THE UNIVERSITY OF DODOMA

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING & FINANCE

AF 121: FINANCIAL ACCOUNTING.

TOPIC 2: ACCOUNTING FOR NON FOR PROFIT

ORGANISATION
• A.Lecturer: Mariam Swalehe Said.
 INTRODUCTION

• Can you name any 3 non trading organization?

• Can you briefly explain what those organizations deals with?
 AT THE END OF THE TOPIC, YOU SHOULD BE ABLE TO:-

üDefine the term Not for Profit Organisation.

üExplain features of Not for Profit Organisation.
üPrepare final accounts for Not for Profit Organisation.
 NOT FOR PROFIT ORGANISATION?
• Is an organization formed with view to render services to its
members.
• Thus, they carry on their activities without aiming at making profits
• Example; charitable organizations such as clubs, schools, hospitals
and association.
 CHARACTERISTICS OF NON-TRADING ENTITIES

1. The objective is not to make profit but to provide service to its members and to the
society in general.
2. Main income comes from admissions fees, subscriptions, donations, grant-in-aid, etc.
3. These organizations are managed by a group of persons elected by the members from
among themselves (managing committee).
4. Accounting procedures are same with those applied by profit oriented organization.
 FINAL ACCOUNTS FOR NON-TRADING ENTITIES

• Do you think its important for these organization to prepare books of

account?
• Yes, it is essential that, proper books of accounts are maintained.
• So that the management of these organizations be accountable to the
members and donors.
• What books do you think should be prepared by these organizations?
 FINAL ACCOUNTS FOR NON-TRADING ENTITIES

1. Receipts and payments account

2. Income and expenditure account
3. Balance sheet
RECEIPTS AND PAYMENTS ACCOUNT

Cash book • Daily cash transactions

Receipts & • A summary in form of account from

Payments cash book at the year end
 CHARACTERISTICS OF RECEIPTS & PAYMENT A/C
• All cash receipts & payments are recorded despite it is for previous or next year.
• No accrual transactions are recorded
• All receipts are recorded on its debit side while all payments are shown on the credit side.
• Begins with opening cash or/and bank balance
• Closing balance of this account is cash in hand and/or cash at bank or it can be overdraft.
 WHY RECEIPT & PAYMENT A/C
• It shows a summary of all cash transactions by an organization.
• It shows the closing cash or/and bank balance which is taken to the Balance sheet.
• Serves the purpose of trial balance and becomes the basis of preparing financial
statements which includes; Income and Expenditure Account and Balance sheet.
Note
Some NFPO prepare ONLY receipts & Payments, mostly very small NFPO.
 COMMON ITEMS IN RECEIPT & PAYMENT A/C

RECEIPTS PAYMENTS
• Subscription fee- members
• Purchase of fixed assets
• Life membership fees
• Purchase of consumable items
• Exhibitions fee
• Etc.
• Donations
• Prizes after competition
• Etc.
 EXAMPLE 1

From the information given below prepare Receipts and Payments Account for the year ending 31st December,
2006.
Tshs Tshs
Opening Balance:
Purchase of Books 10,000
Cash in hand 1,650
Purchase of Sports Material 20,000
Cash at Bank 18,250
Subscription 15,000 Purchase of Bicycle 2,000
Entrance Fees 1,200 Sale of Investment 25,000
Donation 18,000 Life Membership Fees 4,000
Salaries 16,000 Rent paid 12,000
Stationery 500
Sale of old Furniture 1,540
 SOLN. EXAMPLE 1
DR Receipts and Payment a/c CR
Details Amount Details Amount
Cash in hand 1,650 Salaries 16,000
Cash at bank 18,250 Stationery 500
Subscription 15,000 Purchase of Books 10,000
Entrance Fees 1,200 Purchase of Sports Material 20,000
Donation 18,000 Purchase of Bicycle 2,000
Sale of old Furniture 1,540 Rent 12,000
Sale of Investment 25,000 Balance c/d 24,140
Life Membership Fees 4,000
84,640 84,640
 WHAT NEXT?

Receipts & Income and Balance Sheet

Payments a/c Expenditure a/c

• Summary of cash • = Income Statement • Determine

transactions position of
• Surplus or deficit
NFPO
• A = AF + L
INCOME AND EXPENDITURE A/C VS RECEIPTS AND PAYMENTS A/C

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Nature It is like Income Statement It is a summary of Cash book

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Nature of the items It records income and expenditure of revenue It records receipts and payments of
nature only revenue as well as capital nature

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Period Income and expenditure items relate only to the Receipts and payments relate to
current period preceding (previous) and succeeding
(future) periods
 INCOME AND EXPENDITURE A/C VS RECEIPTS AND PAYMENTS A/C
Basis of distinction Income and Expenditure Account Receipts and Payments Account
Debit side Debit side of this account records expenses and Debit side of this account records
losses receipts

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Credit side Credit side of this account records income and Credit side of this account records
gains payments

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Opening balance There is no opening balance Balance in the beginning represents
cash in hand or cash at bank or bank
overdraft
 INCOME AND EXPENDITURE A/C VS RECEIPTS AND PAYMENTS A/C

Basis of distinction Income and Expenditure Account Receipts and Payments Account
Closing balance Balance at the end represents income over Balance at the end represents cash in
expenditure or vice-versa hand or bank or it can be bank
overdraft

Basis of distinction Income and Expenditure Account Receipts and Payments Account

Accounting system It is based on accrual system of accounting It is based on cash system of

accounting
 BALANCE SHEET
• Prepared in the same manner as of For Profit Organization..
Note
• There will be a Capital Fund or Accumulated Fund or Accumulated capital fund in place of
the Capital.
• The fund is made up of capital receipts like donations and grants and the surplus/deficit.
• Sometimes it becomes necessary to prepare Balance Sheet as at the beginning of the year in
order to find out the opening balance of the capital fund.
 RECALL FROM AF 111,
TOPIC 6: YEAR END ADJUSTMENTS
• Accruals & prepaid (income or expenses).
• Bad debts.
• depreciation.
These concepts are required while attempting questions of the
current topic.
Recall also, Topic 5: Preparation of Financial Statements.
 EXAMPLE 2, 3, 4 & 5

REFER THE OTHER DOCUMENT GIVEN

 ANNOUNCEMENT 1
CW
CW COMPONENT COVERAGE EXPECTED DATE MARKS

TEST 1 TOPIC 1 & 2 WEEK 6 (out of class session) 10

TEST 2 TOPIC 3 & 4 WEEK 10

TEST 3 TOPIC 5 & 6 WEEK 10

GROUP ASSIGNMENT ALL TOPICS TO BE ANNOUNCED 10

Note: TEST 1 & 2 will have small gap, so get prepared and plan well.
 ANNOUNCEMENT 2
Week 1 was missed.
Now = Week 3, on 7th it Good Friday so we will miss a lecture, what to do?
Week 4, ok = topic 3 to be covered.
Week 5, on Friday 21st it can be Idd, what do?
We need compensations, in advance is much better.
Week 6 ok = test 1 on either on 29th or 30th and topic 4 to be covered.
 THANKS

IN GOD IS SUCCESS AND GUIDANCE