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What is NPO?
Organizations which are formed not for earning profits but for a charitable or social purpose.
Example: Schools Trusts Colleges Clubs Hospitals Societies Mosque
Source of Income
Capital income (from non-operational activities) Revenue income (from normal operational activities)
-Specific donation -Legacies / will -Sales of NCA -Entrance fees (if stated to be capitalized -Grant/subsidies – for building
-Subscription -Entrance fees -General donations -Life membership (apportionated) -Interest -Rental received -Collection of activities (matches, competition etc) -Profit from business activities -Grant/subsidies for maintenance
Capital expenditure (for non-operational activities) -all the cost of purchases of NCA -cost of increasing the Value of NCA Revenue expenditure (for normal operational activities) -Rental -Salaries/wages -Repairs & maintanance -depreciation -Honorarium -Cost of Refreshment -Printing -Insurance -Prizes/trophies (matches/ competition)
Accounting for NPO
The NPO are also required to prepare financial statements at the end of the each accounting period.
Book of account and records to be maintained.
- minute books - register of members - receipts books - general journals - cash book
Receipt and Payment Account Income and Expenditure Account Balance Sheet.
Registrar of Societies contributors
The users of financial statements
1)Receipt and Payment Acc
Summary of the cash book. Receipts are recorded on the debit side Payments are entered on the credit side. Records all cash transactions irrespective of the
Includes all receipts and payments whether they
are of capital nature or of revenue nature.
No distinction is made in receipts/payments made
in cash or through bank.
No non-cash items such as depreciation
outstanding expenses accrued income, etc. are shown in this account.
Receipt and Payment Acc for the year ended ……
Receipts Amount Payments ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× Amount
To Bal b/d Cash ×××× Bank ×××× To Revenue Receipts Subscription General Donations Sale of newspaper Sale of periodicals Sale of old sports material Locker rent Sale of scraps Proceeds of show Miscellaneous Receipts Entrance fee Grant in aid To Capital Receipts Legacies Life Membership fees Specific Donation Sale of Investment Sale of fixed assets Endowment Fund To Bal c/d (Bank O/D)
By Bal b/d (Bank O/D) By Revenue Payments Wages & Salaries Rent, Rates & Taxes Insurance Printing & Stationary Postage Advertising Sundry Expenses Telephone charges Audit fees Honorarium Conveyance Newspapers Repairs By Capital Payments Purchase of fixed Assets Purchase of investments Fixed deposits By Bal Bank ××× Cash ×××
××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××× ××××
2)Income & Expenditure Acc
It does not take into consideration both capital income & capital expenditure. All non-cash adjustments like depreciation, outstanding or prepaid expenses & accrued or advance income, provision, etc. need to be adjusted through this account.
Income and expenditure statement for the year ended….
Income: XXX XXX (All the revenue income only) Less: Expenditure XXX
(All the revenue expenditure only) Surplus/Deficit of income over expenditure (XXX) XXX
The preparation of their Balance Sheet is on the same
pattern as that of the business entities.
It shows assets and liabilities as at the end of the
year. However, there will be an accumulated fund in place of the Capital.
The surplus or deficit as per Income and Expenditure
Account shall be added to/deducted to this fund.
Balance Sheet as at ………….
Non-current Assets Current Assets Total Assets Financed by: Accumulated Fund Opening Accumulated Fund +/- surplus/deficit of income over expenditure Non-current liabilities (including life Membership fees) Current Liabilities Total Liabilities and Accumulated Fund XXX XXX
XXX XXX XXX XXX XXX
No NPO 1 Receipts and Payment 2 Income and Expenditure PO Cash Book (Cash & Bank) Income Statement
3 4 5
Surplus Deficit Accumulated Fund
Net Profit Net Loss Capital
Incidental Trading Activities
Sometimes, trading activities such as chemist shop, hospital, canteen, bar etc. also take place in
such organizations to provide certain facilities to members or public in general.
A trading account is prepared to
calculate profit or loss from that trading aspect. (format: same as business income statement)
Profit or loss calculated by preparing trading Acc
must be transferred to Income & expenditure Acc.
Trading Statement for the year ended ………….
Sales Less: Cost of Good Sold Gross profit XXX (XXX) XXX
Add: Other Revenues XXX Less: Other Expenses (XXX) Net Profit to be transferred to Income and Expenditure Statement XXX
##(Same as the income statement of profit organization)
Preparing financial statement
Total sales Total purchases Other revenue (related to business) Other expenses (related to business) Depreciation of NCA (related to business)
2) Income and Expenditure Statement
Revenue income (other than business)
Revenue expenditure (other than business)
Depreciation for NCA (other than business)
3) Balance sheet
Non-current Assets Accumulated depreciation bank cash
Other assets Accrued / prepaid Opening accumulated fund Liabilities
Adjustment on Sales
Total sales = cash sales + credit sales
Sales Ledger Control Account -Balance b/d - Balance b/d -Sales (credit) - Return inwards -Bank (dishonored cheque) - Cash/bank (received payment) -Interest - Discount Allowed -Bank/Cash(refund) - Bad debts -Legal fees - Bank/Cash (bad debt -Bad debts recovered recovered) -Carriage - Purchase Ledger Control -Discount Allowed (cancelled) Acc (contra) -Balance c/d -Balance c/d
Adjustment on Purchases
Total purchase = cash purchase + credit purchase
Purchase Ledger Control Account -Balance b/d -Balance b/d -Cash/Bank (payment) -Purchase (credit) -Return Outwards -Interest -Discount Received -Cash/Bank (refund) -Sales Ledger Control Acc-Legal Fees (contra) -Carriage -Balance c/d -Discount Received (cancelled) -Balance c/d
Adjustment on Revenues
(including subscription and life membership fees)
Dr Particulars Balance b/d (accrued) REVENUES ACC RM Particulars XXX Balance b/d (prepaid) Cr. RM XXX
Income and Expenditure Acc (balancing figure) Balance c/d (prepaid)
Receipts and Payments
XXX Balance c/d (accrued)
Accrued = due/not yet paid/in arrears/payless than actual Prepaid = in advance/pay more than actual/including next month , year
Adjustment on Life Membership Fees Acc.
Some members prefer to pay lump sum amount as
life membership fee instead of paying periodic subscription. Such amount is treated as capital income and fair proportion has to be credited to revenue income. Example: life membership amount RM1000 year of membership 10 years So, the amount to be credited to revenue income is RM100 (in income and expenditure) while the balance will treated as capital income, RM900 (in balance sheet)
Adjustment on Expenses
Dr Particulars Balance b/d (prepaid) Receipts and Payments EXPENSES ACC RM Particulars XXX Balance b/d (accrued) Income and XXX Expenditure Acc (balancing figure) XXX Balance c/d (prepaid) XXX Accrued = due/not yet paid/in arrears/payless than actual Prepaid = in advance/pay more than actual/including next month , year Cr. RM XXX
XXX XXX XXX
Balance c/d (accrued)
Adjustment on Depreciation
Accum.depreciation of non-current assets
Accum.depreciation for previous years 1.Stated in question 2.cost-NBV Depreciation for current years 1.Policy given 2.No policy (cost-NBV)
Adjustment on Opening Accumulated Fund
Statement of Affair as at ………….
Total Assets (at the beginning of acc. period)
XXX XXX XXX Less: Total Liabilities (at the beginning of acc. period)
XXX XXX Opening Accumulated Fund
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