Non Profit Organizations:- Theory

Q.1 Give meaning & examples of nonprofit organizations?

Ans:- These refer to the organisations which are established for social service and not for
profit motive.
For examples:-
1. Schools
2. Hospitals
3. Charitable trust
4. Literary societies
5. Religious and cultural clubs.
6. Sports clubs.

Q.2 How nonprofit organisations are managed?

Ans:- These organisations are managed by Management committee selected by the
members of organisation.

Q.3 Do you think that nonprofit organisations are also required to draft their financial
statements ? give reasons?
Ans:- Yes due to following reasons:-
1. As per government regulations these organisations are also required to draft their
financial statements.
2. These organisations also want to know the results of their activities performed during the
year inform of surplus or deficit

Q.3 Name the major books which are maintained by a nonprofit organisation?
Ans:- 1. Cash book
2. Members subscription register.
3. Stock register
4. Memorandum book.

Q.4 Name the parts of financial statements of a non profit organisation?

Ans:-1. The receipt and payment account
2. The income and expenditure account
3. Balance sheet.

Q.5 What do you mean by the term surplus and deficit?

Ans:- The excess of incomes of a nonprofit organisation over its expenditure is called
surplus and vice versa is called deficit.

Q.6 What is the main purpose of preparing the receipt and payment account?
Ans:- It is prepared to summarise the cash book maintained by a non profit organisation.

Q.7 What is the main purpose of preparing the income and expenditure account?
Ans;- It is prepared to find out the net results of various activities performed by a non profit
organisation in form of surplus or deficit.

Q.8 State the salient features of receipt and payment account.

Ans:- 1. Meaning:-it refers to the account which is prepared by a nonprofit organisation to
summarise its cash book
2. Similar to:-It is similar to cash book but it is not substitute of cash book.
3 Nature:- is real account in nature.
4. Side:- debit side is termed “receipts” whereas on credit side is termed “payments”.
5. Related year: It records all cash transaction took placed during the year which may be
related with any years.
6. Nature of transactions:-It records all types of cash transactions whether it is capitalised
or revenue in nature.

Q.9 State the salient features of income and expenditure account.

Ans:- 1.Meaning:- It refers to an account maintained by a non profit organisation to
compute the amount of surplus or deficit for an accounting period.
2. Similar to:- it is similar to profit and loss account but there are a lot of differences
between income and expenditure account and profit and loss account.
3. Nature:- It is nominal a/c in nature.
4. Sides:- debit side is termed “expenditure” whereas credit side is termed “income”.
5. Related year:-It records only current year's transaction which may be cash or credit or
non-cash.
6. Nature of transactions:- It records only recurring or revenue nature transactions.

Q.10 Make differences between the receipt and payment account and cash book?
Ans:- 1. Prepared by:- cash book is prepared by all types of business organisations as well
nonprofit organisations where as the receipt and payment account is prepared only by a
non-profit organisation.
2. Time of preparation:-cash book is prepared on daily basis where is the receipt and
payment account is prepared at the end of year.
3. Objective:-The purpose of cash book is to record all cash and bank related transactions
where as the objective of the receipt and payment account is to summarise cash book.
4. Nature:-Cash book is a part of double entry system where as the receipt and payment
account is a statement.

Q.11 Make differences between income and expenditure account and profit and loss
account?
Ans:-1. Prepared by:- Income and expenditure account is prepared by the non profit
organisations where is profit and loss account is prepared by profit seeking organisations.
2. Objective:-the objective of income and expenditure account is to find out surplus or
deficit where is the objective of profit and loss account is to find out net profit or net loss.
3. Basis of preparation:- income and expenditure account is prepared on the basis of
receipt and payment account where as the profit and loss account is prepared on the basis
of trial balance and other information.
4. Transfer of closing balance:- the closing balance of income and expenditure account is
called surplus or deficit which is transferred to Capital fund where is the closing balance of
P&l account is termed as net profit or net loss which is transferred to capital.

Q.12 Make differences between the terms capital and capital fund?
Ans:- 1. Term used:- the term capital is used by a profit seeking organisation where as the
term capital fund is used by a non profit organisation.
2. Formula:- (assets-liabilities)of a profit seeking organisation is capital where as (assets-
liabilities) of a non profit organisation is called capital fund.
3. Invested by:- amount of capital is invested by an owner into a profit seeking
organisation where as capital fund is the balance of accumulated surplus and it is not
invested by any of the members.

Q.13 list recurring nature items of NPO

Ans. Recurring /Revenue nature receipts & income
1. subscription
2. Entrance or admission fees
3. Hall rent received
4. Locker's rent received
5. Interest/ divided received on Investments
6. Donation received
7. Entertainment receipts
8. Profit on sale of fixed assets or Investments
9. Sale of old newspapers or scrap material
10. Sale of drama tickets
11. Sale of concerts tickets for seminar tickets
12. Tuition fees received
13. Canteen or restaurant receipts
14. Proceeds from Charity show
15. Subsidy or granth or aid from local government
16. Sale of grass
17. Proceeds from advertisement.
18. Sports or match receipts

Recurring or revenue nature payment and expenditure

1. Wages and salary of caretaker
2. Depreciation
3. Sports aur match expenses
4. Rent paid
5. Sundry expenses
6. Newspapers and periodicals
7. Honorarium
8. Travelling Expenses
9. Printing and stationery
10. Municipal taxes
11. Repairs and renewals
12. Loss on sale of fixed assets or Investments
13. Interest paid on loans
14. Insurance premium
15. Telephone and electric expenses
16. Depreciation on fixed assets
17. Purchase of grass and seeds
18. Conception of consumable goods
19. Audit fees
20. Refreshment or canteen or restaurant expenses
21. General expenses
22. Donation or Charity
23. Fees to doctors or tutors
24. Lighting and heating
25. Drama expenses
26. concert/ seminar expenses.
27. Upkeep or maintenance of ground & lawn
28. Payment for advertisement it
29. Depreciation on surgical or medical equipments

Q.14 list capital nature items of NPO

Ans:- capital receipts
1. Life membership fees
2. Special aur huge amount of donation
3. Specific fund
4. Endowment fund
5. Legacy
6. Sale proceeds of fixed assets or investments or books
7. Loan raised

Capital payments or expenditure

1. Purchase of fixed assets or investment or books or surgical equipments
2. Repayment of loans.

Q.15 What do you mean by subscription

Ans:-it refers to the membership fees which is paid by the members on regular basis it is
main source of income of of a NPO. Its recurring in nature.

Q.16 What is mean by honorarium?

Ans:- it refers to to a revenue nature payment made by NPO to an expert or outsider other
than member for or his specific services in form of token of honour.

Q.17 Give the meaning of legacy?

Ans:- it refers to a capital receipt of NPO from a deceased person as per his will or deed.

Q.18 Give the meaning of endowment fund?

Ans:- it refers to a capital receipt of entry in form of gift which facilitates a permanent
source of income and the income is restricted to use for a specific purpose.

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