Non-profit Organisation are established for the welfare of the society or for the promotion of art and culture

in society. These
are set up with a service motive, unlike other organizations which have profit earning as their motive.

Also, the trustees who are elected by the members of the organization manage them. In order to meet their objectives, these
organizations raise funds from its members as well as from the general public.

Charitable institutions, religious organizations, clubs, educational institutions, trade unions, etc. are examples of Non-Profit
Organizations. However, there are some special items which we will discuss here.

Special Items and their Accounting

The main motive of the non-profit organizations is to provide service. However, they can earn profits in the due course.
Usually, they do not manufacture, purchase or sell goods or provide services.

Hence, they do not prepare Trading and Profit and Loss A/c instead they prepare Receipts and Payments A/c, Income and
Expenditure A/c, and Balance Sheet.

Some of the items of revenue and expenses of the non-profit organizations are special in nature and thus, require special
treatment. These special items are:

Entrance Fees

It is the amount which a member pays at the time of admission. Thus, it is a one-time fee and also non-recurring in nature. As
per the rules of the organization, it is either capitalized or treated as revenue.

The assumption behind treating it as a revenue receipt is that admission of a member is a regular activity and it will receive
such fees every year.

Donations

The organization may utilize this amount for meeting revenue or capital expenses. However, when it receives the donations for
a special purpose then it needs to credit this amount to a separate fund before disbursing it.

The organization can invest this fund in securities and has to credit the income from these investments to the fund. It can treat
the donation receipts, not for any specific purpose as revenue receipts.

Legacy

It is the amount which passes to a trust after the death of the person in whose memory the trust is formed. Thus, legacy is the
one-time and non-recurring receipt. It thus becomes a part if the capital fund.

Endowments

It is the amount that is received in the form of donations but has to be utilized only as per the directions of the donor. Thus,
these are capital receipts.

Life membership Fees

At the time of receipt, the organization may treat it as deferred receipt and credit every year a specific amount to the Income
and Expenditure A/c. Alternatively, it can treat it as a capital receipt and debit a specific amount every year.

Subscriptions

It is the amount that a member pays every year as the membership fees to the organization. These are the revenue receipts and
also the major source of income. These are recognized based on the accrual concept.

Though the non-profit organizations do not trade in goods or provide services with a profit motive, they also need to keep
proper records of incomes, expenses, assets, and liabilities.

They need to keep proper books due to their accountability towards the members and the contributors and also because the
requirements of law so that the government can keep proper control over the grants.
 These organizations maintain Capital Fund or General Fund A/c. They credit this account with the surplus, life membership
fees, donations, legacies, etc.

Solved Example on Special Items

What are the financial statements required to be made by non-profit organizations?

Ans.

Non-profit organizations also need to maintain proper books of accounts. The financial statements assist them in getting the
donations from the present and the future contributors. The final accounts of these organizations consist of:

1. Receipts and Payments A/c: This account is the summary of the cash and bank transactions and aids in the preparation of
Income and Expenditure A/c and Balance Sheet.
2. Income and Expenditure A/c: This account is similar to the Profit and Loss A/c and determines the surplus or deficit if any.
3. Balance Sheet: We prepare it in the same manner as the Balance Sheet of concerns with the profit motive.

Receipt and Payment Account

“A receipt and payment account is a summarized cash book for a given period”.”This is a summary of the cash transactions
as in the cash book”. Non-profit organizations prepare receipt and payment account at the end of the year. With the help of
this account and some additional information, we prepare income and expenditure account to disclose the true results of
non-profit organizations.

Receipt and payment account cannot disclose the true result of a non-profit organization. We prepare this account on the basis
of the information available from the cash book.

Characteristics of Receipt and Payment Account

Following are the characteristics of receipt and payment account:

1. It is a summary of the cash book.

2. We record all the cash receipts during the whole year on its debit side. Whereas, we write all the cash payments for the whole
year on its credit side.
3. We include both receipts and payments in cash whether they are of capital and revenue nature.
4. We record only cash transactions in receipt and payment account.
5. It generally shows a debit balance. In the case of overdraft balance, its net balance may be credit.
6. Its closing balance shows closing cash in hand and closing cash at the bank.
7. Non-cash items such as depreciation, outstanding expenses, accrued incomes are also shown in this account.

Method of Preparation
As we know, we prepare Receipts and payment account with all the cash receipts and cash payments for the whole year. We
determine the net result of cash receipts and cash payments of a fixed time through this account.

The left-hand side of this account is known as “Receipts” and right-hand side of this account is known as “Payments”. All cash
receipts are recorded on the left-hand side, while all cash payments are recorded on the right-hand side and are arranged in a
classified form.

1. We start with taking opening balances of cash in hand and cash at bank and enter them on the debit side. (if there is bank
overdraft at the beginning, we enter the same on credit side).
2. Now, we enter the total amounts of all receipts on the debit side and total amount of all payments on credit side (whether
capital or revenue) and whether they are of past, current and future periods.
3. We do not include the incomes or expenses that do not involve the inflow or outflow of cash.
4. Now, we will find the difference between the total of the debit side and the total of the credit side of the account, the
amount so found will be the closing balance of cash or bank.
In case, if the credit side is more than the debit side, the amount will be debited as bank overdraft and we will close the account.

Proforma of Receipt and Payment Account

Receipt and Payment Account

Receipts Amount (Rs.) Payments Amount (Rs.)

Balance b/d Balance b/d (overdraft)

Cash in hand Wages and Salaries

Cash at bank Rent

Subscriptions Rates and Taxes

General Donations Insurance

Sales of newspaper Printing and Stationery

Sale of Sports materials Advertisement

Interest on fixed deposits Sundry expenses

Interest in investments Telephone charges

Locker rent Entertainment expenses

Sales of scraps Audit Fees

Received from charity Honorarium

Miscellaneous receipts Repairs and Renewals

Sale of Investments Purchase of Assets

Sale of Fixed Assets Purchase of Investments

Life Membership Fees Balance c/d

Entrance fees Cash in hand

Balance c/d (overdraft) Cash at bank

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