Accounting For Non Profit Oriented Organization.Pdf

Non-Profit Oriented
Organizations
Chapter 7
Class XII

Non-Profit Organizations
Organizations which are formed not for
earning profits but for a charitable or social
purpose are called as Non-profit
organizations.
FEATURES:-
1) Separate legal entity
2) Service motive
3) Form
4) Profit- not a motivator
5) Funding
6) Accounts

Separate legal entity
 According to the principle of separate legal
entity, a Non-profit organization is an separate
entity independent of its members.
 These are the separate entity promoted by
individuals or companies, but these are not
owned by the promoters or managers.

Service Motive
These organisations are formed
• For welfare of the society.
• For providing services to its members.
• Main motive is to provide services.

Form
• Charitable hospitals
• Schools
• Colleges
• Clubs
• Hospitals
• Societies
• Associations

Profit – not a motivator
• NPOs do not operate with the objective of
earning profits.
• Their aim is to promote art, science,
commerce, religion, culture, education, charity,
sports etc.
• Some NPOs may involve in trading activities
• Main objective is not to earn the profit but to
benefit the members and society.
• Any excess of income over expenditure is
termed as SURPLUS while any excess of
expenditure over income is termed as DEFICIT.

Funding
The main sources of income of such
organizations are:
• Subscriptions from members,
• Donations,
• Grant-in-aid,
• Income from investments, etc.

Accounts
• The Non-Profit Organizations are also required
to prepare financial statements at the end of
the each accounting period.
• They have to prepare their final accounts at the
end of the accounting period and the general
principles of accounting are fully applicable in
their preparation.
• The final accounts of a „non-profit organization‟
consist of the following:
Receipt and Payment Account
Income and Expenditure Account, and
Balance Sheet.

Receipt and Payment A/c
Features
• Summary of the cash book.
– Receipts are recorded on the debit side
– Payments are entered on the credit side.
• Records all cash transactions irrespective of the
period.
• Includes all receipts and payments whether they are
of capital nature or of revenue nature.
• No distinction is made in receipts/payments made in
cash or through bank.
• No non-cash items such as depreciation outstanding
expenses accrued income, etc. are shown in this
account.
• It begins with opening balance of cash in hand and
cash at bank (or bank overdraft) and closes with the
year end balance of cash in hand/ cash at bank or
bank overdraft.

Steps in preparation of Receipt & Payment A/c
• Take the opening balances of cash in hand and cash at
bank & enter them on the debit side. In case there is a
bank overdraft in beginning of the year, it will be
recorded on credit side.
• Show the total amounts of all receipts on its debit side
irrespective of their nature (whether capital or revenue)
& whether they belong to past, present or future.
• Show the total amounts of all payments on its credit
side irrespective of their nature & time period.
• None of the receivable income or payable expense is to
be entered in this account.
• Find out the total of debit side & credit side of the
account & enter the same on the credit side of
cash/bank. If a balance comes out to be on debit side,
take it as closing balance of bank overdraft.
Steps: Receipt & Payment A/c

Format
Receipt & Payment A/c
Dr. for the year ended _________ Cr.
Receipts Amount Payments Amount
To Bal b/d Cash xxx
Bank xxx
To Revenue Receipts
To Capital Receipts
To Bal c/d (Bank O/D)
Xxx
Xxx
Xxx
xxx
By Bal b/d (Bank O/D)
By Revenue Payments
By Capital Payments
By Bal Bank xxx
Cash xxx
Xxx
Xxx
Xxx
xxx
A detailed & comprehensive Receipt & Payment A/c may appear as:

To Bal b/d Cash ××××
Bank ××××
To Revenue Receipts
Subscription
General Donations
Sale of newspaper
Sale of periodicals
Sale of old sports material
Locker rent
Sale of scraps
Proceeds of show
Miscellaneous Receipts
Entrance fee
Grant in aid
To Capital Receipts
Life Membership fees
Specific Donation
Sale of Investment
Sale of fixed assets
Endowment Fund
To Bal c/d (Bank O/D)
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
By Bal b/d (Bank O/D)
By Revenue Payments
Wages & Salaries
Rent, Rates & Taxes
Insurance
Printing & Stationary
Postage
Advertising
Sundry Expenses
Telephone charges
Audit fees
Newspapers
Repairs
By Capital Payments
Purchase of fixed Assets
Purchase of investments
Fixed deposits
By Bal Bank ×××
Cash ×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
××××

A club has kept its accounts on cash basis and the figures for 2009 are
given below. You are required to prepare receipts & payments A/c for the
year 2009. Subscription Received 5,90,600
Entrance fee 80,000
Admission fee 32,000
Secretary‟s salary 60,000
Investment bought during the years 2,22,000
Expenses paid 1,54,500
Cash in hand (1.1.09) 94,700
Locker rent received 16,250
General Donation 1,50,000
Dr. Receipts & payments A/c Cr.
Receipts Rs. Payments Rs.
To balance b/d
To subscription
To Entrance fee
To Admission fee
To Locker‟s Rent
To General Donation
94,700
5,90,600
80,000
32,000
16,250
1,50,000
By Secretary Salary
By Investment
By Expenses
By bal. c/d (balancing
figure)
60,000
2,22,000
1,54,500
5,27,050
9,63,550 9,63,550
Solution:-

Class Practice Question
Q. On 1/1/08, the opening balance was Rs. 18,000 of J.
M. Sport Club. The following transactions were held
for the year ended 31/12/08. From these particulars,
prepare a Receipts & payments account.
Subscription received for current year 8,50,000
Subscription received for next year 30,000
Life Membership fees 80,000
Investments 2,50,000
Furniture purchased 30,000
Purchase of sports material 1,50,000
General Expenses including unpaid
expenses Rs. 3,800
33,800
Depreciation on Furniture @ 10%

Dr Receipt & Payment A/c Cr
Receipts Rs. Payments Rs.
To balance b/d
To subscription
Current Year 8,50,000
Next Year 30,000
To Life Membership fee
18,000
8,80,000
80,000
By Investment
By Furniture
By Sports Materials
By General Expenses 33,800
Less Unpaid Expenses 3,800
By bal. c/d (balancing figure)
2,50,000
30,000
1,50,000
30,000
5,18,000
9,78,000 9,78,000
Solution

Income & Expenditure A/c
• It is a nominal account. “Debit all expenses &
credit all incomes” will be followed while
preparing it.
• Opening & closing balance of cash at bank are
not shown in it.
• It does not take into consideration both capital
receipts & capital payments.
• Closing balance, if comes on debit side is
known as surplus & on credit side, deficit.
• All non-cash adjustments like depreciation,
outstanding or prepaid expenses & accrued or
advance income, provision, etc. need to be
adjusted through this account.
• It must be accompanied by Balance sheet in
which personal & real accounts are recorded.

Steps in preparation of Income & Expenditure A/c
• Pursue the Receipts & Payments Account
thoroughly.
• Exclude opening & closing balance of cash & bank
as they are not the income.
• Exclude the capital receipts & capital payments.
• Consider only revenue receipts to be shown on
income side (credit side) of this account for the
current year whether received or not.
• Take all revenue expenses of current year on debit
side of this account whether paid or not.
• Non-Cash item like Deprecation, provisions profit /
Loss on sale of assets etc. should be taken into
consideration.
• Balance if any in debit side resembles surplus but
on credit side it shows deficit.
Steps

Income & Expenditure A/c
For the year ended
Expenditures Amount Incomes Amount
To all revenue
payments
(current year whether
paid or not)
To Depreciation
To Bad debts
To Loss on sale of
fixed assets
To Consumed part of
medicine, stationery,
spot equipments etc.
To Surplus
(Excess of income
over Expenditure)
By all revenue receipts
(current year whether
received or not)
By profit on sale of fixed
assets
By Deficit
(Excess of expenditure
over Income).
Format

Calculation of revenue expenditure
from revenue payments:-
Particulars Amount
Revenue payments for expenses as per
payment side of Receipts & Payments
Account
XXXX
(−) O/s expenses in the beginning XXX
(−) Prepaid expenses in the end XXX
XXXX
(+) O/s expense in the end XXX
(+) Prepaid expense in the beginning XXX
Revenue expenditure transfer to income
and expenditure Account
XXXX

Calculation of revenue income from
revenue receipts:-
Particulars Amount
Revenue receipts as per receipt side of
receipts & Payments account
XXXX
(−) Accrued income / Income due in the
beginning
XXX
(−) Unaccrued income / Income received in
advance in the end.
XXX
XXXX
(+) Accrued income / Income due in the end XXX
(+) Unaccrued Income / Income received in
advance in the Beginning of the year
XXX
Income for the year to be shown in income &
expenditure account.
XXXX

Q. How will you deal with the given items while preparing the final
accounts of a club for the year ended 31st March, 2007:
Locker Rent received during the year 2006-07 Rs. 6400
800
600
Advance Locker Rent
1260
920
Outstanding Locker Rent
31.3.2007 Rs.
31.3.2006 Rs.
Particulars
Example
Particulars Amount
Locker rent received during the year
(−) Outstanding / Accrued locker rent in the beginning
(−) Unaccrued / prepaid / advance locker rent in the end
(+) Outstanding / Accrued locker rent in the end
(+)Unaccrued / prepaid / advance locker rent in the beginning
Locker rent credited to income and expenditure account
6400
920
800
1260
600
6540

Solution: Step 1. Determine the current year
Step 2. Solve the problem as:
Q. Miscellaneous expenses paid during the year ended March 31, 2007
amount to Rs. 16,500. Information about prepaid and outstanding expenses
is as under: Rs.
Prepaid expenses on March 31, 2006 1,500
Expenses unpaid on March 31, 2006 2,300
Expenses unpaid on March 31, 2007 2,500
Prepaid expenses on March 31, 2007 1,400
Ascertain the expenses to be debited to the Income and Expenditure
Account for the year ended March 31, 2007.
Example
Particulars Amount
Expenses paid in 2007
(-) Outstanding expenses in the beginning
(-) Prepaid expense in the end.
(+) Outstanding expenses in the end.
(+) Prepaid expenses in the end.
Expenditure incurred Debited to income & expenditure A/c.
16,500
2,300
1,400
2,500
1,500
16,800

Prepare an income & expenditure Account for the year ended 31st
March, 2006 from Receipts & payments Account.
Cash in hand
Subscription
Miscellaneous Income
Sale of old furniture
(Book value 390)
Sale of old Newspaper
9,600
2,48,000
14,800
6,300
500
Rent
Honorarium to Clark
Postage & stationary
Printing charges
Donation
Cash in hand
42,400
61,200
5,300
61,200
11,000
98,100
2,79,200 2,79,200
Additional Information:
1. Subscription includes Rs. 28,000 received form 2004-05.
2. Subscription still in arrears for 2005-06 is Rs. 20,000.
3. Rent unpaid Rs. 3,600.
4. Honorarium Outstanding Rs. 9,800.
Example

Income and Expenditure account
Amount
Income
Amount
Expenditure
To Rent 42,400
Add- O/s Rent 3,600 46,000
To Honorarium 61,200
Add Outstanding 9,800 71,000
To postage & stationery
To printing charges
5,300
61,200
To Donation
To Surplus
(excess of income
over expenditure)
11,000
To loss on sale of
furniture 700
60,100
2,55,300
By Subscription 2,48,000
Less O/s subscription
(04-05) 28,000
Add O/s Subscription
(05-06) 20,000 2,40,000
By Income from
Advertisement
By Sale of old
Newspaper
2,55,300
14,800
500
Solution

Basis Receipt & Payment A/c Income & Expenditure A/c
1. Nature It is the summary of cash
Book
It is like profit & loss A/c
2. Nature of
Items
It records receipts &
payments of revenue as
well as capital nature
It records incomes &
expenditures of revenue
nature only.
3. Period It includes receipts &
Payments for preceding &
succeeding years
Its items relate to current
year only.
4. Debit side Receipts are recorded Expenditure are recorded
5. Credit side Payments are recorded Incomes are recorded
6.Depreciation Not recorded Recorded
7. Opening
Balance
Opening balance of cash
& bank
No opening balance
8. Closing
Balance
Closing balance of cash &
bank
Surplus or Deficit.
DIFFERENCE

Balance Sheet
• 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 Accumulated Fund in place
of the Capital.
• The surplus or deficit as per Income and
Expenditure Account shall be added to/deducted to
this fund.
• It is also a common practice to add some of the
capitalized items like entrance fees and life
membership fees directly in the capital fund.

Following procedure is adopted to prepare the Balance
sheet.
• Take the capital fund as per opening balance sheet & add
surplus or deduct deficit as per income & expenditure
account. Further, add life membership fees, endowment
fund received during the year.
• Take all fixed assets (not sold or destroyed) add
additions made during the year les depreciation for
assets used during the year.
• Compare items on receipt side of receipt & payment A/c
with items on income side of income & expenditure A/c to
determine advances & dues.
• Similarly, compare items of payments side of receipt &
payment A/c with items of expenditure side of income &
expenditure account to determine prepaid or outstanding
expenses.
• Balance sheet resembles the position statement of the
organization & is a true indicator of growth potential.
Balance Sheet

Balance sheet
as on
Liabilities Amount Assets Amount
Current liabilities
Outstanding
expenses
Incomes in Advances
Capital fund
(Balancing Figure)
Cash
Bank
Fixed assets
Current assets
Accrued Incomes
Prepaid Expenses
Opening Balance Sheet

Closing balance sheet is prepared at the end of the year after
preparing Income & expenditure account. It maybe shown as:-
Accumulated fund
Add Surplus
Less Deficit
Add life Membership
Fees, Legacy,
Endowment Fund
Income in advance
Specific Donations
Outstanding Expenses
Incomes in Advance
Specific Funds
Closing Balance
Cash
Bank
Net Fixed Assets
Current Assets
(closing Balances)
Investments
Prepaid Expenses
Accrued Incomes.
Balance Sheet: At End

How to make income and expenditure A/c and
Balance Sheet using Receipt & Payment A/c.
PROCEDURE
STEP 1
Opening balance of Cash and
Bank is transferred to Opening
Balance Sheet and Closing balances of
Cash and Bank are transferred to
Closing Balance Sheet.

PROCEDURE
STEP 2
Items on the receipt side of
Receipt & Payment A/c give the
Components for Income Side for
Income & Expenditure A/c.

PROCEDURE
STEP 3
Items on the payment side of
Receipt & Payment A/c give the
components for Expenditure side for

PROCEDURE
STEP 4
Items of revenue nature
(recurring too) are carried from
Receipt & Payment A/c and after analysing
adjustments if any, total amount for the
Current year is transferred to

PROCEDURE
STEP 5
Items of
Capital nature
are adjusted through
Balance Sheet.

PROCEDURE
STEP 6
Adjustments on Capital Nature
Items are not to be considered
while preparing

PROCEDURE
Result
The balance on Debit Side of
Income & Expenditure A/c will show
SURPLUS while that on Credit Side
will show DEFICIT. This will be transferred to
Closing Balance Sheet and
Added/Subtracted
as the case may be.

Following is Receipt & payment of Stanford trust, prepare Income &
Expenditure and balance sheet for the year ended 31/12/05 and 31/12/06.
Cash in hand
Cash at bank
Subscription
2005 : 5,000
2006 : 83,000
2007 : 3,000
Sale of Investment
Interest on Investment
Sale of furniture (book
value 3,400)
14,000
60,000
91,000
90,000
2,000
3,200
Rent
Salary
Postage
Electricity charges
Purchase of Furniture
Books
Defence bonds
Charity
Cash in Hand
Cash at bank
6,000
12,000
300
6,000
20,000
3,000
1,50,000
22,000
10,900
30,000
2,60,200 2,60,200
Adjustments:
1) Subscription for 2006 still owing were 7,000.
2) Interest due on defence bonds was Rs. 7,000.
3) Rent still owing was Rs. 1,000.
4) Investment sold valued Rs. 80,000, Rs. 30,000 of Investment were still in hand.
5) Salary paid for the year 2007 is Rs. 2,000.
Question

Rent 6,000
Income and Expenditure account
Expenditure Amount Income Amount
Add O/s Rent 1,000 7,000
Salary 12,000
Less
paid for 2007: 2,000 10,000
Postage 300
Electricity charges 6,000
Charity 22,000
Loss on sale of
furniture 200
Surplus 63,500
1,09,000
Subscription
2006 : 83,000
Add O/s
Subscription: 7,000 90,000
Interest on
Investment 2,000
Interest on
defence bonds 7,000
Profit on sale of
investment 10,000
1,09,000
Solution

WORKING NOTES:
Balance Sheet
As n 31st March 2006
Cash in Hand
Cash at bank
Subscription
Furniture
Investment
14,000
60,000
5,000
3,400
1,10,000
1,92,400
1,92,400
1,92,400
Capital fund
Solution

Balance Sheet
Capital fund 1,92,400
Add Surplus 63,500 2,55,900
Outstanding rent 1,000
Subscription for 2007 3,000
Prepaid salary
Accrued interest
Investment
Defence bonds
Books
Furniture
Subscription
Cash at bank
Cash in Hand 10,900
30,000
7,000
20,000
3,000
1,50,000
30,000
7,000
2,000
2,59,900
2,59,900
Solution

Terminology for NPOs
 Subscription
 Donation
 Legacy
 Life membership fee
 Entrance fee
 Honorarium
 Grants and subsidies
 Stationery
 Sale of old assets
 Sale of periodicals
 Endowment fund
 Special funds

Subscription
• Subscription is a membership fee paid by the member
on annual basis.
• This is the main source of income of such
Organisations.
• Subscription paid by the members is shown as receipt
in the Receipt and Payment Account and as income in
the Income and Expenditure Account.
• Receipt and Payment Account shows the total amount
of subscription actually received during the year.
• The amount shown in Income and Expenditure
Account is confined to the figure related to the current
period only irrespective of the fact whether it has been
received or not.

Subscription
HOW TO CALCULATE SUBSCRIPTION FOR THE YEAR
WHEN SOME OTHER ITEMS RELATED TO SUBSCRIPITON
ARE GIVEN
Subscription received during the year XXXXX
Less: Subscription outstanding in the beginning
of the current year XXX
Less: Subscription in advance at end of the
current year XXX
Add: Subscription outstanding at end of the
current year XXX
Add: Subscription in advance in the beginning
of the current year XXX
Subscription for the current year XXXXX

Subscription A/c
FORMAT
Dr. SUBSCRIPTION A/c Cr.
Particulars Amount Particulars Amount
To Balance b/d
(outstanding)
To Income and
Expenditure A/c
(balancing figure)
To Balance c/d
(advance)
XXX
XXX
XXX
To Balance b/d
(advance)
By Receipts and
Payments A/c
By Balance c/d
(outstanding)
XXX
XXX
XXX
XXXX XXXX

As per Receipt & Payment A/c for the year ended March 31, 2007, the
subscriptions received were Rs. 12, 50,000. It is also given that:
1. Subscriptions Outstanding on 1.4.2006 Rs. 80,000
2. Subscriptions Outstanding on 31.3.2007 Rs. 85,000
3. Subscriptions Received in Advance as on 1.4.2006 Rs. 45,000
4. Subscriptions Received in Advance as on 31.3.2007 Rs. 60,000
Calculate the amount to be shown in income & Expenditure A/c for the year
2006 – 07 and show relevant items in balance sheet also.
Details Amount
Subscriptions Received as per Receipt and Payment A/c 12,50,000
Add: Subscriptions outstanding on 31.3.2007 85,000
Add: Subscriptions received in advance on 1.4.2006 45,000
13,80,000
Less: Subscriptions outstanding on 1.4.2006 80,000
13,00,000
Less: Subscriptions received in advance on 31.3.2007 60,000
Income from subscription for the year 2006-07 12,40,000

Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
To Balance b/d
(outstanding)
To Income and
Expenditure A/c
(balancing figure)
To Balance c/d
(advance)
80,000
12,40,000
60,000
By Balance b/d
(advance)
By Receipts
and Payments
A/c
By Balance b/d
(outstanding)
45,000
12,50,000
85,000
13,80,000 13,80,000
Alternately, income received from subscriptions can be calculated by
preparing a Subscriptions account as under.

Relevant items of subscription can be shown in the opening
and closing balance sheet as under:
Liabilities Amount
(Rs.)
Assets Amount
(Rs.)
Subscriptions
received in
advance
45,000 Subscription
outstanding
80,000
Liabilities Amount
(Rs.)
Assets Amount
(Rs.)
Subscriptions
received in
advance
60,000 Subscriptions
outstanding
85,000
Balance sheet as on march 31, 2006
Balance sheet as on march 31, 2007

Calculate Subscription amount to be shown in income &
expenditure A/c from the following:
A club received Rs. 1,20,000 as subscriptions during the year 2007-08
of which Rs.13,000 relate to year 2006-07 and Rs.22,000 to 2008-09,
and at the end of the year 2007-08 Rs.26,000 are still receivable. Find
subscription received for the year 2007-08.
Particulars Rs.
Subscriptions received in 2007-08 1,20,000
Less: Subscriptions for the year 2006-07 13,000
1,07,000
Less: Subscription for the year 2008-09 22,000
85,000
Add: Subscriptions outstanding for the year 2007-08 26,000
Income from subscriptions for the year 2007-08 1,11,000

The above amount of subscriptions can also be
ascertained by preparing the subscription account as
follows:
Dr. Subscription Account Cr.
Balance b/d
(outstanding at the
beginning)
Income &
Expenditure A/c
(balancing figure)
Balance c/d
(received in
advance)
13,000
1,11,000
22,000
Balance b/d
(received in
advance)
Cash (subscription
received)
Balance c/d
(outstanding at the
end)
Nil
1,20,000
26,000
1,46,000 1,46,000

Donations
It is a sort of gift in cash or property received from some
person or organisation. It appears on the receipts side of
the Receipts and Payments Account. Donation can either be
specific or general:
1. Specific Donations: Received for specified purpose
like extension of the existing building, construction of
new computer laboratory, creation of a book bank, etc.
 Such donation is to be capitalized and shown on the
liabilities side of the Balance Sheet.
2. General Donations: Such donations are to be utilised
to promote the general purpose of the organisation.
 These are treated as revenue receipts as it is a regular
source of income hence, it is taken to the income side
of the Income and Expenditure Account of the current
year.

Donation
Generally credited to
Income & expenditure
account values & otherwise
stated in the question.
Specific donations
General donations
Both are treated in balance sheet.
(B) Donation for capital.
Expenditure (such as
for the building etc.)
(A) Donation for the
maintenance of
revenue expenditure
(such as donation for
prizes, matches, etc

Legacy
• It is the amount received as per the will of a
deceased person. It appears on the receipts
side of the Receipt and Payment Account and
is directly added to capital fund/Accumulated
fund in the balance sheet, because it is not of
recurring nature.
• However, legacies of a small amount may be
treated as income and shown on the income
side of the Income and Expenditure Account.

Life Membership Fees
• Some members prefer to pay lump sum
amount as life membership fee instead of
paying periodic subscription.
• Such amount is treated as capital receipt and
credited directly to the capital/general fund.

Entrance Fees
• Entrance fee also known as admission fee is paid only
once by the member at the time of becoming a member.
• In case of organisations like clubs and some charitable
institutions, number of members is limited and the
amount of entrance fees is quite high. Hence, it is treated
as non-recurring item and credited directly to
capital/general fund.
• However, for some organisations like educational
institutions, the entrance fees is a regular income and the
amount involved may also be small. In their case, it is
customary to treat this item as a revenue receipt.
• However, if there is specific instruction, it is advisable to
treat the entire amount as capital receipt and the relevant
amount should be directly added to capital/general fund.

Honorarium
• It is the amount paid to the person who is not
the regular employee of the institution.
• Payment to a surgeon called for some specific
operation or to some artist for giving
performance at the club is an example of
honorarium.
• This payment of honorarium is shown on the
expenditure side of the Income and
Expenditure Account.

Grants and Subsidies
• Schools, colleges, public hospitals, etc. depend
upon government grant and subsidies for their
activities.
• The recurring grants in the form of maintenance
grant is treated as revenue receipt (i.e. income of
the current year) and credited to Income and
Expenditure account.
• However, grants such as building grant are
treated as capital receipt and transferred to the
building fund account.
• It may be noted that some Not-for-Profit
organisations receive cash subsidy from the
government or government agencies.
• This subsidy is also treated as revenue income
for the year in which it is received.

Stationery
• Normally expenses incurred on stationary, a
consumable items are charged to Income and
Expenditure Account.
• But in case stock of stationery (opening and/or
closing) is given, the approach would be make
necessary adjustments in purchases of stationery
and work out cost of stationery consumed and
show that amount in Income and Expenditure
Account and its stock in the balance sheet.
• For example, the Receipt and Payment Account
shows a payment for stationery amounting to Rs.
40,000 and there is an opening and closing
stationery amounting to Rs. 12,000 and Rs. 15,000.
Rs. 37,000 will be transferred to Income &
Expenditure A/c as stationery consumed.

Step .1 Calculation of total stock purchased on credit & cash.
Payment for stock in the current year as per
receipts & payments account
xxx
(+) O/s expenses in the end xxx
(+) Prepaid expenses in the beginning xxx
xxx
(−) O/s expenses in the beginning (xx)
(−) Prepaid expenses in the end (xx)
Credit Purchases. Xxx
(+) Cash Purchases (If specifically Mentioned
in receipts & payments account on
payment side)
Xxx
Total Purchases. Xxxx

Step-2 Calculation of Stock consumed.
Opening Stock of consumable stores xxx
(+) Total purchases as per step -1 xxx
(xx)
(−) Closing stock of consumable stores (xx)
Stock consumed and debited to income & expenditure a/c Xxx

Q. How will you deal with the following items while preparing the
Income & Expenditure A/c for the year ended on March 31, 2007.
As at
1.4.2006
Rs.
As at
31.32007
Rs.
Stock of stationery 3000 500
Creditors for stationery 2000 1300
Advance paid for stationery on March 31, 2007 1300
Advance paid for stationery carried from 2005-06 200
Amount paid for stationery during 2006-07 10800

Step 2. Calculation of stationery consumed.
Opening stock of stationery 3000
(+) Purchases as per step 1 9000
(−) Closing stock of stationery (500)
Stock of stationery consumed debited to income &
expenditure
11,500
Step 1. Calculation of purchases
Amount paid for stationery 10,800
(+) Creditor for stationery (O/s) in the end 300
(+) Advance paid for stationery (prepaid) in the beginning 200
(−) Creditor for stationery (O/s) in the beginning (2000)
(−) Advance paid for stationery (prepaid) in the end (1300)
Purchases 9000

Extract of a Receipt and Payment Account for the year ended
on march 31, 2006:
Payments:
Creditors for Stationery Rs. 68,000
Additional information:
Details 1 April, 2005 March 31, 2006
Stock of stationery 14,000 13,000
Creditor for stationery 19,000 12,500

Stock of Stationery A/c
Creditors of Stationery A/c
To Cash 68,000
To Opening Stock 14,000
By Closing Stock 13,500
By Balance b/d 19,000
To Balance c/d 12,500
80,500 80,500
61,500
By Purchases
To Purchases 61,500
75,500 75,500
By Stationery Consumed 62,500

Details Amount
(Rs.)
Payment made for the purchase of stationery as per
Receipts and Payments A/c
Less: Payment for 2004-05 ( creditors in the beginning)
Payment made for the year 2005-06
Add: payment not yet made (i.e. creditors at the end)
Stationery Purchased for the year 2005-06
Add: Stock in the beginning
Stationery Available for consumption during 2005-06
Less: Stock at the end
68,000
19,000
49,000
12,500
61,500
14,000
75,500
13,000
Stationery consumed during 2005-06 to be taken to the
Expenditure side of the income and Expenditure
account
62,500

Details Amount
(Rs.)
Payment for purchase of medicines
Creditors for medicines purchased:
On 1.4.2006
On 31.3.2007
Stock of Medicines:
On 1.4.2006
On 31.3.2007
Advance to suppliers of medicines:
On 1.4.2006
On 31.3.2007
6,70,000
1,25,000
1,17,000
92,000
1,04,000
41,500
38,000
Class Practice Question
Find out the cost of medicines consumed during 2006-07 from
the following information:

Stock of Medicines A/c
Opening Stock
To Purchases
92,000
6,65,500
By Medicines Consumed
By Closing Stock
6,53,500
1,04,000
7,57,500 7,57,500
Creditors of Medicines A/c
To Balance b/d (Advances)
To Cash
To Balance c/d (Creditors)
41,500
6,70,000
1,17,000
By Balance b/d (Creditors)
By Purchases (Balancing
figure)
By Balance c/d (Advances)
1,25,000
6,65,500
38,000
8,28,500 8,28,500

Sale of old assets
 Receipts from the sale of an old asset appear
in the Receipts and Payments Account of the
year in which it is sold. But any gain or loss on
the sale of asset is taken to the Income and
Expenditure Account of the year.
 For example, if an item furniture with a book
value of Rs. 800 is sold for Rs. 700, this
amount of Rs. 700 will be shown as receipt in
Receipts and Payments Account and Rs. 100
on the expenditure side of the Income and
Expenditure Account as a loss on sale of old
asset and while showing furniture in the
balance sheet Rs. 800 will be deducted from its
total book value.

Sale of periodicals
• It is an item of recurring nature and shown as
the income side of the Income and Expenditure
Account

Endowment fund
• It is a fund arising from a bequest or gift, the
income of which is devoted for a specific
purpose.
• Hence, it is a capital receipt and shown on the
Liabilities side of the Balance Sheet as an item
of a specific purpose fund.

Special funds
• The Not-for-Profit Organisations office create special funds
for certain purposes/ activities such as 'prize funds', 'match
fund' and 'sports fund', etc.
• Such funds are invested in securities and the income
earned on such investments is added to the respective
fund, not credited to Income and Expenditure Account .
• Similarly, the expenses incurred on such specific purposes
are also deducted from the special fund.
• For example, a club may maintain a special fund for sports
activities. In such a situation, the interest income on sports
fund investments is added to the sports fund and all
expenses on sports deducted there from.
• The special funds are shown in balance sheet. However, if,
after adjustment of income and expenses the balance in
specific or Special fund is negative, it is transferred to the
debit side of the Income and Expenditure Account or
adjusted as per prescribed directions.

Opening balance sheet
XXX
Prize fund investment
(opening balance. If
given in adjustment)
XXX
Prize fund (opening
balance if given in
adjustment)
Rs.
Assets
Rs.
Liabilities
Closing balance Sheet.
XXX
(-) Prize awarded (XX)
XXX
Accrued interest on
prize fund. Investment
XX
(+) Accrued Interest XX
On prize fund investment
(+) Purchase XX
(+) Interest Received on
prize fund investment
XX
Prize fund investment
(op. bal.) XXX
(+) Donations XX
Prize fund XXX
(opening balance)
Rs.
Assets.
Rs.
Liabilities

Show how you would deal with the following items in the final
account of a club:
Details Debit Credit
Prize fund
Prize Fund investments
Income from Prize fund investments
Prizes awarded.
90,000
7,000
90,000
9,000
Liabilities Amount
(Rs.)
Assets Amount
(Rs.)
Prize fund 90,000
Add: Income from
Investments 9,000
99,000
Less: Prizes Awarded
7,000 92,000
Prize fund
Investments
90,000
Solution

(a) Show the following information in financial statements
of a „Not-for-Profit‟ Organization
Details Amount
Match Expenses
Match fund
Donation for Match fund
Sale of match tickets
30,000
15,000
9,000
13,000
(b) What would happen if match expenses go up to Rs. 9,000
other things remaining the same?

Match fund 15,000
Add: Donation 9,000
(Specific)
Add: Sale of match
Tickets 13,000
37,000
Less: Match Expenses
30,000
7,000
7,000
(b) If match expenses go up to Rs. 9,000, the net balance of
the match fund becomes negative i.e. Debit exceeds the
Credit, and the resultant debit balance of Rs. 2,000 shall be
charged to the Income and Expenditure Account of that year.

Incidental Trading Activities
Sometimes, trading activities such as chemist shop,
hospital, canteen, bar etc. also take place in such
organizations to provide certain facilities to members or
public in general. In such a situation a trading account
is prepared to calculate profit or loss from that trading
aspect.
Procedure:
It is very important to take into consideration
following two points:
Profit or loss calculated by preparing trading A/c
must be transferred to Income & expenditure A/c.
Incomes & expenses related to that incidental activity,
which is not recorded in trading A/c, are also to be
considered while preparing. Income & expenditure A/c.

The assets and liabilities on the Millennium Cricket Club on April 1, 2007 were:
Club house and ground Rs. 10, 00,000; Creditors for bar supplies Rs. 3,41,000;
Equipment Rs. 3,45,000; Bank Rs. 1,34,500; Bar stocks Rs. 92,240.
Balance b/d
Bar Takings
Subscriptions
1,34,500
8,85,000
9,15,000
Equipment
Ground maintenance
Creditors for Bar supplies
Sundry Expenses
Balance c/d
3,12,000
1,25,000
2,35,500
3,18,000
9,44,000
19,34,500 19,34,500
At the end of March 2008, the following further information was available:
(a)Subscriptions Rs. 35,000 received this year related to the next year.
(b)Creditors for bar supplies Rs. 3,50,000.
(c)Bar stocks Rs. 84,380.
(d)Depreciate equipment by Rs. 65,000
Prepare for the Millennium Cricket Club: (i) the bar Trading Account for the
year ended March 31, 2007; (ii) the Income and Expenditure Account for the
year ended march 31, 2007; and (iii) the Balance Sheet as on March 31, 2007.

Income and Expenditure A/c
Expenditure Amount Income Amount
To Ground Maintenance
To Sundry expenses
To Depreciation
To Surplus
1,25,000
3,18,000
65,000
8,04,640
By Subscription 9,15,000
Less. For next year 35,000
By Surplus from bar Trading
8,80,000
4,32,640
12,82,640 12,82,640
Bar Trading A/c
To Opening Stock
To Purchases
To Surplus on bar trading
92,240
4,44,500
4,32,640
By Bar Takings
By Closing Stock
8,85,000
84,380
9,69,380 9,69,380
Creditors for Bar A/c
To Cash
To Closing Stock
2,35,500
5,50,000
By Opening Stock
By Purchases (Bal. Fig.)
3,41,000
4,44,500
7,85,500 7,85,500

Balance Sheet (Closing)
Liability Amount Assets Amount
Subscription in Advance
Creditors for bar supplies
Capital Fund 12,30,740
Add Surplus 8,04,640
35,000
5,50,000
20,35,380
Bank
Sports equipments 3,45,000
Add Purchases 3,12,000
Less Depreciation 65,000
Bar stocks
Club house and ground
9,44,000
5,92,000
84,380
10,00,000
26,20,380 26,20,380
Balance Sheet (opening)
Liability Amount Assets Amount
Creditors for bar supplies
Capital Fund
3,41,000
12,30,740
Bank
Sports equipments
Bar stocks
Club house and ground
1,34,500
3,45,000
92,240
10,00,000
15,71,740 15,71,740

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