NAME : AJLAN KHAN

CLASS : 12B2

ROLL NO : 3

SUBJECT : ACCOUNTS

TOPIC : NPO (ART INTEGRATION)

SCHOOL : IISJ
 WHAT IS NOT FOR
PROFIT OGRANISATION
?
Not for Profit Organisation :
Meaning :
A not-for-profit organization is defined as an organization whose primary
aim is to provide a service to its members for the welfare of a group or
society in general according to the chapter accounting for not-for-profit
organisation. The organisation is set up as a charitable institution, often
managed by trustees and is not in any way driven by profiteering. Examples:
schools, charities, trade unions, welfare societies etc. Read more about
introduction to accounting.
Characteristics

According to the accounting for not-for-profit organisation chapter, Not-for-profit

organisations are discernable and identifiable because of certain main features.
They are mentioned below:

• These organisations are established to provide a service either at

no cost or minimal cost for the advancement of society.The
nature of the service varies from education to health to
recreation.
• The aim is the welfare of a specific group or society and not making profits.
• These organisations function as charitable societies and their subscribers are
called members.
• The organization's primary functions are managed by trustees or an executive
group of members elected by its own members.
• The organisation's primary functions are managed by trustees or an executive
group of members elected by its own members.
• These organisations do not participate in any business activities and hence, rely
on income sources like subscriptions, donations, grant-in-aid, income from
investment or legacies or financial assistance from the government .
• The funds or any surplus generated by such organisations are credited to the
general fund or capital fund .
• It is legally binding for these organisations to provide a financial record. These
organisations prepare financial statements for the statutory requirement and for
maintaining control over assets/funds
Financial Statements for Not-for-Profit organisations
Not-for-profit organisations keep a financial statement every year for legal reasons, as mentioned in the chapter
accounting for not-for-profit organisation. A financial statement is necessary for the proper utilization of funds
and safekeeping of the general funds from misappropriation. These organisations follow the double-entry
system of accounting. The financial statements of such organisations consist of the following:

• Receipt and Payment Account

• Income and Expenditure Account
• Balance Sheet
FEATURES OF NOT-FOR-PROFIT ORGANISATION
1.Entity: Not-for-Profit Organisation is a legal entity separate from its promoters.

2.Purpose: Their purpose is to further cultural, educational, religious, professional obiectives and rendering service to
people at large.

3.Ownership: It is set-up as charitable society or trust. Thus, it is not owned by an individualor group of individuals but
belongs to the society.

4.Profit is not the Objective: Not-for-Profit Organisation does not function with the obiective of earning profit. But, it does
not mean that it cannot earn profit, termed as Surplus. Surplus is necessary to maintain its assets and also operations. Surplus
is used for the objectives for which it is set-up and is not distributed among its members.

5.Management: Not-for-Profit Organisation is managed by a group of individuals often called Trustees or Managing
Committee.

6. Funds: Funds for its operations are given by its members and donors as Entrance Fee, Membership Fee, Subscription and
(donations. It is supplemented by surplus from operations.

7. Financial Statements: It prepares its financial statements every year which includes Receiptsand Payments Account,
Income and Expenditure Account and the Balance Sheet.…
Receipt and Payment Account
Receipt and Payment Accounts provide a summary of all the cash and bank
transactions that took place during the financial year. It is important to account for
receipts and payments because they help in preparing income & expenditure
accounts and balance sheets as mentioned in accounting for not-for-profit
organisation chapters. This account begins with recording cash in hand/cash in the
bank on the receipt side and the closing balance includes cash in hand/bank left at
the end on the payment side. Find out more about career in accountancy.
Features
The features of the same are mentioned below:

• It is similar to a cash book wherein the receipts are

on the debit side and the payments are on the
credit side.

• All receipts and payments are recorded regardless of the financial period.

• Receipts and payments of capital nature or revenue nature are certain terms are included .

• Non-cash items such as depreciation, outstanding expenses or accrued income are not recorded.

• No difference between receipts and payments made out in cash or through a bank transaction.
Income and Expenditure Account
An income and expenditure account for a not-for-profit organisation is like a profit and loss account of
any business organisation according to the chapter accounting for a not-for-profit organisation.

• The account records all the revenue items of the current period and at the bottom, it records deficit or
surplus in the balance column.

• The income and expenditure account is prepared on an accrual basis and contains two columns, i.e.
expenditure column which includes losses and expenses and the income column which includes
incomes and gains.

• This account takes into account non-cash items like depreciation.

• It does not include an opening balance and the closing balance is written either as surplus or deficit.
Features or 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 records incomes, expenses and losses of revenue nature on accrual basis of
accounting.

3. Accounting Period: It records only those incomes, expenses and losses which relate to the current
accounting period, whether paid or not.

4. Opening and Closing Balances: It does not have an opening balance. Its balance at the is either surplus or
deficit which is transferred to Capital Fund in the Balance Sheet.

5. Adjustments: This account is prepared on accrual basis of accounting and thus , adjustments relating to
prepaid or outstanding expenses and incomes, provision: prepaid depreciation or doubtful debts are made.
Peculiar Items

• As mentioned in the chapter accounting for a not-for-profit organisation, a financial

statement of a not-for-profit organisation looks similar to a financial statement of a
business enterprise yet there are certain terms that are present only in the former
statement, let's have a look at them:
• Subscriptions: Subscriptions refer to the fees collected from members of an
organisation on an annual basis.
• Donations: Donations are gifts received by an organisation from a person or
enterprise. Donations can be specific or general.
• Legacies: Legacies refer to the amount received by the organisation because a
person left it in their will and is added to the capital fund.
• Life membership fee: Life membership is a lumpsum amount received from a
member and is added to the capital fund.
• cont……
• Entrance fees: It is the fees paid by a prospective member and is added directly to
the capital fund.
• Sale of an old asset: This item is generally included in the receipts section of the
receipts and payments account while any profit or loss incurred from this sale is
mentioned in the income and expenditure account.
• Sale of periodicals: This item is represented in the income and expenditure account
as income due to its recurring nature.• Payment of Honorarium: It refers to the
payment given to a guest performer for their service.
• Endowment Fund: It is included in the liabilities section of a balance sheet and
refers to a gift for a specific purpose.
• Government Grants: Governments support the not-for-profit organisation by giving
grants.
THANK YOU

BY
AJLAN KHAN