ACCOUNTING FOR NON PROFIT MAKING ORANISATIONS

There are some organizations established with an objective (s) other than profit making. These
may include schools, clubs, hospitals, NGO’s. These organizations keep accounts different from
those kept by profit making organizations. The differences lie in the following:
 A cashbook is replaced by a receipts and payments account
 Profit & loss account is replaced by income and expenditure account
 Capital is replaced by accumulated funds
 Net profit is called excess of income over expenditure
 Net loss is called excess of expenditure over income.
Sources of income for non-profit making organization
 Annual membership subscription
 Membership registration fees
 Life membership subscription
 Donations, gifts
 Interest received on investments.

Records kept by on-profit making organizations

Receipts and payments account

This summarizes effectively an organizations cash and bank transactions in the period. It
includes the following:
1) Opening balance
2) The receipts for the period
3) The payments for the period
4) Closing balance

Income and expenditure account

This account is presented in the same way as the profit & loss account for a service organization,
i.e. the costs and expenditure are matched against the incomes. However, in this account, profit is
termed as excess of income over expenditure and vice versa for a loss.

Bar trading account

Some non-profit making organizations such as clubs, schools operate bars where members go for
refreshments/recreation. This can generate a profit or loss in a given period which necessities the
preparation of a bar trading account to capture the trading results. The profit or loss from the bar
should be posted to the income and expenditure account as an internal source of income. Profit
from the bar is not distributed to members but is put back to finance the organizations’ activities.
Clubs maintain their accounts in the single entry form and as a result, some records are missing.

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Therefore, it may be necessary to prepare control accounts to determine bar purchases, sales and
to adjust some expense accounts.

Accumulated fund
There are cases where in the question the figure of accumulated fund is missing. To arrive at this
figure, the statement of affairs has to be prepared summarizing the assets & liabilities of the
organization.

Accumulated fund = Assets – Liabilities

Balance sheet
The balance sheet for a non-profit making organization is not any different from that of a profit
making organization except for the renaming of capital and net profit/loss.

Subscriptions
Subscriptions from members are the major source of income for non-profit making oriented
organizations. Subscriptions can be ordinary or life subscriptions.
Accounting treatment relating to subscriptions;
 Subscriptions due (accruing) or in arrears are current assets
 Subscriptions received in advance or prepaid are current liabilities
 Subscriptions taken as income for a particular year should exclude subscriptions received
in arrears and subscriptions received in advance. This requires opening up a subscriptions
account as illustrated below.

Dr Subscriptions account Cr
Subscriptions in arrears b/f xx Subscriptions in advance b/f xx
Income & expenditure a/c xx Cash/Bank xx
Subscriptions in advance c/d xx Subscriptions in arrears c/d xx
XX XX

Example 1
The following information is taken from the books of Midland Fitness club.
Subscriptions received during the year ending 31/12/2016 was 1,000,000/=
Subscription due at the end of the year 31/12/2016 was 100,000/=
Subscriptions received in advance for the following year commencing on 1/1/2017 amounted to
300,000. Determine the amount of subscription to be taken as income for the year.
Example 2
The following information is taken from the books of Eastern Hockey club for the year ended
31/12/2016.

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January 1, 2016 Subscription due 200,000/=
Subscription in advance 300,000/=
Subscription received during the year 2,000,000/=
December 31, 2016 Subscription due 450,000/=
Subscription in advance 280,000/=

Life Subscription
In some clubs, members are allowed to become life members by making a special payment. In
return for the subscription, such members are allowed the use of the facilities of the club for the
rest of their lives.
Double entry when life subscription is paid

Dr Receipts & Payments A/C xxx

Cr Life Subscription A/C xxx
Instructions must be given regarding how much of the life subscriptions is to be transferred to the
income and expenditure account at the year end. Normally 1/10 or a tenth of the amount received
is transferred to the income and expenditure account at the end of every year so that complete
credit to income is taken over a ten year period.

The entry for transferring the agreed amount to the income and expenditure accounts is;

Dr Life Subscriptions A/C xxx

Cr Income & Expenditure A/C xxx
The credit balance in the life subscriptions A/C is a long term liability of the club and will appear
in the balance sheet.

Example 3
Kitante Golf Club accepts life members at a fee of 10,000,000/=. The rules of the club provide
that 10% of such fees are regarded as income for that year. During the year ended 31/12/2016,
ten members paid 10,000,000/= each to become life members. Show the appropriate ledger
accounts entres.

Example 4
The treasurer of Makerere football club prepared the following receipts and payments account
for the year ended 31/12/2017.

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 Receipts Payments
Shs. Shs.
Balance b/d 3,000,000 Payments to bar creditors 8,000,000
Donations 1,500,000 Bar wages 2,000,000
Receipts from debtors 20,000,000 Repair of building 5,000,000
Subscriptions 7,000,000 Dance expenses 1,000,000
Dance receipts 2,500,000 Raffle expenses 250,000
Raffle receipts 1,250,000 Club caretaker’s wages 600,000
Hire of coach 700,000
Utilities 1,450,000
Bal c/d 16,250,000
32,250,000 32.250,000

The following information is also available;

(i) 1/1/2017 31/12/2017
Shs. Shs.
Bar stock cost 400,000 600,000
Bar creditors 500,000 350,000
Bar wages outstanding 150,000 250,000
Subscriptions due 150,000 100,000
Subscriptions received in advance 300,000 500,000
Bar debtors 600,000 800,000
Prepaid utilities 200,000 300,000
(ii) The club had the following fixed assets on 1/1/2017
Shs.
Buildings at cost 10,000,000/=
Equipment at cost 4,000,000/=
(iii) Bar stock costing Shs 300,000/= got burnt due to a short circuit
(iv) Repair of the building was a major expenditure and extended the useful life of the
building by an estimated 3 years period.
(v) Equipment and building should be depreciated by 10% and 5% respectively on the cost
value at 31/12/2017
(vi) 40% of utilities cost and caretaker’s wages should be apportioned to the bar. But all the
other expenses which are not unique to the bar should be charged to the income and
expenditure account.
Required;
(a) The Accumulated fund on 1/1/2017
(b) The Bar trading account on 31/12/2017
(c) Income and expenditure account and
(d) Balance sheet at the close of the year 31/12/2017

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Example 5
The accountant of ABC Association has supplied the following account of the club‘s activities
during the year ended 31/12/2018
Receipts and payments A/C
Shs. Shs.
Current A/C Bal b/d 2,500,000 Payment to bar & restaurant
creditors 25,000,000
Annual subscriptions 18,000,000 Extension of club house 9,000,000
Bar & Restaurant sales 50,000,000 Transfer to deposit account
on 31/12/2018 7,000,000
Annual grant 1,500,000 Part repayment of loan with
the Years’ interest 6,000,000
Interest from 5,000,000 Electricity 500,000
investments at 10% p.a. 500,000 Secretary’s expenses 400,000
Life membership subscription 30,000,000 Barman’s wages 2,000,000
Competition profit 600,000
Bal c/d 53,200,000
103,100,000 103,100,000
Further information
(i) Included in the clubs assets and liabilities on 1/12/2018 were the following
Shs.
Club house cost 36,000,000
Investment 5,000,000
Bar % restaurant stocks 600,000
Annual subscriptions outstanding 200,000
Bar & restaurant creditors 300,000
10% loan 10,000,000
(ii) Bar and restaurant stock on 31/12/2018 was valued at cost of Shs. 500,000. This stock
had a market value of Shs. 790,000/=.
(iii) Bar creditors on 31/12/2018 totalled to 400,000/=.
(iv) Subscriptions received on 31/12/2018 for 1/1/2019 to 31/12/2019 financial year
amounted to 1,200,000/=.
(v) It was decided to transfer 20% of life subscriptions to the income and expenditure
account for the year ended 31/12/2018.
(vi) Club house should be depreciated by 5% of its value as at 31/12/2018.

Required;
Prepare a set of final accounts that can be prepared from the above information at the close of the
financial year.