Non-profit organizations are established to provide services rather than earn profits. They are organized for social, educational, religious, or charitable purposes. Their main objectives are to serve members and society without trading or earning profits. Financial statements for non-profits include a receipts and payments account, income and expenditure account, and balance sheet. The receipts and payments account summarizes all cash receipts and payments, while the income and expenditure account records revenue and expenses to determine any surplus or deficit. The balance sheet presents assets, capital or fund balances, and liabilities at a point in time.

1. Non-Profit Organisation
Non profit organisation are established for the
purpose of rendering service. They are not expected to
earn profit, but organised mainly for social, educational,
religious or charitable purpose.
A non profit making entity is defined as “a non-profit
seeking entity which does not usually engaged in
trading activities,but engages in rendering services to its
members and society.

2. Features of non-profit making organisation
• Main objective is to render services to its members.
• They are not expected to profit.
• Do not normally engage in trading activity.
• Credit transaction are not usually made.
• Daily transaction are recorded in cash book.
• They prepare a summery of cash book at the end is called
Receipt and payment account.
• No trial balance is prepared.
• Do not prepare trading and profit and Loss A/c , but prepares
income and expenditure accounts.
• Do not have capital, but have only capital fund.

3. Final account of non profit organisation
consists of;
Receipt and Payment Account.
Income and Expenditure account.
Balance Sheet.

4. Receipt and Payment Account.
• Receipt and payment account is a statement prepared
at the end of an accounting year giving a summary of
all receipts and payments recorded in cash book.
• It is debited with all items of receipts and credited
with all items of Payments.
• Both ‘revenue’ and ‘Capital’ items are recorded in it.
• It records all receipts and payments relating to
previous, current and subsequent years.

5. Difference between receipt and payment A/c and Income &
Expenditure account
Receipt & Payment Account
 Entries are not made in date
wise
 All entries are made in
classified form.
 This account is opened by
non – trading concern only.
Income & Expenditure A/c
 Entries are not made in date
wise.
 All entries are made in
details.
 This account is opened in
both trading and non
trading concerns.

6. Income and expenditure Account.
• Income and expenditure account is a nominal account
prepared by a non –profit seeking organisation, in
order to ascertain the surplus or deficit by recording
revenue items of particular period.
• All expenses and losses are debited and all incomes
and gains are credited to it.
• The surplus or deficit is transferred to Capital Fund.

9. Relevant Terms
• Entrance Fees: The fee charged for admitting a
person as a member in an institution is called
admission fee or entrance fee.
• Since it is paid by the member only once – it is
a Capital item.
• Since the institution receives it every year
when new admission take place – it is treated
as Revenue item.

10. Relevant Terms
• Subscription:- It should be credited to Income and Expenditure
Account. Subscription collected for any special purpose, it should
be shown as a separate fund on liability side of balance sheet.
• Donation: If it is for general purpose, it should be credited to
income and expenditure account. If it is for any special purpose,
it should be shown as a separate fund on liability side of balance
sheet.
• Legacy: It is the amount received by the non profit organisation
on the death of a person as per his ‘will’.
– If it is a large amount, it is capitalised
– If it is small amount, it should be credited to Income and Expenditure
Account.

11. Relevant Terms
• Life membership fees: Lump sum amount received
from a member- it is usually credited to capital fund
account.
• Sale of old newspaper, sale of sports materials-
Recurring in nature. it is usually credited to Income
and Expenditure Account.
• Sale of old asset: The book value of asset sold is
deducted from asset in the balance sheet. Any profit
or loss on such sales should be transferred to income
and expenditure account.

12. Procedure in the preparation of balance sheet
1. Preparation of statement of affairs To find out capital
fund at the beginning.
2. Surplus, if any, added to ‘capital fund’. Deficit should be
deducted from capital fund in the closing balance sheet.
3. Outstanding liabilities (income received in advance,
outstanding expenses) as on the closing date be shown
on the liability side.
4. Outstanding assets (income receivable, prepaid
expenses) must be shown on the asset side.

13. Procedure in the preparation of balance sheet
5.The balance of receipt and payment account (cash & Bank) must
be shown on the assets side.
6.Bank balance (Cr.) should be shown on the liability side of
balance sheet.
7.Assets in existence at the beginning should be adjusted for
additions, disposal. if any, and also for depreciation.
8.New assets acquired during the year should be shown on the
assets side of balance sheet.
9.Any special collection of non – recurring nature should be shown
on the liability side of the closing balance sheet.

14. Prepared by
PRADEEP T R
GHSS SASTHAMCOTTA,
KOLLAM