20120224110228 Non Profit Organization Accounts

8/2/2019 20120224110228 Non Profit Organization Accounts

1/79

Not For Profit Organisations

ACCOUNTANCY

Chapter 1

Class XII


2/79

ACCOUNTANCY Not For Profit Organisations

Organisations which are formed not forearning profits but for a charitable or socialpurpose are called as not for profitorganisations.

FEATURES:-1) Separate legal entity

2) Service motive

3) Form4) Profit- not a motivator

5) Funding

6) Accounts


3/79

Separate legal entity

According to the principle of separate legalentity, a not for profit organisation is anseparate entity independent of its members.

These are the separate entity promoted byindividuals or companies, but these are notowned by the promoters or managers.


4/79

Service Motive

These organisations are formed

For welfare of the society.

For providing services to its members.

Main motive is to provide services.


5/79

Form

Charitable hospitals Schools

Trusts

Colleges

Clubs

Hospitals

Societies


6/79

Profit not a motivator

NPOs do not operate with the objective ofearning profits.

Their aim is to promote art, science,commerce, religion, culture, education, charity,sports etc.

Some NPOs may involve in trading activities

Main objective is not to earn the profit but tobenefit the members and society.

Any excess of income over expenditure istermed as SURPLUS while any excess ofexpenditure over income is termed as DEFICIT.


7/79

Funding

The main sources of income of suchorganisations are:

Subscriptions from members,

Donations,

Legacies,

Grant-in-aid,

Income from investments, etc.


8/79

Accounts

The Not-for-Profit Organisations are alsorequired to prepare financial statements at theend of the each accounting period.

They have to prepare their final accounts at the

end of the accounting period and the generalprinciples of accounting are fully applicable intheir preparation.

The final accounts of a not-for-profitorganisation consist of the following:

Receipt and Payment Account

Income and Expenditure Account, and

Balance Sheet.


9/79

Receipt and Payment A/c

Features

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 theperiod.

Includes all receipts and payments whether they areof capital nature or of revenue nature.

No distinction is made in receipts/payments made incash or through bank.

No non-cash items such as depreciation outstandingexpenses accrued income, etc. are shown in thisaccount.

It begins with opening balance of cash in hand andcash at bank (or bank overdraft) and closes with theyear end balance of cash in hand/ cash at bank orbank overdraft.


10/79

Steps in preparation of Receipt & Payment A/c

Take the opening balances of cash in hand and cash atbank & enter them on the debit side. In case there is abank overdraft in beginning of the year, it will berecorded on credit side.

Show the total amounts of all receipts on its debit side

irrespective of their nature (whether capital or revenue)& whether they belong to past, present or future.

Show the total amounts of all payments on its creditside irrespective of their nature & time period.

None of the receivable income or payable expense is tobe entered in this account.

Find out the total of debit side & credit side of theaccount & enter the same on the credit side ofcash/bank. If a balance comes out to be on debit side,

take it as closing balance of bank overdraft.

Steps: Receipt & Payment A/c


11/79

Format

Receipt & Payment A/cDr. for the year ended _________ Cr.

Receipts Amount Payments Amount

To Bal b/d Cash xxx

Bank xxxTo Revenue ReceiptsTo Capital ReceiptsTo Bal c/d (Bank O/D)

XxxXxxXxxxxx

By Bal b/d (Bank O/D)

By Revenue PaymentsBy Capital PaymentsBy Bal Bank xxx

Cash xxx

Xxx

XxxXxx

xxx

A detailed & comprehensive Receipt & Payment A/c may appear as:


12/79


To Bal b/d Cash Bank To Revenue ReceiptsSubscriptionGeneral DonationsSale of newspaperSale of periodicals

Sale of old sports materialLocker rentSale of scrapsProceeds of showMiscellaneous ReceiptsEntrance feeGrant in aid

To Capital ReceiptsLegaciesLife Membership feesSpecific DonationSale of InvestmentSale of fixed assetsEndowment Fund

To Bal c/d (Bank O/D)

By Bal b/d (Bank O/D)By Revenue PaymentsWages & SalariesRent, Rates & TaxesInsurancePrinting & StationaryPostage

AdvertisingSundry ExpensesTelephone chargesAudit feesHonorariumConveyanceNewspapers

RepairsBy Capital PaymentsPurchase of fixed AssetsPurchase of investmentsFixed depositsBy Bal Bank

Cash


13/79

A club has kept its accounts on cash basis and the figures for 2009 aregiven below. You are required to prepare receipts & payments A/c for theyear 2005. Subscription Received 5,90,600

Entrance fee 80,000

Admission fee 32,000

Secretarys salary 60,000

Investment bought during the years 2,22,000

Expenses paid 1,54,500Cash in hand (1.1.09) 94,700

Locker rent received 16,250

General Donation 1,50,000

Dr. Receipts & payments A/c Cr.

Receipts Rs. Payments Rs.To balance b/dTo subscriptionTo Entrance feeTo Admission feeTo Lockers Rent

To General Donation

94,7005,90,600

80,00032,00016,250

1,50,000

By Secretary SalaryBy InvestmentBy ExpensesBy bal. c/d (balancingfigure)

60,0002,22,0001,54,5005,27,050

9,63,550 9,63,550

Solution:-


14/79

Class Practice Question

Q. On 1/1/06, the opening balance was Rs. 18,000 of J.

M. Trust, Delhi. The following transactions were heldfor the year ended 31/3/08. From these particulars,prepare a Receipts & payments account.

Subscription received for current year 8,50,000

Subscription received for next year 30,000

Life Membership fees 80,000

Investments 2,50,000

Furniture purchased 30,000

Purchase of sports material 1,50,000

General Expenses including unpaidexpenses Rs. 3,800

33,800

Depreciation on Furniture @ 10%


15/79

Dr Receipt & Payment A/c Cr

Receipts Rs. Payments Rs.

To balance b/dTo subscriptionCurrent Year 8,50,000

Next Year 30,000To Life Membership fee

18,000

8,80,00080,000

By InvestmentBy FurnitureBy Sports Materials

By General Expenses 33,800Less Unpaid Expenses 3,800By bal. c/d (balancing figure)

2,50,00030,000

1,50,000

30,0005,18,000

9,78,000 9,78,000

Solution


16/79

Income & Expenditure A/c

It is a nominal account. Debit all expenses &

credit all incomes will be followed whilepreparing it.

Opening & closing balance of cash at bank arenot shown in it.

It does not take into consideration both capitalreceipts & capital payments. Closing balance, if comes on debit side is

known as surplus & on credit side, deficit. All non-cash adjustments like depreciation,

outstanding or prepaid expenses & accrued oradvance income, provision, etc. need to beadjusted through this account.

It must be accompanied by Balance sheet in

which personal & real accounts are recorded.


17/79

Steps in preparation of Income & Expenditure A/c

Pursue the Receipts & Payments Accountthoroughly.

Exclude opening & closing balance of cash & bankas they are not the income.

Exclude the capital receipts & capital payments. Consider only revenue receipts to be shown on

income side (credit side) of this account for thecurrent year whether received or not.

Take all revenue expenses of current year on debit

side of this account whether paid or not. Non-Cash item like Deprecation, provisions profit /

Loss on sale of assets etc. should be taken intoconsideration.

Balance if any in debit side resembles surplus but

on credit side it shows deficit.

Steps


18/79

Income & Expenditure A/c

For the year ended

Expenditures Amount Incomes Amount

To all revenuepayments(current year whetherpaid or not)To DepreciationTo Bad debtsTo Loss on sale offixed assetsTo Consumed part ofmedicine, stationery,spot equipments etc.To Surplus(Excess of incomeover Expenditure)

By all revenue receipts(current year whetherreceived or not)By profit on sale of fixedassetsBy Deficit(Excess of expenditureover Income).

Format

C l l i f di


19/79

Calculation of revenue expenditure

from revenue payments:-

Particulars AmountRevenue payments for expenses as perpayment side of Receipts & Payments

Account

XXXX

() O/s expenses in the beginning XXX

() Prepaid expenses in the end XXX

XXXX

(+) O/s expense in the end XXX(+) Prepaid expense in the beginning XXX

Revenue expenditure transfer to income

and expenditure Account

XXXX

C l l ti f i f


20/79

Calculation of revenue income from

revenue receipts:-

Particulars Amount

Revenue receipts as per receipt side ofreceipts & Payments account

XXXX

() Accrued income / Income due in the

beginning

XXX

() Unaccrued income / Income received in

advance in the end.XXX

XXXX

(+) Accrued income / Income due in the end XXX

(+) Unaccrued Income / Income received inadvance in the Beginning of the year

XXX

Income for the year to be shown in income &

expenditure account.

XXXX


21/79

Q. How will you deal with the given items while preparing the final

accounts of a club for the year ended 31st

March, 2007:

Locker Rent received during the year 2006-07 Rs. 6400

800600Advance Locker Rent

1260920Outstanding Locker Rent

31.3.2007 Rs.31.3.2006 Rs.Particulars

Example

Particulars Amount

Locker rent received during the year

() Outstanding / Accrued locker rent in the beginning() Unaccrued / prepaid / advance locker rent in the end

(+) Outstanding / Accrued locker rent in the end

(+)Unaccrued / prepaid / advance locker rent in the beginning

Locker rent credited to income and expenditure account

6400

920800

1260

600

6540


22/79

Solution: Step 1. Determine the current year

Step 2. Solve the problem as:

Q. Miscellaneous expenses paid during the year ended March 31, 2007

amount to Rs. 16,500. Information about prepaid and outstanding expensesis as under: Rs.Prepaid expenses on March 31, 2006 1,500Expenses unpaid on March 31, 2006 2,300Expenses unpaid on March 31, 2007 2,500Prepaid expenses on March 31, 2007 1,400

Ascertain the expenses to be debited to the Income and ExpenditureAccount for the year ended March 31, 2007.

Example

Particulars Amount

Expenses paid in 2007(-) Outstanding expenses in the beginning

(-) Prepaid expense in the end.

(+) Outstanding expenses in the end.

(+) Prepaid expenses in the end.

Expenditure incurred Debited to income & expenditure A/c.

16,5002,300

1,400

2,500

1,500

16,800


23/79

Prepare an income & expenditure Account for the year ended 31stMarch, 2006 from Receipts & payments Account.


Cash in handSubscriptionMiscellaneous Income

Sale of old furniture(Book value 390)Sale of old Newspaper

9,600

2,48,000

14,8006,300

500

RentHonorarium to ClarkPostage & stationary

Printing chargesDonationCash in hand

42,400

61,200

5,30061,200

11,000

98,100

2,79,200 2,79,200

Additional Information:1. Subscription includes Rs. 28,000 received form 2004-05.

2. Subscription still in arrears for 2005-06 is Rs. 20,000.

3. Rent unpaid Rs. 3,600.

4. Honorarium Outstanding Rs. 9,800.

Example


24/79

Income and Expenditure account

AmountIncomeAmountExpenditure

To Rent 42,400

Add- O/s Rent 3,600 46,000

To Honorarium 61,200

Add Outstanding 9,800 71,000To postage & stationery

To printing charges

5,300

61,200

To Donation

To Surplus(excess of incomeover expenditure)

11,000

To loss on sale offurniture 700

60,100

2,55,300

By Subscription 2,48,000

Less O/s subscription(04-05) 28,000Add O/s Subscription

(05-06) 20,000 2,40,000By Income fromAdvertisement

By Sale of oldNewspaper

2,55,300

14,800

500

Solution


25/79

Basis Receipt & Payment A/c Income & Expenditure A/c

1. Nature It is the summary of cashBook

It is like profit & loss A/c

2. Nature ofItems

It records receipts &payments of revenue aswell as capital nature

It records incomes &expenditures of revenuenature only.

3. Period It includes receipts &Payments for preceding &succeeding years

Its items relate to currentyear only.

4. Debit side Receipts are recorded Expenditure are recorded

5. Credit side Payments are recorded Incomes are recorded

6.Depreciation Not recorded Recorded

7. OpeningBalance

Opening balance of cash& bank

No opening balance

8. Closing

Balance

Closing balance of cash &

bank

Surplus or Deficit.

DIFFERENCE


26/79

Balance Sheet

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. Assets are shown on the right hand side andthe liabilities on the left hand side. However, there

will be a Capital Fund or General Fund in place ofthe Capital.

The surplus or deficit as per Income andExpenditure Account shall be added to/deducted to

this fund. It is also a common practice to add some of the

capitalised items like legacies, entrance fees and lifemembership fees directly in the capital fund.


27/79

Following procedure is adopted to prepare the Balancesheet.

Take the capital fund as per opening balance sheet & addsurplus or deduct deficit as per income & expenditureaccount. Further, add legacy, life membership fees,endowment fund received during the year.

Take all fixed assets (not sold or destroyed) addadditions made during the year les depreciation forassets used during the year.

Compare items on receipt side of receipt & payment A/cwith items on income side of income & expenditure A/c todetermine advances & dues.

Similarly, compare items of payments side of receipt &payment A/c with items of expenditure side of income &expenditure account to determine prepaid or outstandingexpenses.

Balance sheet resembles the position statement of the

organization & is a true indicator of growth potential.

Balance Sheet


28/79

Balance sheetas on

Liabilities Amount Assets Amount

Current liabilities

OutstandingexpensesIncomes in AdvancesCapital fund(Balancing Figure)

Cash

BankFixed assetsCurrent assetsAccrued IncomesPrepaid Expenses

Opening Balance Sheet

B l Sh t At E d


29/79

Closing balance sheet is prepared at the end of the year after

preparing Income & expenditure account. It maybe shown as:-


Capital fundAddSurplus

LessDeficitAdd life MembershipFees, Legacy,Endowment FundIncome in advance

Specific DonationsOutstanding ExpensesIncomes in AdvanceSpecific Funds

Closing BalanceCash

BankNet Fixed AssetsCurrent Assets(closing Balances)Investments

Prepaid ExpensesAccrued Incomes.

Balance Sheet: At End

PROCEDURE


30/79

How to make income and expenditure A/c and

Balance Sheet using Receipt & Payment A/c.

PROCEDURE

STEP 1

Opening balance of Cash andBank is transferred to Opening

Balance Sheet and Closing balances ofCash and Bank are transferred to

Closing Balance Sheet.


31/79

PROCEDURE


32/79



PROCEDURE

STEP 3

Items on the payment side of

Receipt & Payment A/c give thecomponents for Expenditure side for

Income & Expenditure A/c.

PROCEDURE


33/79



PROCEDURE

STEP 4

Items of revenue nature(recurring too) are carried from

Receipt & Payment A/c and after analysingadjustments if any, total amount for the

Current year is transferred toIncome & Expenditure A/c.

PROCEDURE


34/79



PROCEDURE

STEP 5

Items of

Capital natureare adjusted through

Balance Sheet.

PROCEDURE


35/79



PROCEDURE

STEP 6

Adjustments on Capital Nature

Items are not to be considered

while preparing

Income & Expenditure A/c.

PROCEDURE


36/79

PROCEDURE

Result

The balance on Debit Side ofIncome & Expenditure A/c will showSURPLUS while that on Credit Side

will show DEFICIT. This will be transferred toClosing Balance Sheet and

Added/Subtractedas the case may be.

Q ti


37/79

Following is Receipt & payment of Stanford trust, prepare Income &Expenditure and balance sheet for the year ended 31/12/05 and 31/12/06.


Cash in handCash at bankSubscription2005 : 5,000

2006 : 83,0002007 : 3,000Sale of InvestmentInterest on InvestmentSale of furniture (bookvalue 3,400)

14,00060,000

91,00090,000

2,000

3,200

RentSalaryPostageElectricity charges

Purchase of FurnitureBooksDefence bondsCharityCash in HandCash at bank

6,00012,000

3006,000

20,0003,000

1,50,00022,00010,90030,000

2,60,200 2,60,200

Adjustments:

1) Subscription for 2006 still owing were 7,000.2) Interest due on defence bonds was Rs. 7,000.3) Rent still owing was Rs. 1,000.

4) Investment sold valued Rs. 80,000, Rs. 30,000 of Investment were still in hand.5) Salary paid for the year 2007 is Rs. 2,000.

Question

S l ti


38/79

Rent 6,000

Income and Expenditure account

Expenditure Amount Income Amount

Add O/s Rent 1,000 7,000

Salary 12,000

Lesspaid for 2007: 2,000 10,000

Postage 300

Electricity charges 6,000

Charity 22,000Loss on sale offurniture 200

Surplus 63,500

1,09,000

Subscription2006 : 83,000

Add O/s

Subscription: 7,000 90,000Interest onInvestment 2,000

Interest ondefence bonds 7,000

Profit on sale ofinvestment 10,000

1,09,000

Solution

S l ti


39/79

WORKING NOTES:Balance Sheet

As n 31st March 2006


Cash in Hand

Cash at bank

Subscription

Furniture

Investment

14,000

60,000

5,000

3,400

1,10,000

1,92,4001,92,400

1,92,400Capital fund

Solution

Sol tion


40/79

Balance Sheet


Capital fund 1,92,400

Add Surplus 63,500 2,55,900

Outstanding rent 1,000Subscription for 2007 3,000

Prepaid salary

Accrued interest

Investment

Defence bonds

Books

Furniture

Subscription

Cash at bank

Cash in Hand 10,900

30,000

7,000

20,000

3,000

1,50,000

30,000

7,000

2,000

2,59,9002,59,900

Solution

T i l f NPO


41/79

Terminology for NPOs

Subscription

Donation

Legacy

Life membership fee

Entrance feeHonorarium

Grants and subsidies

Stationery

Sale of old assetsSale of periodicals

Endowment fund

Special funds

S b i ti


42/79

Subscription

Subscription is a membership fee paid by the member

on annual basis. This is the main source of income of such

Organisations.

Subscription paid by the members is shown as receipt

in the Receipt and Payment Account and as income inthe Income and Expenditure Account.

Receipt and Payment Account shows the total amountof subscription actually received during the year.

The amount shown in Income and ExpenditureAccount is confined to the figure related to the currentperiod only irrespective of the fact whether it has beenreceived or not.

Subscription


43/79

Subscription

HOW TO CALCULATE SUBSCRIPTION FOR THE YEAR

WHEN SOME OTHER ITEMS RELATED TO SUBSCRIPITONARE GIVEN

Subscription received during the year XXXXX

Less: Subscription outstanding in the beginning

of the current year XXXLess: Subscription in advance at end of thecurrent year XXX

Add: Subscription outstanding at end of thecurrent year XXX

Add: Subscription in advance in the beginningof the current year XXX

Subscription for the current year XXXXX

Subscription A/c


44/79

Subscription A/c

FORMAT

Dr. SUBSCRIPTION A/c Cr.

Particulars Amount Particulars Amount

To Balance b/d

(outstanding)

To Income and

Expenditure A/c

(balancing figure)

To Balance c/d

(advance)

XXX

XXX

XXX

To Balance b/d

(advance)

By Receipts and

Payments A/c

By Balance c/d

(outstanding)

XXX

XXX

XXX

XXXX XXXX


45/79

As per Receipt & Payment A/c for the year ended March 31, 2007, thesubscriptions received were Rs. 12, 50,000. It is also given that:

1. Subscriptions Outstanding on 1.4.2006 Rs. 80,0002. Subscriptions Outstanding on 31.3.2007 Rs. 85,0003. Subscriptions Received in Advance as on 1.4.2006 Rs. 45,0004. Subscriptions Received in Advance as on 31.3.2007 Rs. 60,000Calculate the amount to be shown in income & Expenditure A/c for the year2006 07 and show relevant items in balance sheet also.

Details Amount

Subscriptions Received as per Receipt and Payment A/c 12,50,000

Add: Subscriptions outstanding on 31.3.2007 85,000

Add: Subscriptions received in advance on 1.4.2006 45,000

13,80,000Less: Subscriptions outstanding on 1.4.2006 80,000

13,00,000

Less: Subscriptions received in advance on 31.3.2007 60,000

Income from subscription for the year 2006-07 12,40,000


46/79

Date Particulars Amount(Rs.)

Date Particulars Amount(Rs.)

To Balance b/d(outstanding)To Income andExpenditure A/c(balancing figure)

To Balance c/d(advance)

80,000

12,40,000

60,000

By Balance b/d(advance)By Receiptsand PaymentsA/c

By Balance b/d(outstanding)

45,000

12,50,000

85,000

13,80,000 13,80,000

Alternately, income received from subscriptions can be calculated by

preparing a Subscriptions account as under.


47/79

Relevant items of subscription can be shown in the openingand closing balance sheet as under:

Liabilities Amount(Rs.)

Assets Amount(Rs.)

Subscriptionsreceived inadvance

45,000 Subscriptionoutstanding

80,000

Liabilities Amount(Rs.) Assets Amount(Rs.)

Subscriptionsreceived inadvance

60,000 Subscriptionsoutstanding

85,000

Balance sheet as on march 31, 2006

Balance sheet as on march 31, 2007


48/79

Calculate Subscription amount to be shown in income &

expenditure A/c from the following:A club received Rs. 1,20,000 as subscriptions during the year 2007-08of which Rs.13,000 relate to year 2006-07 and Rs.22,000 to 2008-09,and at the end of the year 2007-08 Rs.26,000 are still receivable. Findsubscription received for the year 2007-08.

Particulars Rs.Subscriptions received in 2007-08 1,20,000

Less: Subscriptions for the year 2006-07 13,000

1,07,000

Less: Subscription for the year 2008-09 22,000

85,000

Add: Subscriptions outstanding for the year 2007-08 26,000

Income from subscriptions for the year 2007-08 1,11,000


49/79

The above amount of subscriptions can also be

ascertained by preparing the subscription account asfollows:

Dr. Subscription Account Cr.


Balance b/d(outstanding at thebeginning)

Income &Expenditure A/c

(balancing figure)

Balance c/d(received inadvance)

13,000

1,11,000

22,000

Balance b/d(received inadvance)

Cash (subscriptionreceived)

Balance c/d(outstanding at theend)

Nil

1,20,000

26,000

1,46,000 1,46,000

Donations


50/79

Donations

It is a sort of gift in cash or property received from someperson or organisation. It appears on the receipts side ofthe Receipts and Payments Account. Donation can either bespecific or general:

1. Specific Donations:Received for specified purposelike extension of the existing building, construction of

new computer laboratory, creation of a book bank, etc. Such donation is to be capitalized and shown on the

liabilities side of the Balance Sheet.

2. General Donations:Such donations are to be utilised

to promote the general purpose of the organisation. These are treated as revenue receipts as it is a regular

source of income hence, it is taken to the income sideof the Income and Expenditure Account of the currentyear.


51/79

Donation

Generally credited toIncome & expenditureaccount values & otherwisestated in the question.

Specific donationsGeneral donations

Both are treated in balance sheet.

(B) Donation for capital.Expenditure (such asfor the building etc.)

(A) Donation for themaintenance ofrevenue expenditure(such as donation forprizes, matches, etc

Legacy


52/79

Legacy It is the amount received as per the will of a

deceased person. It appears on the receiptsside of the Receipt and Payment Account andis directly added to capital fund/general fund in

the balance sheet, because it is not ofrecurring nature.

However, legacies of a small amount may be

treated as income and shown on the incomeside of the Income and Expenditure Account.

Life Membership Fees


53/79

Life Membership Fees

Some members prefer to pay lump sumamount as life membership fee instead ofpaying periodic subscription.

Such amount is treated as capital receipt andcredited directly to the capital/general fund.

Entrance Fees


54/79

Entrance Fees

Entrance fee also known as admission fee is paid only

once by the member at the time of becoming a member.

In case of organisations like clubs and some charitableinstitutions, number of members is limited and theamount of entrance fees is quite high. Hence, it is treatedas non-recurring item and credited directly to

capital/general fund.

However, for some organisations like educationalinstitutions, the entrance fees is a regular income and theamount involved may also be small. In their case, it is

customary to treat this item as a revenue receipt.

However, if there is specific instruction, it is advisable totreat the entire amount as capital receipt and the relevantamount should be directly added to capital/general fund.

Honorarium


55/79

Honorarium It is the amount paid to the person who is not

the regular employee of the institution.

Payment to a surgeon called for some specificoperation or to some artist for giving

performance at the club is an example ofhonorarium.

This payment of honorarium is shown on the

expenditure side of the Income andExpenditure Account.

Grants and Subsidies


56/79

Grants and Subsidies

Schools, colleges, public hospitals, etc. depend

upon government grant and subsidies for theiractivities. The recurring grants in the form of maintenance

grant is treated as revenue receipt (i.e. income ofthe current year) and credited to Income andExpenditure account.

However, grants such as building grant aretreated as capital receipt and transferred to thebuilding fund account.

It may be noted that some Not-for-Profitorganisations receive cash subsidy from thegovernment or government agencies.

This subsidy is also treated as revenue incomefor the year in which it is received.

Stationery


57/79

Stationery

Normally expenses incurred on stationary, a

consumable items are charged to Income andExpenditure Account. But in case stock of stationery (opening and/or

closing) is given, the approach would be makenecessary adjustments in purchases of stationery

and work out cost of stationery consumed andshow that amount in Income and ExpenditureAccount and its stock in the balance sheet.

For example, the Receipt and Payment Accountshows a payment for stationery amounting to Rs.40,000 and there is an opening and closingstationery amounting to Rs. 12,000 and Rs. 15,000.Rs. 37,000 will be transferred to Income &Expenditure A/c as stationery consumed.


58/79

Step .1 Calculation of total stock purchased on credit & cash.Payment for stock in the current year as perreceipts & payments account

xxx

(+) O/s expenses in the end xxx

(+) Prepaid expenses in the beginning xxx

xxx

() O/s expenses in the beginning (xx)

() Prepaid expenses in the end (xx)

Credit Purchases. Xxx(+) Cash Purchases (If specifically Mentioned

in receipts & payments account onpayment side)

Xxx

Total Purchases. Xxxx


59/79

Step-2 Calculation of Stock consumed.

Opening Stock of consumable stores xxx

(+) Total purchases as per step -1 xxx

(xx)() Closing stock of consumable stores (xx)

Stock consumed and debited to income & expenditure a/c Xxx


60/79

Q. How will you deal with the following items while preparing theIncome & Expenditure A/c for the year ended on March 31, 2007.

As at1.4.2006Rs.

As at31.32007Rs.

Stock of stationery 3000 500

Creditors for stationery 2000 1300

Advance paid for stationery on March 31, 2007 1300

Advance paid for stationery carried from 2005-06 200

Amount paid for stationery during 2006-07 10800


61/79

Step 2. Calculation of stationery consumed.

Opening stock of stationery 3000

(+) Purchases as per step 1 9000

() Closing stock of stationery (500)

Stock of stationery consumed debited to income &expenditure

11,500

Step 1. Calculation of purchases

Amount paid for stationery 10,800(+) Creditor for stationery (O/s) in the end 300

(+) Advance paid for stationery (prepaid) in the beginning 200

() Creditor for stationery (O/s) in the beginning (2000)

() Advance paid for stationery (prepaid) in the end (1300)Purchases 9000


62/79

Extract of a Receipt and Payment Account for the year endedon march 31, 2006:Payments:

Creditors for Stationery Rs. 68,000Additional information:

Details 1 April, 2005 March 31, 2006Stock of stationery 14,000 13,000

Creditor for stationery 19,000 12,500


63/79

Stock of Stationery A/c


Creditors of Stationery A/c


To Cash 68,000

To Opening Stock 14,000

By Closing Stock 13,500

By Balance b/d 19,000

To Balance c/d 12,500

80,500 80,500

61,500By Purchases

To Purchases 61,500

75,500 75,500

By Stationery Consumed 62,500


64/79

Details Amount(Rs.)

Payment made for the purchase of stationery as per

Receipts and Payments A/c

Less: Payment for 2004-05 ( creditors in the beginning)

Payment made for the year 2005-06Add: payment not yet made (i.e. creditors at the end)

Stationery Purchased for the year 2005-06

Add: Stock in the beginning

Stationery Available for consumption during 2005-06

Less: Stock at the end

68,00019,000

49,00012,500

61,50014,000

75,500

13,000

Stationery consumed during 2005-06 to be taken to theExpenditure side of the income and Expenditureaccount

62,500



65/79

Details Amount(Rs.)

Payment for purchase of medicinesCreditors for medicines purchased:

On 1.4.2006On 31.3.2007Stock of Medicines:On 1.4.2006On 31.3.2007

Advance to suppliers of medicines:On 1.4.2006On 31.3.2007

6,70,000

1,25,0001,17,000

92,0001,04,000

41,50038,000


Find out the cost of medicines consumed during 2006-07 fromthe following information:


66/79

Stock of Medicines A/cParticulars Amount Particulars Amount

Opening StockTo Purchases 92,0006,65,500 By Medicines ConsumedBy Closing Stock 6,53,5001,04,000

7,57,500 7,57,500

Creditors of Medicines A/cParticulars Amount Particulars Amount

To Balance b/d (Advances)To Cash

To Balance c/d (Creditors)41,500

6,70,000

1,17,000By Balance b/d (Creditors)By Purchases (Balancing

figure)By Balance c/d (Advances)

1,25,000

6,65,50038,000

8,28,500 8,28,500

Sale of old assets


67/79

Sale of old assets

Receipts from the sale of an old asset appear

in the Receipts and Payments Account of theyear in which it is sold. But any gain or loss onthe sale of asset is taken to the Income andExpenditure Account of the year.

For example, if an item furniture with a bookvalue of Rs. 800 is sold for Rs. 700, thisamount of Rs. 700 will be shown as receipt inReceipts and Payments Account and Rs. 100

on the expenditure side of the Income andExpenditure Account as a loss on sale of oldasset and while showing furniture in thebalance sheet Rs. 800 will be deducted from itstotal book value.

Sale of periodicals


68/79

p

It is an item of recurring nature and shown as

the income side of the Income and ExpenditureAccount

Endowment fund


69/79

It is a fund arising from a bequest or gift, the

income of which is devoted for a specificpurpose.

Hence, it is a capital receipt and shown on the

Liabilities side of the Balance Sheet as an itemof a specific purpose fund.

Special funds


70/79

p

The Not-for-Profit Organisations office create special funds

for certain purposes/ activities such as 'prize funds', 'matchfund' and 'sports fund', etc. Such funds are invested in securities and the income

earned on such investments is added to the respectivefund, not credited to Income and Expenditure Account .

Similarly, the expenses incurred on such specific purposes

are also deducted from the special fund. For example, a club may maintain a special fund for sports

activities. In such a situation, the interest income on sportsfund investments is added to the sports fund and allexpenses on sports deducted there from.

The special funds are shown in balance sheet. However, if,after adjustment of income and expenses the balance inspecific or Special fund is negative, it is transferred to thedebit side of the Income and Expenditure Account oradjusted as per prescribed directions.


71/79

Opening balance sheet

XXXPrize fund investment(opening balance. Ifgiven in adjustment)

XXXPrize fund (openingbalance if given inadjustment)

Rs.AssetsRs.Liabilities

Closing balance Sheet.

XXX(-) Prize awarded (XX)

XXXAccrued interest onprize fund. InvestmentXX

(+) Accrued Interest XXOn prize fund investment

(+) Purchase XX

(+) Interest Received onprize fund investment

XX

Prize fund investment(op. bal.) XXX

(+) Donations XX

Prize fund XXX(opening balance)

Rs.Assets.Rs.Liabilities


72/79

Show how you would deal with the following items in the finalaccount of a club:Details Debit Credit

Prize fundPrize Fund investmentsIncome from Prize fund investments

Prizes awarded.

90,000

7,000

90,000

9,000

Liabilities Amount(Rs.)

Assets Amount(Rs.)

Prize fund 90,000Add: Income fromInvestments 9,000

99,000Less: Prizes Awarded

7,000 92,000

Prize fundInvestments

90,000

Solution


73/79

(a) Show the following information in financial statements

of a Not-for-Profit Organization

Details Amount

Match ExpensesMatch fundDonation for Match fundSale of match tickets

30,00015,0009,000

13,000

(b) What would happen if match expenses go up to Rs. 9,000

other things remaining the same?


74/79


Match fund 15,000Add: Donation 9,000(Specific)Add: Sale of match

Tickets 13,00037,000

Less: Match Expenses30,000

7,000

7,000(b) If match expenses go up to Rs. 9,000, the net balance of

the match fund becomes negative i.e. Debit exceeds theCredit, and the resultant debit balance of Rs. 2,000 shall be

charged to the Income and Expenditure Account of that year.

Incidental Trading Activities


75/79

g

Sometimes, trading activities such as chemist shop,

hospital, canteen, bar etc. also take place in suchorganizations to provide certain facilities to members or

public in general. In such a situation a trading accountis prepared to calculate profit or loss from that tradingaspect.

Procedure:It is very important to take into considerationfollowing two points:Profit or loss calculated by preparing trading A/c

must be transferred to Income & expenditure A/c.Incomes & expenses related to that incidental activity,

which is not recorded in trading A/c, are also to beconsidered while preparing. Income & expenditure A/c.


76/79

The assets and liabilities on the Millennium Cricket Club on April 1, 2007 were:Club house and ground Rs. 10, 00,000; Creditors for bar supplies Rs. 3,41,000;

Equipment Rs. 3,45,000; Bank Rs. 1,34,500; Bar stocks Rs. 92,240.Receipts Amount Payments Amount

Balance b/dBar TakingsSubscriptions

1,34,5008,85,0009,15,000

EquipmentGround maintenanceCreditors for Bar supplies

Sundry ExpensesBalance c/d

3,12,0001,25,0002,35,500

3,18,0009,44,000

19,34,500 19,34,500

At the end of March 2008, the following further information was available:(a)Subscriptions Rs. 35,000 received this year related to the next year.

(b)Creditors for bar supplies Rs. 3,50,000.(c)Bar stocks Rs. 84,380.(d)Depreciate equipment by Rs. 65,000

Prepare for the Millennium Cricket Club: (i) the bar Trading Account for theyear ended March 31, 2007; (ii) the Income and Expenditure Account for the

year ended march 31, 2007; and (iii) the Balance Sheet as on March 31, 2007.


77/79

Income and Expenditure A/c

Expenditure Amount Income Amount

To Ground MaintenanceTo Sundry expensesTo DepreciationTo Surplus

1,25,0003,18,000

65,0008,04,640

By Subscription 9,15,000Less. For next year 35,000By Surplus from bar Trading

8,80,0004,32,640

12,82,640 12,82,640

Bar Trading A/c


To Opening StockTo PurchasesTo Surplus on bar trading

92,2404,44,5004,32,640

By Bar TakingsBy Closing Stock

8,85,00084,380

9,69,380 9,69,380

Creditors for Bar A/c


To CashTo Closing Stock

2,35,5005,50,000

By Opening StockBy Purchases (Bal. Fig.)

3,41,0004,44,500

7,85,500 7,85,500


78/79

Balance Sheet (Closing)

Liability Amount Assets Amount

Subscription in AdvanceCreditors for bar suppliesCapital Fund 12,30,740Add Surplus 8,04,640

35,0005,50,000

20,35,380

BankSports equipments 3,45,000Add Purchases 3,12,000Less Depreciation 65,000Bar stocks

Club house and ground

9,44,000

5,92,00084,380

10,00,00026,20,380 26,20,380

Balance Sheet (opening)

Liability Amount Assets Amount

Creditors for bar suppliesCapital Fund

3,41,00012,30,740

BankSports equipmentsBar stocksClub house and ground

1,34,5003,45,000

92,24010,00,000

15,71,740 15,71,740


79/79

Thank You

20120224110228 Non Profit Organization Accounts

Documents