Financial Statement of Non-Profit Making Organisation

Submitted by

(Group 12)

Kartik Kaushik
Abhishek singh
Utkarsh Bansal
Rishabh Kumar Jha
Pratyush Kumar

Batch 2018-2023

Programme of Study BBA LLB

Division B

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), Pune

In February’2019

Under the guidance of

Dr.Meenakshi Kaul

ASSISTANT PROFESSOR

SYMBIOSIS LAW SCHOOL, NOIDA

 DECLARATION

I hereby declare that the Research Project entitled “Financial Statement of Non-Profit
Making Organisation”submitted for the Symbiosis Law School, NOIDA for Corporate
Accounting is my original work and the project has not formed the basis for the award of any
degree, fellowship or any other similar titles.

Signature of the Student:

Kartik Kaushik

Abhishek Singh

Utkarsh Bansal

Rishabh Kumar Jha

Pratyush Kumar

Place: NOIDA

Date: 5th February 2019

 C E R T IF IC AT E

The Project entitled “Financial Statement of Non-Profit Making Organisation” submitted

to the Symbiosis Law School, NOIDA for Fundamentals of Marketing as part of an internal
assessment is based on my original work carried out under the guidance of Dr.Meenakshi
Kaul from 18th December, 2018 to 5th February, 2019. The research work has not been
submitted elsewhere for award of any degree.

The material borrowed from other sources and incorporated in the research report has been
duly acknowledged. We understand that we would be held responsible and accountable for
plagiarism, if any, detected later on.

Name & Signature of the candidate

Kartik Kaushik

Abhishek Singh

Utkarsh Bansal

Rishabh Kumar Jha

Pratyush Kumar

Date: 5th February 2019

 ACKNOWLEGEMENT

We wish to express our sincere gratitude to Dr.Meenakshi Ma’am, Assistant Professor for
providing us with an opportunity to do our project work one of the corporate accounting
procedure to record Financial Statement of Profit Making Organisation.

We sincerely thank him for his guidance and encouragement in carrying out this project
work. We would further also like to thank our director Dr. CJ Rawandale, for providing me
with the opportunity to embark on this project. We are thankful to the Institute of Symbiosis
Law School, NOIDA for the amazing environment and infrastructural facilities that aided us
while making this Paper. Sincere thanks to all the teaching and Non- teaching staff that
supported us.

Coming to the most important aid, Our Parents We are thankful to you as without your
support none of it could have been in a tangible state today.

Lastly, We are thankful to the other fellow mates of our division who poured in various
creative ideas that constructed our research and analysis to be a fruitful one. The co-operation
and hard work put into the work is appreciated and all the contributions are respected.

Group- 12
 INTRODUCTION
By: Kartik Kaushik-18010224202

A nonprofit organization also known as a non-business entity, not-for-profit organization,

or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a
shared point of view. In economic terms, it is an organization that uses its surplus of
the revenues to further achieve its ultimate objective, rather than distributing its income to the
organization's shareholders, leaders, or members. Nonprofits are tax exempt or charitable,
meaning they do not pay income tax on the money that they receive for their organization.
They can operate in religious, scientific, research, or educational settings.
The key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to
every person who has invested time, money, and faith into the organization. Nonprofit
organizations are accountable to the donors, funders, volunteers, program recipients, and the
public community. Public confidence is a factor in the amount of money that a nonprofit
organization is able to raise. The more nonprofits focus on their mission, the more public
confidence they will have, and as a result, more money for the organization. The activities a
nonprofit is partaking in can help build the public’s confidence in nonprofits, as well as how
ethical the standards and practices are.
Nonprofits are not driven by generating profit, but they must produce enough income to
pursue their social duties. Nonprofits are able to raise money in different ways. This includes
income from donations from individual donors or foundations, sponsorships from
corporations, government funding, programs, services or merchandise sales, and investments.
Each NPO is unique in which source of income works best for them. With an increase in
NPO’s within the last decade, organizations have adopted competitive advantages to create
revenue for them to remain financially stable. Donations from private individuals or
organizations can change each year and government grants have diminished. With changes in
funding from year to year, many nonprofit organizations have been moving toward increasing
the diversity of their funding sources. For example, many nonprofits that have relied on
government grants have started fundraising efforts to appeal to individual donors.
NPO's challenges primarily stem from lack of funding. Funding can either come from within
the organization, fundraising, donations, or from the federal government. When cutbacks are
made from the federal government, the organization suffers from devolution. This term
describes when there is a shift of responsibility from a central government to a local, sub
national authority. The shift is due to the loss of funds, therefore, resulting in changes of
responsibilities in running programs. Because of this frequent challenge, management must
be innovative and effective in the pursuit of success.
A common misconception about nonprofits is that they are run completely by volunteers.
Most nonprofits have staffed that work for the company, possibly using volunteers to perform
the nonprofit's services under the direction of the paid staff. Nonprofits must be careful to
balance the salaries paid to staff against the money paid to provide services to the nonprofit's
beneficiaries. Organizations whose salary expenses are too high relative to their program
expenses may face regulatory scrutiny.

Features:
1. Service:
The basic aim of non-profit organizations is to serve the society. They are working for the
benefit of the society as a whole.

2. Profit is not the Criterion:

Non-profit organizations are formed for some idealistic purposes such as religious, charitable
or providing education etc. Earning of profits can never be their aim.

3. Surplus not distributed among its Members:

Though earning profit is not the criterion for non-profit organizations, yet there may be
excess of income over expenditure or excess of expenditure over income. The former is
known as ‘surplus’ and latter is known as ‘deficit’. Unlike other business, surplus or deficit of
non-profit organizations is not distributed among its members. They are adjusted in the
capital fund of such organizations.

4. Separate Entity:
The separate entity concept is equally applicable to non-profit organizations. Such
organizations are treated as a separate entity distinct from its members.

5. Unique Names Connoting their Working:

The names of non-profit organizations denote the nature and style of their functioning. For
example, JMD Educational Society, Shri Sai Keertan Mandli, Shri Sunder Dev Sports Club
and Shri Sanatan Dharam Ramlila Committee etc.

6. Management by Elected Persons:

These organizations are run and managed by elected members.

7. Major Funds from Contributions and Donations:

Usually, non-profit organizations are not self sufficient to run their activities with the revenue
generated from their own sources, so they depend upon the subscriptions, donations and
grants received from various government departments.

XXX

-By Kartik Kaushik-18010224207

 OBJECTIVES
By: Utkarsh Bansal-18010224204
1) Non-profit organizations exist mainly to provide help or resources to a target audience
with a specific need. They usually serve a public purpose such as enriching the lives
of people in the community, and enjoy special considerations in terms of tax, legal
status and accountability. A non-profit organization is mission-driven, which requires
the management and board to set objectives aimed at achieving the organization’s
mission statement.
2) A non-profit organization’s strategic objectives focus on the services provided to its
target market. These usually include identifying the needs of the relevant community
and developing programs and projects geared at fulfilling those needs. For example, a
non-profit whose mission is to build literacy skills among homeless children will have
strategic objectives such as the implementation of a program to obtain and manage a
supply of books and learning aids.
3) Non-profits are not required to show financial surpluses, but they need to generate
enough income to cover their costs and to build retained earnings for lean financial
times. Financial objectives include raising enough money to fund the activities
included in their strategic plan, as well as fixed costs such as premises rental, staff
compensation and utility bills. They can generate income through fundraising
activities or revenue resulting from services they provide. The primary objectives are
to break even and maximize cash flow, while avoiding excessive financial risk.
4) The operational objectives of a non-profit organization relate to the management of
funds and resources to achieve specific tasks. These objectives commonly show
quantitative performance measurements, such as the type and frequency of activities
and the number of people served or helped. The operational objectives include short-
term dates for the completion of individual projects and programs, the resources used
for each, and the degree of success that the organization wants to achieve.
5) Non-profit organizations are subject to stringent governance requirements, mainly
because they usually use donor or grant funding to do their work. This makes them
accountable to their donors and the grant programs, as well as to the public whose
taxes go towards grant funding. Governance objectives include the establishment of
sound policies for issues such as compensation, purchasing and procurement, human
resource and volunteer management, and asset and risk management.
6) Partnerships are vital aspects of non-profit management, with organizations using in-
kind donations of much-needed products and services. For example, a non-profit
organization typically doesn’t have enough money to advertise, so a partnership with
a local newspaper could benefit both parties. The non-profit gets free advertising, and
the newspaper gets recognition as a supporter of the organization’s work. Partnership
objectives identify the type of external parties with which the organization could
partner, and ensure that potential partners’ principles and philosophy are in
accordance with the organization’s work.

XXXX
By: Utkarsh Bansal-18010224207
 RECEIPT & PAYMENT A/C
By: Abhishek Singh

Receipt and Payments Account is a summary of cash receipts and payments during an
accounting period, receipts and payments being shown under appropriate heads of accounts.
It begins with cash and bank opening balances and ends with cash and bank balances at the
end of the accounting period. Receipts are shown on the debit side and payments are shown
on the credit side of the account. It beings Receipts and payments Account, receipts and
payments of every nature are shown in this account whether it is capital or revenue in nature
or whether it relates to the current year, previous year or next year.

FEATURES OF RECEIPT AND PAYMENT ACCOUNT

i) It is a 'real account'. While making posting in the account rule of debit and credit regarding
real accounts are used.

(ii) Whenever amount is received, cash account is debited. This is why, all cash receipts are
recorded at the debit region.

(iii) Cash account is attributable for all payments, thus all money payments are shown at the
payment aspect.

(iv) Receipts and payments account is closed as showing the closing cash balance of the year,
which is shown as the first item at the debit side.

(v) Cash account is due to for all payments, therefore all cash payments are shown at the
payment side.

(vi) Receipts and payments account records all cash receipts, whether it is capital receipt or
revenue receipt. Amount received from subscription and also amount received from sale of
building are shown at the receipt side. No distinction is made between capital receipts and
revenue receipts.

(vii) All money expenditure whether or not capital or revenue is shown at the
payment side. each money payment for salaries and piece of furniture are shown during
this account. This account doesn't differentiate between capital and revenue expenditure.

(viii) All cash receipts, whether belonging to the current year or previous year or next year
are recorded as receipts.
(ix) All cash payments whether concerning current year or previous year or next year is
recorded at the payment side.

(x)This account does not show net income or net loss.

(xi) No adjustments are made in it.

(xii) We cannot prepare Balance sheet on the basis of this account.

ADVANTAGES OF RECEPIT AND PAYMENT ACCOUNT

i. Total Receipt and total Payments under various heads are available.

ii. The amount of cash in hand at the year end can be ascertained.

iii. The total of debit side of cash book will agree with the total of receipt side of this
account. On the other hand, the total of credit side of cash book will agree with that of
payment of this account.

LIMITATION OF RECEIPT AND PAYMENT ACCOUNT

i. It does not show expenses and income on accrual basis.

ii. It does not show whether the Not-for-Profit organization is able to meet its day to day
expenses.

iii. Receipts and payments account fails to show non-cash transactions such as
depreciation of fixed assets, pilferage etc.
 FORMAT OF THE RECEIPTS AND PAYMENTS ACCOUNT

Dr. Receipt and Payment Account for the year ended…

Cr.

Receipts Amount Payments Amount

To Balance b/d By Balance b/d ……
Cash in hand …… By Salaries ……
Cash at Bank By Rent
…… ……
To General Donation By Postage Expenses
To Entrance Fees …… By advertisement expenses ……
To Interest on Investment …… By Repairs ……
To Interest Received …… By Audit Fees ……
To Life Membership Fees …… By Insurance ……
To Legacies …… By Honorarium ……
To Sale of Fixed Assest By Books
…… ……
To Dividents By Loan
To Rent received …… By Building ……
To sale of Newspaper …… By Municipal Tax ……
To general grants …… By Sports Equipment ……
To Balance c/d …… By Investment ……
---------------- --------------
__________ _________

Illustration

From the information given below, Prepare Receipt and Payments Account of My Bar Club,
Prayagraj, for the year ended 31st March 2018:

Cash on 1st April,2017 – 40000 Subscription – 3500000 Donation – 80000

Entrance fees – 43000 Rent realized – 52500 Electricity – 30000

Taxes - 5000 Salaries and Wages- 215000 Honorarium – 25000

Interest received – 29500 Printing & ststionary – 3500 Petty Exp. – 9000

Insurance premium paid – 3100

My bar Club, Prayagraj

Dr. Receipt and Payment Account for the year ended 31st march 2018
Cr.
Receipt Amount Payment Amount

To balance b/d Cash 40000 By electricity charges 30000

To subscription 350000 By taxes 5000
To Donation
80000 By salaries and wages 215000
To entrance Fees
43000 By Honorarium 25000
To rent realized
52500 By Printing 3500
To interest on Invetsment
29500 By petty Exp. 9000

By insurance 3100

By balance c/d

Cash in hand 304400

------------- ------------

595000 595000

XXXX

By: Abhishek Singh

 INCOME AND EXPENDITURE ACCOUNT
By: Pratyush Kumar-18010224207

Meaning
It is the summary of incomes and expenditures of the organisation of a particular year and is
prepared at the end of the year. This account is similar to the Profit and Loss Account of the
Business Organisations. In this account revenue expenditure and revenue income of the year
for which Income and Expenditure A/c is prepared are taken. That means any amount of
these items pertaining to either previous year or next year are not considered. The balance
amount of this account is either surplus or deficit. If the income side of this account exceeds
the expenditure side, the difference is ‘surplus’. In case the expenditure side exceeds the
income side, the difference is ‘deficit’.

Need of preparing Income and Expenditure Account

Even the Not for Profit Organisations would like to know the net result of their activities of a
particular period which generally is one year. Though such organisations do not engage in
trading activities and their objective is not earning profits, yet they would like to know
whether income exceeds expenditure or vice a versa. The amount of the such difference is not
termed as Net Profit or Net Loss as it is so termed in case of business organisations. In case
of Not for Profit organisations the net result is termed as ‘surplus’ or ‘deficit’ as the case may
be. Moreover of a preparation of Income and Expenditure Account is a legal requirement. It
helps the organisations to control their expenditure.

Relevant Items of income and Expenditure

Following are the relevant items of income of a Not for Profit Organisations (NPOs).

1. Subscription. It is a periodic contribution by members of the organization

2. Entrance fees/Admission fees. It is received from members at the time of their

admission to the organisation.

3. Donations. Donation is the amount received from person, firm, company etc. by way
of gift. But only general donation that too of smaller amount and of recurring nature is
treated an item of revenue income.

4. Sale of old newspapers, sports material, etc. Sale of old newspapers or condemned
books, sports material etc. is treated as an item of revenue income.

5. Interest receipt. The surplus funds may be kept in a fixed deposit account in a bank or
invested else where. Interest received thereon is an item of revenue income.
 6. Grant-in-Aid. Local, state and central government and some government agencies
give money as grant-in-aid to Not-for-Profit Organisations (NPOs).

Apart from these, there are numerous other items like rent of hall, sale of grass, income
from entertainment, etc.

Preparation Of Income And Expenditure Account

In the previous section the format of Income and Expenditure Account and the items that
are usually entered in the account have been explained. This account is prepared from
Receipts and Payments account and additional information if any. While preparing an
Income and Expenditure account, the following important points have to be kept in mind :

A. Steps for Expenditure side

The payment column of Receipts and Payments Account contains both revenue items as
well as capital items. Revenue items such as rent paid salary, telephone charges etc. will
be entered on the expenditure side of Income and Expenditure Account.

If necessary, adjustments will be made in these items for expenses that are outstanding at
the end of the current year and/or were outstanding at the end of the previous year.
Adjustment will also be made for prepaid expenses at the end of previous year as well as
those at the end of current year.

B. Steps for Income side

The receipt column contains items of revenue receipts as well as capital receipts. Revenue
receipts are entered in the income column of the Income and Expenditure Account.
Example of such items are subscription, interest on investment, entrance fees etc.

These items need to be adjusted for the amount received for the previous year or for the
next year. Similarly, adjustment should be made for outstanding income both at the
current year and at the end of the previous year.

There may be other adjustments such as bad debts, depreciation, etc. will also be entered
in the expenditure column.

C. Surplus or Deficit

Finally, this account is balanced i.e. difference of the totals of two amount columns is
worked out. If credit side is more than the debit side the difference amount is written on
its debit side as surplus and if debit side exceeds the credit side, the difference is deficit is
written on the credit side of the account.
Features Of Income and Expenditure Account
The basic features of income and expenditure account are as under:

(i) It is a nominal account and summarizes all expenditures and incomes of a non-profit
organization.

(ii) Based on accrual concept, all items of revenue and expenditure are matched and recorded
in this account.

(iii) Incomes and expenditures of the current year are to be shown in this account.

(iv) Items of capital in nature can not find place in this account. For example, furniture
purchased, a receipt for a particular purpose received during the year etc.

(v) It does not have any opening balance. However, the closing balance is either surplus (if
there is an excess of income over expenditure) or deficit (if there is an excess of expenditure
over income).

Specimen of an Income and Expenditure Account

 Distinction between Income and Expenditure Account and Receipt and
Payment Account

Receipt And Payment A/c Income And Expenditure A/c

It is a summarized statement of all cash transactions It is the account of revenue income and revenue
during an accounting year. expenditure of an accounting year.

Only cash transactions are recorded here. It is not confined to, cash transactions only, i.e. non-
cash transactions are also included in it

The portion of income or expenditure which has been The whole amount of income or expenditure—
received or paid in cash this year, is recorded here whether received or paid in cash or not—is recorded
in it.

Transactions—both capital and revenue-are recorded Only revenue transactions are recorded here.
here.

Its balance can never be credit. Its balance may be either debit or credit.

Its balance is carried over to Receipts & Payments Its balance is transferred to Capital Fund.
Account of the next year.

This account shows opening balance except in the It has no opening balance.
first year.

XXXX

By- Pratyush Kumar-18010224207

 BALANCE SHEET
- Rishabh Jha
An accounting report reports an organization's benefits, liabilities and investors' value at a

particular point in time, and gives a premise to registering rates of return and assessing its

capital structure. It is a budget report that gives a preview of what an organization possesses

and owes, just as the sum contributed by investors.

‘Not-for-Profit’ Organisations prepare Balance Sheet for ascertaining the financial position

of the organisation. 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 and the liabilities on the left hand side. However, there will be a

Capital Fund or General Fund in place of the Capital and the surplus or deficit as per Income

and Expenditure Account which is either added to/deducted from the capital fund, as the case

may be. It is also a common practice to add some of the capitalised items like legacies,

entrance fees and life membership fees directly in the capital fund. Besides the Capital or

General Fund, there may be other funds created for specific purposes or to meet the

requirements of the contributors/donors such as building fund, sports fund, etc. Such funds

are shown separately in the liabilities side of the balance sheet. Some times 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/general fund.

Non for profit organizations registered under section 25 of the Companies Act, 1956 are

required to prepare their income and expenditure account and balance sheet as per the

schedule 6 to the companies act 1956.

Accounting Treatment Of Some Special Treatment

Donations

These may have been raised either of meeting some revenue or capital expenditure, those

intended for the first mentioned purpose are directly to the Income and Expenditure account

but others, If the donors have declared their specific intention, are credited to special fund

account and in the absence, there of to the capital fund account.

Entrance and Admission Fees

Such fees which are payable by a member on admission to club or society are normally

considered capital receipts creditable to capital fund. This is because these do not give rise to

any special obligation toward the member, who is entitled to privilege who have paid only

their annual subscription.

Subscription

Subscription is being an income, should be allocated over the period of the accrual. For the

testing knowledge of the candidates of this accounting principle, question are often set in

examination where in figure of subscription collected by the society during the year as well

as those outstanding at the beginning of the year as well as those outstanding at the beginning

of the year and its close are given.

Life Members

Fees received for life membership is a capital receipt as it is of the non recurring nature

directly to the capital fund or general fund

For adjusting to the lump sum subscription collected to the life members, one of the

following methods can be adopted:-

1. The entire amount may be carried forward account until the member dies, when the

same may be transferred to the credit of the accumulated fund.

2. An amount to the normal annual subscription may be transferred to every year to the

income and expenditure account and balance carried forward till it is exhausted.

3. An amount calculated to the age and average life of the member, may annually be

transferred to the credit and expenditure account.

Preparation of Balance Sheet

 The following procedure is adopted to prepare the Balance Sheet:

 1. Take the Capital/General Fund as per the opening balance sheet and add surplus

from the Income and Expenditure Account. Further, add entrance fees, legacies, life

membership fees, etc. received during the year.

 2. Take all the fixed assets (not sold/discarded/or destroyed during the year) with

additions (from the Receipts and Payments account) after charging depreciation (as

per Income and Expenditure account) and show them on the assets side.

 3. Compare items on the receipts side of the Receipts and Payments Account with

income side of the Income and Expenditure Account. This is to ascertain the amounts

of: (a) subscriptions due but not yet received: (b) incomes received in advance;

(c) sale of fixed assets made during the year; (d) items to be capitalised (i.e. taken

directly to the Balance Sheet) e.g. legacies, interest on specific fund investment and so

on.

4. Similarly compare, items on the payments side of the Receipt and Payment

Account with expenditure side of the Income and Expenditure Account. This is to

ascertain the amounts if:

(a) outstanding expenses;

(b) prepaid expenses;

 (c) purchase of a fixed asset during the year;

(d) depreciation on fixed assets;

(e) stock of consumable items like stationery in hand;

(f) Closing balance of cash in hand and cash at bank as, and so on.

Profoma Of Balance Sheet:

XXX

-Rishabh Kumar Jha-18010224205

Bibliography:

T. S. Grewal Double Entry Book Keeping

WWW.GOOGLE.COM

WWW.WIKEPEDIA.COM

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