UNIT 3 BASICS ACCOUNTING

Objectives:
After going through this unit, you will understand:
What are basic principles in accounting?. a

Principle steps in Accounting;

The different books of accounts to be maintained by NGOs;
L
Y
The terms Journal, Ledger and Trial Balance; and
Preparation of Financial year closing accounts for auditing.
@

i Structure
3.1 Introduction
3.2 Legal Requirements
3.3 Need for Maintaining Accounts
3.4 Meaning of Double Entry Book keeping
3.5 Steps in Accounting Process
I 3.6 Basic Rules in Accounting
3.7 Journal, Ledger and Trial Balance
3.8 Final Accounts
3.9 . The Capital Fund and Fixed Asset Assessment
3.10 Summary
3.1 1 Self Assessment Questions
3.12 Further Readings.

3.1 . INTRODUCTION - - p p -

The need for good financial health of any organization need not be
emphasized, more so in the case of NGO' because it is generally managed by
non-professionals. It is also important that the founders, members and the
general public are aware of the financial standing of the organizations for
which they are supportive. The health of the organization needs to be
constantly monitored so as to avoid mismanagement, embezzlement and
consequent closure. It is also mandatory that the Societies and Trusts are
audited wqualified chartered accountants annually. With the above VIEW in
view, and to educate the persons involved in the NGOs set up, the Basic
Accounting Unit is analyzed and discussed.

3.2 LEGAL REQUIREMENTS

The Society's Registration Act and the Indian Trust Act makes it mandatory
for NGOs to maintain and submit accounts annually. They require the
organizations to have the annual accounts audited by qualified Chartered
Accountant before submitting to them. The Income Tax Act also requires the
organizations to maintain and submit audited accounts to finalize approval of
reliefs under the Act. The accounting year starts from 1 st April to 31 March
 I
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Administration of NGOs of each year. Therefore, the onus is on the NGOs to write up books of 1
accounts, for all the transactions, preferably on daily basis, and have it audited
periodically not only for submission to statutory authorities but also to know
the financial health of the organization.

3.3 NEED FOR MAINTAINING ACCOUNTS '

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The NGOs need to prepare and maintain the accounts on account of the
- -

following reasons:
To avoid or to reduce the possibility of misappropriation of h d s by any
unscrupulous staff, members and others.
To ascertain whether their incomes for a year would be sufficient to meet
their expenses for that year.
To know their financial position at the end of each financial year to
undertake remedial measures if need be.

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It acts .as a tool for financial management.
I

II -
3.4 DOUBLE ENTRY BOOK KEEPING
Every financial transaction has two aspects. One is 'receiving aspect, and the
I

other is 'giving aspect'. The two terms often used to denote these aspects
are called 'DEBIT and CREDIT'. I

11 Let us understand these two terms, because they form the basis of financial
I
transactions.
DEBIT: The term 'debit' (Dr) is derived from the Latin word 'debere', which
means what is due. So, the term 'debit' means the amount owed by or due
from an account or charged to an account for the benefit received by that
account. In short, it means the benefit received by an account. I

CREDIT: The term 'credit' (Cr) is derived from the Latin word 'credere',
which means trust or belief. Therefore, the term 'credit' means the amount
owed to an account for the benefit given by that account in the belief that its
value will be returned at a later date. In short it means the amount to be
rewarded to an account or the amount of discharge to be given to an account
for the benefit given by that account.

1 3.5 STEPS IN ACCOUNTING PR-OCESS

Accounting is the complete sequence of accounting processes or procedures
which begin with the recording of financial transactions in the book or books
of original entry and end with the preparation of final accounts, and which q e
repeated in the same order in each accounting period.
Sequential steps involved in accounting p'rocessare:
First Step: Recording the business transactions in the book or books of
originatentry - Each and every financial transaction is entered in the journal
or in the subsidiary books, date wise as and when they occur.
i Second Step: Classifying the transactions from the original books to
Ledger- Posting or transferring those entries to the appropriate accounts in
the ledger periodically.
Third Step: Balancing the various ledger accounts to arrive at the net balance
in each account.
' B a s h of Accounting

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Fourth Step: Preparation of trial balance from the balances of various ledger
accounts to verify or to check the arithmetical accuracy of ledger accounts.

t1 Fifth Step: Preparing thefinal accounts orfinancial statemen&: In the case

of NGOs it will b&
Income and Expenditure account.
1 Receipts and payment account.
( Balance Sheet.
I From the trial balance a d after adjusting the adjustments if any, at the end of
the accounting period, the above accounts need to be prepared to know the
financial position of the organization. In the case of business organizations,
the final accounts will give the profit or loss of the business operations.

BASIC RULES IN ACCOUNTNG

Under the double entry book keeping system, all the financial transactions are
classified into three types. They are the following: f

Personal accounts
Real or Asset accounts
Nominal or Fictitious accounts.
I. PERSONAL ACCOUNTS
All financial transactions which relate to individuals, business enterprises or to
any organizations are classified as transactions relating to personal accounts.
Under the personal account, the person or the entity wholwhich receives the
benefit of the transaction should be Debited and the person or the entity who1
which gives the benefit of the transaction should be credited. Therefore the
rule is as under:
DEBIT THE RECEIVER AND CREDIT THE G IVER
The rule for debiting and crediting personal accounts can be explained with
the help of the following examples:
(a) Received from Shanthi Rs.5000/-
The two accounts which in focus are Cash account and Shanthi's account. The
cash account is the receiver and Shanthi is the giver; therefore the entry would
be:
DEBIT CASH ACCOUNT Rs.5000/- and CREDIT SHANTHI'S
A/C Rs.5000/-
Administration of NGOS (b) Sold goods to Joseph on credit Rs.6001-
The two accounts which is focus are, goods account and Joseph's accouni
Joseph is the receiver of the benefit and goods account is the giver of the
benefit.
Therefore the entry would be: I

DEBIT JOSEPH ACCOUNT Rs.600/- AND CREDZT GOODS ACCOUNT-

Rs.600/- i
11. REAL OR ASSET ACCOUNT 1
In the case of assets it will either enter the organization or goes out of the
organization.
I
Therefore the rule is as under: 1
The debiting of real accounk can be explained with the help of the following
example:
1) Bought Office equipments worth Rs.25, QOOI- from M/s.Zenith and
Company on credit.
The ofice equipment account and M/s.Zenith and company accounts are in
focus.
Therefore the entry would be:
D E B ~ TOFFICE EQUIPMENTACCOUNT Rs.25000/- and
CREDIT M/s.ZENITH AND CQMRANYACCOUNT Rs.25,000/-
111. NOMINAL OR FICTITIOUS ACCOUNT
The items of Expenses or Loss and Income or Gain are considered as Nominal
accounts.
The accounting rule for the nominal accounts is as under:
DEBITALL EXPENSESAND LOSSES AND CREDZT INCOMESAND
GAINS
The rule of debiting.ancl crediting nominal accounts may be explaned with ihe
help of the following examples:
(a) &id Salary Rs.5001-to Mr. Rajesh
The two accounts that are in focus are salary account and Rajesh's account.
The salary account is an expenses account to the organization. Therefore the
entry would be:
DEBIT SALARYACCOUNTAND CREDIT RAJESH'S ACCOUNT
(b) Received commission from Bank
The two accounts that are in focus are, commission account and Bank account.
Commission is an income, therefore the entry would be:
DEBIT BANKACCOUNTAND CREDIT COMMISSIONACCOUNT
 Basics of Accounti
3.7 JOURNAL, LEDGER AND TRIAL BALANCE
1) JOURNAL
(a) The term 'journal' is derived fi-om the French work 'jour, which means a
day. Journal, therefore, means a day book or a daily record. It is a book of
original entry in which transactions are first recorded chronologically. It is
written in the order of occurrence or order of dates fiom the source
documents. In the journal, each transaction is analyzed in to debit (i.e.,
receiving or incoming), and credit (i.e., giving or outgoing) aspects, and
both the debit and credit are recorded together in one entry, width a brief
explanation for the entry called narration. Therefore, the 'journal' is:
Day book or daily record
chronological record or book date wise
Original entry, as all transactions are entered first in the journal. .
(b) The steps to be taken for each transaction to journalise the entry.
Ascertain the two accounts involved in the transaction.
Ascertain the classes of accounts these two accounts involve, namely
whether it is Personal account, Real account or Nominal account.
Apply the relevant rules of debit and credit for each transaction.

ILLUSTRATION 1
Journalise the following transactions in the books of National High School:
2007
1. May 1 Library books purchased worth by cash Rs.5,000.
.2. " 2 Paid in to Bank Rs.1000.
3. " 5 ~ & h t school fiuniture for Rs.2000 from M/s.Noble
Furnitures on credit.
4. " 7 Paid salary by cash to Manager Rs.1,000.
5. " 10 Fees received h m student Mr. John Rs.2000.
Explanation for the above transactions:
1) In the first transaction, the accounts that are involved are Cash account
and Books account. The class of the account is Real or asset account.
2) In the second transaction, the accounts that are involved are Cash account
and Bank account. The class of accounts is both Real and Personal.
3) In the third transaction, the accounts that are involved are Furniture
account and M/s.Npble Furnitures account. The class of accounts is both
Real and Personal.
4) In the fourth transaction, the accounts involved are, Salary account and
Cash account. The class of accounts is Real account.
 Administration of NGOs 5) In the fifth transdction, we find Fee account and Mr. Jon's account. The
class of accounts is both Real and Personal.

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(cj The journal entries for the above transactions will be: I11
Journal Entries
Date ~adicu~ars LF Dr. Cr.
m.1 m.1
2007 '
,
May 1 Books account 5,000
To Cash account 5,000
(Being books purchased by cash)
i
I

,, 2 Bank account 1,000 i

To Cash account 1,000
(Being cash remitted to bank account)
3

i
,, 5 Furniture account 2,000
To Noble Furniture account 2,000
i
Being furniture bought on credit)

79 7 Salaryaccount
To Cash account

,, 10 Fee account 2,000

To John's account 2,000
(Being fees received from John)

LEDGER
The term Ledger is derived from the Dutch work "Legger", which means a
book where the various accounts are kept. A ledger is a summary statement of
all transactions relating to a particular person, asset, expenses or income
. which have taken place during a given period of time. A ledger contains
accounts for all the persons with whom the organization deals namely
accounts of all personal accounts, real accounts and nominal accounts.
Therefore the main features of a 'Ledger' is:
It is summarized analytical record of all transactions.
It is a secondary record, the primary record being 'Journal'.
/
It is called as the principal book or king of books, because it contains
information about all financial transactions of the organizations.
It is called the permanent storehouse of all the transactions.
d) Points to be noted while preparing ledger accounts:
1) Open separate account in the ledger for each account found in the

2) For all transactions relating to one account, only one account to be

 3) Allot sufficient pages for each account. Basies of Accounting

4) The journal entries should be posed to the ledger accounts iri the
order of their dates.
5) Begin with 'TO' for every debit entry entered on the debit side and
the word 'BY' for credit items on the credit side.
6) There should be only one account for each account. For example, for
all cash entries, there will be one cash account.
7) In the existing organization's ledger, each account will have opening
balances brought down 'balance brought down i.e. B E and each
account is closed with either 'To balance carried forward' (CIF) or
'By balance carried forward' (C/F).
(e) Balancing Ledger Accounts
Balancing of a ledger account or striking the balance of a ledger account is the
process or act of ascertaining whether a particular account has received more
benefits than it has given, or has given more benefits than it has received. It is
the process of finding out the difference between the total of the debit side and
total of the credit side of an account. In short it is the act of ascertaining the
i balance of a ledger account.

ILLUSTRATION-2
Journalize the following transactions and post them to the various ledger
accounts. 1

2007
1. January, 1 Rao commenced business with 5,000
2. ,, 2 Bought goods for cash 2,500
3. ,, 3 Bought office furniture for cash 500
4. ,, 4 Paid for postage
5. 5
,9 Purchased goods fiom Rajkumar 2,000
6. ,, 6 Sold goods for cash 150
7. ,, 7 Bought goods from Rahim 400
8. ,, 8 Sold goods to Suresh 400
9. ,' 9 Sold gqods to Nayak 300
10. " 10 Purchased goods for cash 350
Date Particulars LF Dr.
(&*I - Cr.
@.I
2007
1. January 1 Cash Account 5,000
To Capital Account 5,000
(Being the capital brought in by Rao)
2. ,, 2 Purchases Account 2,500
To Cash Account 2,500
(Being the goods bought for cash)

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Administration of NGOs 3. ,, 3 OficeFurniture
Account
To Cash Account
(Being the ofice furniture bought
for cash)
4. ,, 4 Postage Account 10
To Cash Account 10
(Being the cash paid for postage)
5. ,, 5 Purchases Account 2,000
To Rajkurnar 's Account 2,000
(Being the goods bought from
Rajkumar on credit)
6. ,, 7 Cash Account 400
To Sales Account 400
(Being the goods sold for cash)
7. ,, 8 Purchases Account 150
To Rahim's Account 150
(Being the goods brought from
Rahim on credit)
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8. ,, 9 Suresh's Account 400
To Sales Account 400 ,.
( ~ ' e i the
n ~ goods sold to Suresh
on credit)
9. ,, 10 Nayak Account 300
To Sales Account 300
(Being the goods sold to Nayak
on Credit)
I
10. ,, \11 Puchases Account 350 1
To Cash Account 350
(Being the goods purchase6 for cash)
LEDGER
,The above journal entries are to be posted to the various ledger accounts in the
following manner:
Cr.
. . 2007 S . 2007 Rs.
January 31 Jh Balance cld. 5.000 January 1 By Cash Alc.5,000
5,000 5,000
Feb. 1 By Balance bld. 5,000
?rrr>:i;eses Account Cr.
3 . 220CL
Jan. L3 2 TO Cash Alc. 2 .- 2 Jan. 3 1 By ~ A a n c kcld. 4,900
5 ,, X~j~curr.~.:.''.
,,RZ;..;::~'SLA':.
;/c. 2,C.. -
9,
[ ,:;:
YY
11 9'

Feb. 1 To Ba:r.:.!-,:: ;/r .

 Basics of Accounting
Dr. Sales Account Cr.
2007 Rs. 2007 Rs.
Jan. 31 To Balance cld. 850 Jan. 7 By CashNc. 150
,, 9 " Suresh Alc. 400
,, 10 " Nayak's Nc. 300
850
850 Feb. 1 By Balance b/d. 850
Dr. Office Furniture Account Cr.
2007 Rs. 2007 Rs.
Jan. 3 To CashNc. 500 Jan. 31 By Balance cld. 500
500 500 I
I
Feb. 1 To Balance bid. 500 I

Dr. Nayak's Account 1 Cr.

2007 Rs. 2007 Rs.
Jan. 10 To Sales Nc. 300 Jan. 13 By Balance cld. 300
300 ,, 31 300
Feb. 1 300
Dr. Postage Account Cr.
2007 Rs. 2007 Rs.
Jan. 4 To CashNc. 10 Jan. 31 By Balance cld. 10
10 10
Feb. 1 To Balance bid. 10
Dr. Cash Account Cr.
2007 . Rs. 2007 Rs.
Jan. 1 To Capital 5,000 Jan. 2 By purchases 2,500
Jan. 7 To sales 150 Jan. 3 By Ofice 500
furniture
Jan. 4 By Postage 10
Jan. 11 By Goods 350
Jan. 31 By Balance 1,790
5,150 5,150
Dr. Suresh Cr.
2007 Rs. 2007 &.
Jan. 9 By Sales 400 Jan 31 By Balance cld 400
400 400
Dr. Goods Account Cr.
2007 Rs. 2007 Rs.
Jan. 11 To Cash 350 Jan. 31 By Balance cld 350
350 350
TRIAL BALANCE
The main objective of accounting is to ascertain the profit or loss and the
financial position of the business organization. This can be achieved by
preparing the final accounts of the organization. The final accounts have to be
prepared on the basis of balances of various accounts in the ledger. Since the
ledger accounts are spread over many pages besides there are additional
 Administration of NG, ,. Trail balance facilitates in preparation of final accounts as all the balanct.,
found in the ledger accounts are available in one statement.
I n the words of J.R.Batliboi:
"Trial Balance is a statement, prepared with the debit and credit ki#wp > 5
of.
.r i

ledger accounts to test the arithmetical accuracy of the booksl!.

& the words of Spicer and Pegler:
"a trial balance is a list of all the balances s q id i p g- fie ledger q ~ p. o y tand
rrl
s r

cash book of a xncern at any given date".

Advantages of Trial Balance:

I The balances of ledger accounts can be l~fatediq one place.

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I It helps in checking aritkfneticg acC:wqFy.

< '

I ,,_-. It helps in locating errors.

It helps in preqvation of fi@ qc~wts.
. * . .&

To help to carry out adjustments i f p y .

Noq-Profit Organiqti~nsq Ncq=Fjov%men@\Organizatiaas fNQ(Si3) dg ~ s t

norqqly yqdertake @+ding.But q m p NfSOs u n d e w e trading ip ~ 7 mall , way
like selling greetiqp F@S, etc. in ardpr ta be fipwcially sowd, Most: nfthem
are involved in so&& senices such qr(geduation, hospitals, and povpm
are
alleviations. A few ~ f i ~ e m/nv~]yedin w e q ~ d n @6, sciesw,
literature sports etc. At the end of the year the padiqp t l r g w t i o n s tam
interested knowing how much profit (N- loss they h&! made, L the awe d
non-profit organizations this i s not v e q jmpo&t fay &w. But nevertheleyss.
.
financial management i s necesgyy fay ~Q#I type sntitieai All s~mlzations
need to use the financial resewps wja ~ p t k u r nef8~ieooy.Tho non-pmht
organizations prepare the foll~winqfinal weclunte (rt the end af the financial
Year.
o Receipts and Payment account
Income and Expenditure Account
Balancesheet.
Wewill now try to understand these accounts in detail.
Receipts and Payments Aceount
A Receipts and Payments Account is a surnsqggy ~fa s h rseia& m(S
payments relating to a given p ~ d of time, y ~ \ (Iy It c~n&&a QW
receipts and paymeqtg ~ f & vq g imspectiye ~ f t b anaM ePW i(pnu
(i.e., whether they are capiM iteqs, feyegue item+ All o p h tmmg~tiana
which takes place d m 6 tbt pafFfc@qY P is~q c w @ dW p e c t i w of the
e p y i ~ QT~ q~bqgqya
fact the items may y ~ l a t~ g year. We Various items of
cash receipts and cashhpayrne~tr recorded in the Cash Book are s m ~ m d
and classified v d s h ~ w niq the Receipts and P a p n t g Iq~gount.Tkg~
Receipts are rsorded en €he debit side a l e are rewrded on
credit side. The essential features of a J&qqiptsand Payme~tamcoimt me:
 1) It is prepared on the cash system of accounting.
2) it is prepared fiom the cash book.
3) It is prepared at the end of the financial or accounting year.
4) It starts with the opening cash and bank balances, and ends with the
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closing cash and bank balances.

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5) The receipts area shown in the debit side and payments are shown on the
cpdit side.
6) incl@s b~~ capital and Revenue items of the year.
r
7) As it is suqqw of acQal cash receipts and actual cash payments, it does
not include outstanding receipts and payments.
8) f{ dpes not include non cash items like bad debts, depreciation etc.
9) It does nc# t.ev& e e surplus (i.e., profit) or deficit (i.e., loss). It merely shows
~
balance of q& in tqpd p d at bank at the end of the accounting year.
10) ft blps in the fq~epargti~p
of $hg jncome and expenditure account and
bdwei sheet at b e d af the year or when ever required.

At end of the yaw, & fRMwq d E4pe@ipre ~ ~ c o u nrevealst, whefher tbe

organization has ended with surplus or &figit. $ Qe iase of trading c(meems,
Profit an4 b.8acGavnt
~ i s prep& t~ p~erf@fl gwfit pr 19~s17t dje end of
the par. & income anQ $xpe&i@re fip$punt i s a revenue wg~ul)faqd @kes
into wcount only revenue items. It jq a summary of incomes and expenses for
a particular period, ~suztllya year.

%."., , .
Receipts and Income and
Payments Account Expenditure Account

1. It is a summary of actual cash receipts 1. It is a summary of incomes

And cash payments of a given period. and expenses, for a .
particular period
3. It is prepared on the cash system of 2. It is prepared on the
acp~@ting. accrual system of
accounting.
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3. It i ~ b & s b ~@
t ~&?3i;ki3
V&l 3. It includes onlyrevenue
Revenue items. items.
4, It may oon&n &@ items of previous 4. It will contain only items
and subsequent year. of current year.
'

5.
It dois pot iiclude non-cash items like 5. It includes items like bad
Bad debts and &pteciatiun. 1 debts, and depreciation.
6.Receipt.s ara slwwq ol) &debit si& 'i
And paymenu are an the i~reditside debit side and Income on
the credit side
Administration of NGOs
7. It begins with an opening balance of 7. It does not begin with any
Cash on hand and cash at Bank. opening balance.
8. The closing balance represents cash 8. The closing balance of this'
on hand and cash at Bank, normally account may be debit or
a debit balance. credit balance.
9. The closing balance of this account is 9. The closing balance of this
brought down to the next accounting account is, generally, not
year. Brought down to the next
year.
BALANCE SHEET
The Balance Sheet is a significant financial statement of an organization. As
the name suggests, the balance sheet provides information about the financial
standinglposition of an organization at a particular point of time, say as at
March 31.In order to give a complete picture of the state of affairs of a Non-
Governmental Organisation, the income and expenditure account should be
accompanied by a Balance Sheet.

The balance sheet of a non-trading concern is prepared in the same manner as

that of a trading loncern, showing the liabilities on the left-hand side, and the
assets on the right-hand side of the Balance Sheet. However, the following
main differences between two may be noted.
1) The balance sheet of a trading concern is prepared from the trial balance
and adjustments, if any. On the other hand, the balance sheet of an NGO is
-
prepared from the Receipts and Payments account, and other information
available.

In the case of a trading concern, the capital is contributed by the owners, ar .

the same is entered on the liabilities side of the bdance sheet. But in the c;-2
of NGOs, it is generally promoted by its members and promoters. It does not
have capital contribution, instead, it has capital fund, general fund or
accumulated fund. The capital fund is the accumulated surpluses over a
number of years and the capitalized receipts. The capital fund on any date is
the excess of assets over liabilities on that date. The capital fund is entered on
the liabilities side of its balance sheet.

The contents of the Balance Sheet

The assets side of the balance sheet of an NGO is generhuy. consists of:
r -
+,
Current Assets such as Cash on hand, Cash at h n k , d~btors,Stock,
* '~b'tgtanding
incomes and prepaid expenses, etc.
lavkhents, and Fixed Assets, such as Buildings, Furniture, Vehicles etc.
r"he Ubiliiies side of the balance sheet of an NGO usually consists of:
cub& Liabilities like Creditors, outstanding expenses, income received
in advance, etc.
Low-term fiabilities like Loans and deposits taken from others.
S~ecialFunds such as building fund, endowment fund, etc., and
The closinp capital fund.
3.9 CAPITAL FUND AND FIXED ASSET
Basics of Accounilng
I
ASSESSMENT
The closing capital fund, or the general fund or accumulated fund of an NGO,
I
which has been in existence for more than a year, can be ascertained by adding
the capitalized receipts of the current year like, life membership fees, entrance
fees etc., and the surplus ( i.e., the excess of income over expenditure) of the.
current year with the opening capital fund. In case of deficit, (excess of
expenditure over income) during the current year, it should be deducted fiom the
total of the opening capital fund and the capitalized receipts of the current year.
In the case of newly started NGOs the capital fund can be ascertained by
totalling up the capitalized receipts such as legacies, life membership fees,
donations and the surplus (i.e., excess of income over expenditure of the --
current year. In case of deficit, the same is to be deducted. ,

The Fixed h s t s
The closing balance or value of every fixed asset needs to be ascertained and
entered on the asset side of the balance sheet. It can be ascertained as under:
Rs.
Value of the fixed asset as at the beginning of
the current year -- ....................................
Add: Value of the fixed asset purchased during
....................................
Less: Book value of the fixed asset sold during
the current year - ....................................
'Less: Depreciation charged on the fixed asset
during the current year - ....................................
Value of the fixed asset as at the end of the
- ....................................
. ILLUSTRATION 3
From the following statement of an Education Society, prepare an Income and
Expenditure Account for the year ended 31-12-1995 and the Balance Sheet as
on that date.
Balance Sheet as on 31-12-1994
Capital Fund
Audit Fees
Creditors 200
3,890
/--

Maps and Charts

3% Govt Bonds
Subscription Outstand'mg
Administration of NGOs Receipts and payments Account as on 31-12-1995
To Bhlance b/d
,3 S~bscriptiona

,, Special Donations
,, Interest on Govt Bonda

By Audit Pees
,, Rent
,, Maps and Charts
,, Statione:y and Postage
,, Paid to Cr zditors
,,Salary
,, Functions
,, Balance

- 1) Audit fees Rs. 50 is still outstanding

2) Charge Rs. 25 as depreciation on furniture.
3) ?4of the special donations is to be capitalized.
(Adapted from Karnataka State I1 P.U.C., April, 1984)
Solution:
Education Society RS.
To Audit fees 50
Less: last year's
Outsunding (as given in the opening bsl: ace sheet)
Add: Current year's Outstanding
,,Rent
;,Stationery and
,, Postage
,, Salary
(Expenses on)
,, Functions
,, Depreciation on
,, furniture
'' Excess on Income
Over Expenditure
By Subscriptions
Less: Last year's
Outstanding (as given in the opening balance sheet)
,,Special donations
(Half of the amount treated as revenue receipts or incomes)
,,Interest on investments received
Add: Outstanding Interest
Balance Sheet as on 3 1" ~ecember,1995
 Basics of Accountlrrg
(Currefla yeiiPs) outstanding
Audit feee
Cfditors 420tb1TS)
Closing Capital Fund
Opening ~apitalf l i ~ d
Add: Speci~ldonations
Capitalized (950 p: '1'2)
Add: Exce~dof Incurfie
Over ~x~enditure

Aasets
Gash trl kwd
[ C w n l yeafig) O~tstafldihg
Inteteat drl fnve~tmefl€s
Itlv38tfie~s
Map8 and cham: Rs.
Open@ value 160
Add: Additional '

Maps and chans

Purchased during
The year
Furnim
Le~s:Depredation
note^:
1) Half of the special donations., viz., Rs. (250 x !A) 125, a e capitalized.
The special domition8 capitalized, viz., Rs. 125, should be added to capital
fund on the liabilities side of the closing balance sheet.
2) Outstanding interest on government bonds, viz., Rs. 48 has been arrived at
as follows:
Amount invested m government bonds is Rs. 3,100. The investments on
government bonds has been there throughout the year. The rate of interest on
investments is 3% So, the interest on investments for the year should be Rs.
(3,100 x 31100) 93. but the interest on investments received during the year *is
only Rs. 45. That means, the remaining interest of Rs. (93-45) 48 should be
outstanding.
3) Maps and charts are fixed assets. So, they should appear on the assets side
of the closing balance sheet. '

4) The term 'functions' given on the payments side of the Receipts and
Payments account should be taken to mean expenses on functions. So, this
item should appear on the debit side of Income and Expenditure Account.
5) The amount of creditors shown on the liabilities side of the closing
balance sheet, viz., Rs. 25, has been arrived at as follows:
Administration of NGOs Creditors as per opening balance sheet 200
Less: Amount paid to creditors during the year as per the
Receipts and Payments Account 175
Balance of creditors to be s!~.om.as a liability in the closing 25 .
Balance sheet

3.10 SUMMARY
This unit familarizes you with the basics of accounting. It gives an idea as to
how the accounting concepts can be applied to the NGO sector. The various
.
concepts like trial balance and different types of accounts have been discussed.

3.11 SELF-ASSESSMENT OWESTIONS

Q1. Explain the concept of accounting giving examples.
42. Differentiatebetween journal, ledger and a trial balance.
43. Explain how a balance sheet is prepared giving hypothetical example.

4.12 FURTHER READINGS

Raman B.S., 2005. 'Accountancy ', United publisher's Press. Mangalore.
Raman B.S., 1996. 'Text Book ofAccountancy ', United Publishers,
Mangalore.
Chandra, Prasanna. 1985. 'Manager h Guide to Finance andAccounting', Tata
McGraw-Hill: Delhi.
Shukla, M.C, and Grewal, T.S, Gupta S.C. 2006. "Advanced Accounting",
Sultan Chand & Co. Ltd, New Delhi.
Iyengar. S.P, "Accountancy", 2002. Sultan Chand & Co. Ltd, New Delhi.
Nabhi Kurnar Jain, 2001. 'Formation & Manqgement of a Trust ', Taj Press,
New Delhi.