) Membership fees or Entrance fees
d) Grants (from Government and / or Institutions)
e) Income from investment etc.
4. The surplus generated is not distributed to the members but added to capital fund.
5. They are managed by a group of individuals often called TRUTEES or MANAGING COMMITTE
6. They also have to prepare the financial statements at the end of each accounting period and ascertain their
income and expenditure and the financial position and submit them to the statutory authority called Registrar
of societies.

ACCOUNTING RECORDS:

1. Receipts and Payments account

2. Income and Expenditure account
3. Balance Sheet.

RECEIPTS AND PAYMENTS ACCOUNT:

It is a summary of cash and bank transactions. It gives the summarized picture of various receipts and payments.
It includes receipts of all nature (Capital, Revenue, Current year, previous year and next year) It does not show
non-cash items. It starts with opening balance of cash and bank and ends with cash balance and bank / bank
overdraft balance.

INCOME AND EXPENDITURE ACCOUNT:

It is the summary of income and expenditure. It resembles a profit and loss account. It includes only revenue
items relating to the current period and the balance at the end represents deficit or surplus. It is prepared on
accrual basis.
DIFFERENCE BETWEEN RECEIPTS AND PAYMENTS ACCOUNT AND INCOME ANDINCOME AND
EXPENDITURE ACCOUNT:
BASIS INCOME AND EXPENDITURE ACCOUNT RECEITPS AND PAYMENTS ACCOUNT
Nature It is like a profit and loss Account It is the summary of cash book
(Nominal Account) (Real Account)
Nature of It records income and expenses of revenue in It records all receipts and payments of both
items nature only Capital and Revenue nature.
Period All items relate to current period/year Items relates to current year, previous year
and next year also
Basis Accrual Cash / actual
Debit side Records expenses and losses Records receipts (what comes in)
Credit side Records incomes and gains Records payments (what goes out)
Depreciation Included Not included as it is a non cash item
Adjustments Made related to outstanding and prepaid No adjustments are made
expenses and / or incomes
Opening No opening balance Balance of cash and bank in the beginning of
balance the year
Closing Surplus or deficit Balance of cash, bank/bank overdraft at the
balance end of year.
Surplus – excess of income over expenditure
Deficit – excess of expenditure over income