L. P.

Savani Academy Vesu, Surat

Practise Worksheet

SUBJECT : Accountancy Class: 12th Commerce

Chapter-1.
Not for Profit Organisations
(Theory)

 Watch video through link : https://youtu.be/r1rPTfIjjAM

 Meaning:- Not for Profit Organisations(NPO) is also known as non-profit organisation which is
a separate legal entity whose main objective is not to earn profit but to serve the society and its
members for the benefit of society.
Example: Red Cross Society, NGO, Clubs etc.

 Characteristics:-
1. Entity: Legal entity separate from its owner.
2. Purpose: Their purpose is to further cultural, educational, religious, professional objectives
and rendering service to people at large.
3. Formation: It is set up as charitable society or trust.
4. Profit is not the objective: Does not function with the objective of earning profit. But, it does
not mean that it cannot earn profit, profit is called as surplus here which is required to
maintain its operations and assets.
5. Management: Managed by Trustees or Managing Committee.
6. Funds: -Funds are given by its members and donors. The main sources of Income are:
 Entrance fees
 Membership fee
 Subscriptions
 Donations
 Legacies
 Grant –in–aid
 Income from investments etc.
7. The surplus generated is not distributed to the members, but added to capital fund.

 Financial Statements:- These organisations prepares following statements at the end of the
year:
(a) Receipts and Payments Account,
(b) Income and Expenditure Account, and
(c) Balance Sheet.

 Receipts and Payments Account:- It is a Summary of all Cash transaction. It records all Cash
Receipts and Cash Payments during an accounting period. It does not show non-cash items. It
starts with opening Cash and Bank balance and ends with the closing Cash and Bank balance.

 Features of Receipts & Payments Account:-

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 Nature: It is an Asset account being a summary of cash book (Debit what comes in, Credit what
goes out), hence Real in Nature.
 Basis: It is prepared on Cash basis of Accounting.
 Period: It records all receipts and payments irrespective of the period they belong (whether it
relates to current, previous or succeeding accounting periods).
 Capital or Revenue: It records all receipts and payments irrespective of their nature (whether
they are of revenue nature or capital nature).
 Purpose: To show amount received and paid during the accounting year.
Transactions

Revenue(Daily) Capital (Asset)

Receipts Expenditure Receipts Expenditure

 Limitations of Receipts & Payments Account:-

1. It does not show expenses and income on accrual basis.
2. It does not show whether NPO is able to meet its day to day expenses out of its income or
not.
 Income and Expenditure Account:- It is prepared at the end of accounting period matching
revenue expenses with revenue income to determine Surplus or Deficit.
It is prepared in the same manner how Trading and Profit and Loss account is prepared. Hence,
all Expenses and Losses of revenue (daily nature or benefit of which expires within the
accounting year) nature are recorded on its Debit side while all Incomes and Gains of revenue
nature, on its Credit side.

It is prepared following Accrual basis of Accounting, therefore:

(a) Revenue expenses for the accounting period are taken, whether paid or not.
(b) Revenue Incomes for the accounting period are taken, whether received or not.
(c) Non-cash Expenses such as Depreciation are accounted.
(d) Capital Expenditure, (the benefit of which gives more than one accounting year) e.g.,
purchase of land are not considered because they are shown in the Balance Sheet.
(e) Capital Incomes or Receipts, e.g., donation for specific purpose are not considered.

 Features of Income and Expenditure Account:-

1. Nature: It is a Nominal account. Hence, it is debited with expenses and losses and it is
credited with incomes and gains.
2. Basis of Accounting: It is prepared on accrual basis of accounting.
3. Accounting Period: It records incomes, expenses and losses which relate to the current
accounting year, whether paid or not.
4. Opening and Closing Balances: It does not have opening n
5. Balance. Its balance at the end is either surplus or deficit which is transferred to Capital Fund
in the Balance Sheet.

 Steps in the Preparation of Income and Expenditure account:

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 Go through the receipts and Payments account thoroughly.
 Exclude opening and closing balance of cash and bank.
 Exclude Capital Receipts and Payments.
 Consider Revenue items of Current year only.
 Consider the adjustments such as:
 Depreciation,
 Provision for bad and doubtful debts,
 Profit or Loss on sale of assets,
 Outstanding and Prepaid Expenses,
 Accrued Incomes and
 Incomes received in Advance.
 Find the Balance, which represents Surplus or Deficit.

Receipts and Payments Account

Receipts Payments
 Revenue Receipts  Revenue
Payments
 Capital Receipts
 Capital
Payments

Income and Expenditure Account

Expenditure Income
Revenue Payments Revenue Receipts

Balance Sheet

Liabilities Assets
Capital Payments Capital Receipts

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