1. Definition of NPO
A Not-for-Profit
Organization (NPO) is established for service objectives such as
education, charity, culture, religion, or social welfare. Its aim is not
profit-making. Surplus is used for objectives, not distributed to members.
2. Features of NPO
- Service motive – Focus on welfare, not profit.
- Separate legal entity – Formed under Society Registration
Act/Trust Act.
- Sources of funds – Donations, subscriptions, grants,
legacies, etc.
- Utilization of funds – For achieving organizational
objectives.
- Surplus treatment – Used for promotion of objectives,
not for distribution.
- Special books of accounts – Maintain Receipt & Payment
A/c and Income & Expenditure A/c instead of Trading &
P&L A/c.
- Capital fund – Opening accumulated fund + surplus/deficit
transferred each year.
3. Accounting Process
a. Receipts & Payments Account (R&P A/c)
- Definition: A summary of cash and bank
transactions during an accounting period, prepared on cash basis.
- Nature: Real Account (like Cash Book).
- Characteristics:
ü
Includes all receipts and payments (capital + revenue).
ü Opening
balance = Cash/Bank at beginning; Closing balance = Cash/Bank at end.
ü No
distinction between current year & previous year items.
Format
|
Receipts |
Amount (Rs.) |
Payments |
Amount (Rs.) |
|
To Balance b/d:
Cash XXX Bank XXX |
xxx |
By Salaries |
xxx |
|
To
Subscriptions |
xxx |
By Rent |
xxx |
|
To Donations |
xxx |
By Stationery |
xxx |
|
To Entrance
Fees |
xxx |
By Electricity |
xxx |
|
To
Grants/Legacies |
xxx |
By Furniture
Purchased |
xxx |
|
To
Interest/Dividend |
xxx |
By Investments |
xxx |
|
To Sale of
Assets |
xxx |
By Other
Expenses |
xxx |
|
By Balance c/d:
Cash XXX Bank XXX |
xxx |
||
|
Total |
xxx |
Total |
xxx |
b. Income & Expenditure Account (I&E A/c)
- Definition: Similar to Profit &
Loss A/c, prepared on accrual basis,
showing revenue income and expenditure of current year.
- Purpose: To find surplus or
deficit.
- Characteristics:
ü Nominal
Account in nature.
ü Includes only
revenue items of current year (adjusted for
outstanding/prepaid).
ü Capital items
are excluded.
Format
|
Expenditure |
Amount (Rs.) |
Income |
Amount (Rs.) |
|
To Salaries |
xxx |
By
Subscriptions (Current Year) |
xxx |
|
To Rent |
xxx |
By Donations
(Revenue Nature) |
xxx |
|
To Stationery |
xxx |
By Entrance
Fees (Revenue) |
xxx |
|
To Postage
& Telephone |
xxx |
By
Interest/Dividend |
xxx |
|
To Printing |
xxx |
By Sale of Old
Newspapers |
xxx |
|
To Audit Fees |
xxx |
By Grants
Received |
xxx |
|
To Depreciation |
xxx |
By Misc. Income |
xxx |
|
To
Sports/Library Expenses |
xxx |
||
|
To Surplus
(Excess of Income) |
xxx |
By Deficit
(Excess of Expenditure) |
xxx |
|
Total |
xxx |
Total |
xxx |
4. Subscription Account
- Meaning: Subscriptions are amounts received from
members, usually annually, for maintaining membership.
- Accounting treatment: Adjusted to find subscription
relating to current year only.
Format
|
Particulars |
Amount (Rs.) |
Particulars |
Amount (Rs.) |
|
To Balance b/d:
Outstanding |
xxx |
By Balance b/d:
Advance |
xxx |
|
To I&E A/c
(Current Year’s Subscriptions) |
xxx |
By Cash/Bank
(Received) |
xxx |
|
To Balance c/d:
Advance |
xxx |
By Balance c/d:
Outstanding |
xxx |
|
Total |
xxx |
Total |
xxx |
5. Capital (General) Fund
|
Calculation |
Amount (Rs.) |
|
Opening Capital
Fund (Assets – Liabilities) |
xxx |
|
Add: Surplus
(from I&E A/c) |
xxx |
|
Less: Deficit
(if any) |
xxx |
|
Closing Capital
Fund |
xxx |
6. Specific Funds
- NPOs may receive funds for specific purposes like Building Fund, Sports Fund, Prize Fund.
- Such funds are shown as liabilities in the Balance Sheet.
- Related expenses are deducted from the fund, not from I&E A/c.
|
Particulars |
Treatment |
|
Received (e.g.,
Sports Fund) |
Shown under Liabilities |
|
Income related
to fund |
Added to Fund |
|
Expenses
related to fund |
Deducted from
Fund |
|
Balance |
Carried forward
to Balance Sheet |
7. Balance Sheet
- Prepared at the end of year to show financial position.
Format
|
Liabilities |
Amount (Rs.) |
Assets |
Amount (Rs.) |
|
Capital Fund
(Opening) |
xxx |
Fixed Assets: |
|
|
Add: Surplus |
xxx |
Land &
Building |
xxx |
|
Less: Deficit |
xxx |
Furniture &
Equipment |
xxx |
|
Specific Funds
(Sports/Prize etc.) |
xxx |
Investments |
xxx |
|
Creditors/Outstanding
Expenses |
xxx |
Current Assets: |
|
|
Cash at Bank |
xxx |
||
|
Cash in Hand |
xxx |
||
|
Subscription
Outstanding |
xxx |
||
|
Prepaid
Expenses |
xxx |
||
|
Total |
xxx |
Total |
xxx |
✅ Exam Hot Tricks
- Subscriptions → Always adjust (outstanding & advance).
- Entrance Fee → Capital if large, Revenue if small.
- Life Membership Fee → Always Capital.
- Specific Donations → Directly to Fund, not I&E A/c.
- R&P A/c = Cash Basis; I&E A/c = Accrual Basis.
