ACCOUNTING FOR NON-PROFIT

MAKING ORGANISATIONS

1
 1. Description
Other names:
Not-for profit organizations
Non-trading organizations
Non-commercial organizations
 They include clubs, associations, schools,
churches, hospitals, professional institutes, etc.

2
 2. Characteristics:

 Formed to render services to their members and community

and not for profit maximization.
 Most of their revenue is derived from membership dues, eg
subscriptions and entrance fees
 Their accounting emphasis is on the stewardship over
resources and on the way the organisation performs its
obligations.
 The operations of the organisation are controlled by the
budget. The budget provides a financial framework and
guidelines for the organisation to plan its operations.
 They can be small and manned by unqualified personnel.
Their books are, often, incomplete and defective.

3
 Financial Statements:

Receipts and Payments Account (for small

organization with no assets or liabilities)
Income and Expenditure Account
Balance sheet
Trading and Profit and Loss account for activities like
bar, canteen , etc

4
 Terms Comparison:

Profit making firms Non-profit making firms

 Cash book Receipts and Payments
 Trading and P & L a/c account
 Net profit Income and Expenditure a/c
 Surplus of Income over
 Net loss Expenditure
 Excess of Expenditure over
 Capital Income
 Balance sheet Accumulated fund
Balance sheet
5
 Receipts and Payments account:

A summarized form of cash book

It shows all items of receipts and payments
Dr side shows opening cash balance & Receipts
 Cr side shows payments & closing cash balance
No distinction made between capital and revenue items.
For small organization No Balance sheet is normally
required.
It serves a great practical significance to the members
as it discloses collections: subscriptions , donations;
cash position of the entity; disbursement

6
 Income and Expenditure account

Follows all the basic rules of P & L a/c.

Expenses are debited and income credited.
Capital items excluded.
Follows accrual concept: all revenue items relating to
the accounting period under consideration are included
regardless whether actually paid or received.
The balance of the account represents excess of
income over expenditure or vice versa.

7
 Accumulated Fund

In effect a capital account

Accumulated fund = Assets – Liabilities
Excess of income over expenditure is added to
accumulated fund.
Excess of expenditure over income is deducted from
accumulated fund.

8
 Profit or loss for special purposes – Fund Raising
Activities

A separate activity is undertaken to make profit to help

finance the main purpose of the organisation. E.g.
running a bar, a refreshment counter, discos or dances.
A separate Trading and Profit and Loss account is
prepared for such activity and the balance is
transferred to main account.- Income and expenditure
a/c.

9
 Treatment of Certain Accounts
Outstanding subscription: In practice they are not
brought into books as assets due to prudence concept.
In examinations they are brought into books unless
told otherwise.
Life membership:
On receipt: Dr Bank a/c & Cr: Life Membership a/c
(liability a/c)
At the end of the year an appropriate amount, as
decided by the committee, is transferred to the Income
and Expenditure a/c.

10
 Treatment of Certain Accounts
Practically, if life membership amounts are small and
regular in nature they may be treated as income in the
year of receipt.
Donations: shown as income in the year of receipt.
Entrance fees: Included as income in the year of
receipt.
Legacies: money to be received by a club under the
will of and at the death of a person. Normally added to
the Accumulated fund.
Investments: Income from the investments is treated
as income for the year.
11
1st January 2008 balances :
Cash at Bank 200.00
Snack Bar Inventory 800.00
Club House Buildings 12,500.00

During the year ended 31st December 2008 the following transactions took place

Receipts Payments
Subscription 2008 3,500 Rent and Rates 1,500.00
Subscription 2009 380 Extension to Club house 8,000.00
Snack Bar Income 6,000 Snack Bar Purchases 3,750.00
Visitors Fees 650 Secretarial Expenses 240.00
Loan from Bank 5,500 Interest on loans 260.00
Competition Fees 820 Snack Bar expenses 600.00
Games Equipment 2,000.00

Notes:
The snack bar inventory on 31st December 2008 was P900
The games equipment should be depreciated by 20%.
12
a) Required prepare Finacial Statements
Income and Expenditure Statement for year Ended 31st December 2008

Income
Subsccribtion Fees 3500
Visitors Fees 650
Competion Fees 820
Bar Income 1750
6720
Expenditure
Rent and Rates 1500
Secreatarial Expenses 240
Interest on Loan 260
Depreciation 400
2400
Surplus Income O/Exp
13
4320
 Balance Sheet as at 31st dec 2008

Club House 20,500.00

Games Equip (2000-400) 1,600.00
22,100.00
Current Assets
stock 900.00
Bank 700.00
1,600.00
23,700.00
Current Liabilities
Subscription 380.00

Bank Loan 5,500.00

Accumulated Fund (200+800+12500) 13,500.00

Surplus Inocme Over Ex 4,320.00
17,820.00
23,700.00
14
 Workings

Trading Account for the Bar

Sales 6,000.00
Opening Stock 800.00
Purchases 3,750.00
Closing Stock (900.00)
3,650.00
Gross Profit 2,350.00
Bar Expenses 600.00

1,750.00

15
 MRC Club Receipt and Payments for the year ended 31st July 2009

Receipts
Cash and Bank 210.00
Sales of Competetion Prizes 437.00
Members subscription Account 1,987.00
Donations 177.00
Refund of rent 500.00
Balance c/d 13.00
3,324.00
Payments
Secreatarial Expenses 163.00
Rent 1,402.00
Visiting Speakers expenses 1,275.00
Donations to charities 35.00
Prizes for competitions 270.00
Stationery and Printing 179.00
16 3,324.00
 The following valuations took place

Equipment (Cost 1420) 975 780

Subscription in Arrears 65 85
Subscription in Advance 10 37
Owing to Suppliers of Competition Prizes 58 68
Inventory of Competion Prizes 38 46

REQUIRED

1) Accumulated Fund for 1st August 2008

2) Subscription Account
3) Competition Account
17 4) Financial Statements
 1) Opening Balance Sheet

Equipment 975
Inventory of Prizes 38
Arrears of Subscription 65
Cash and Bank 210
1,288
Subscription Advance 10
Owing To Prize Suppliers 58
68
1,220

Subscription Account
2) Arrears b/d 65 Advances b/d 10
Subscription Paid 1,987
Income and Exp Acc 1,980
Advances b/d 37 Arrears c/d 85
2,082 2,082

3) Competition Account
Inventory b/d 38 Accounts Payable 58

Cash Paid For Prizes 270 COST Of Prizes 272

Accounts Payable c/d 68 Inventory c/d 46
18 376 376
 4 Income and Expenditure Account for the year ended 31st July 2009
Income
Subscription Account 1,980
Ticket Sales less Cost (437-272) 165
Donations 177
2,322
Expenditure
Rent( 1402-500_) 902
Secretarial Expenses 163
Stationery Expenses 179
speakers 1,275
Donations to charities 35
Depreciation (975-780) 195
2,749
Excess Exp over Income (427)
19
 Balance Sheet

Equipment at Cost (1420-640) 780

Current Assets
Inventory 46
Arrears of Subscrip. 85
131
911

Current Liabilities
Acc Pay Prizes 68
Advance subscrip 37
Bank Overdraft 13
118
Accumulated fund 1,220
Excss Exp over Income (427)
793
20 911