Financial Statements of Not-for-Profit Organisations for CA Foundation
Accounts of clubs, societies and other not-for-profit organisations: the Receipts and Payments Account, the Income and Expenditure Account and the Balance Sheet, with special items like subscriptions, donations and legacies.
AccountingPaper 112 MCQs2 lessons2 flashcards3 memory tricks
Practise Financial Statements of Not-for-Profit Organisations free
What you'll learn
- Receipts and Payments vs Income and Expenditure
Distinguish the two accounts and convert one into the other. - Special items and the Balance Sheet
Treat capital and revenue receipts of an NPO correctly.
Key formulas
| Capital fund | Assets − liabilities (opening Balance Sheet) |
|---|---|
| Closing capital fund | Opening fund + surplus (or − deficit) + capitalised receipts |
Concepts explained
Receipts and Payments vs Income and Expenditure
The Receipts and Payments Account is a cash summary; the Income and Expenditure Account is an accrual-based statement of revenue items showing surplus or deficit.
What it means
- R&P: real account, opens and closes with cash/bank, includes capital and revenue items of any year.
- I&E: nominal account, current year's revenue items only, adjusted for outstanding and prepaid.
- Surplus is added to the capital fund; deficit is deducted.
- Depreciation appears only in I&E.
- Purchase of sports equipment for cash
Answer: R&P payments side and Balance Sheet; not I&E
- Depreciation on furniture
Answer: I&E only (no cash)
Related terms
- Capital fund: NPO's capital
- Deficit: expenditure exceeds income
Exam tip: Cash moved? It's in R&P. Belongs to this year's revenue? It's in I&E.
Capital and revenue items of an NPO
Non-recurring receipts like life membership fees, legacies and specific donations are capitalised; recurring receipts are income.
What it means
- Life membership fees and legacies: capital fund.
- Specific donations: separate fund on the liabilities side.
- Entrance fees and small general donations: usually income.
- Assets bought: Balance Sheet; only depreciation goes to I&E.
- Donation for a pavilion
Answer: Building Fund (liability)
- Opening 2,00,000; surplus 25,000; life fees 15,000
Answer: ₹2,40,000
Related terms
- Endowment fund: capital invested, only income used
- Prize fund: specific fund for prizes
Exam tip: One-time and for many years → capital; regular → revenue.
Subscriptions: outstanding and in advance
Subscription income is the amount relating to the current year, whatever was received in cash.
What it means
- Income = received + outstanding at end − outstanding at beginning − received in advance at end + received in advance at beginning.
- Outstanding subscriptions: current asset.
- Subscriptions received in advance: current liability.
- Never treat next year's subscription as this year's income.
- Received 50,000; closing due 5,000; opening due 3,000; advance 2,000
Answer: ₹50,000
- Received 60,000 incl. 4,000 old and 3,000 advance; 5,000 due
Answer: ₹58,000
Related terms
- Accrual concept: income of the year, whether received or not
- Subscription account: T-account to find the income
Exam tip: Draw a subscription T-account; the balancing figure is the income.
Memory tricks
R&P: cash summary (real); I&E: accrual income statement (nominal).
Life membership fees, legacies and specific donations are capitalised.
Subscription income = received + closing outstanding − opening outstanding − advance.
Try 3 CA Foundation-style questions
Q1. Life membership fees received by a club are generally
- treated as income of the year
- shown as an expense
- capitalised, i.e. added to the capital fund
- ignored
Show answer
Answer: (3) capitalised, i.e. added to the capital fund
Life membership gives benefits for many years, so it is treated as a capital receipt and added to the capital fund.
Q2. An honorarium paid to the secretary of a club is
- a capital expenditure
- an asset
- an expense in the Income and Expenditure Account
- deducted from the capital fund directly
Show answer
Answer: (3) an expense in the Income and Expenditure Account
An honorarium is a payment for services to a non-employee, a revenue expense of the year.
Q3. The excess of income over expenditure in an Income and Expenditure Account is called
- net profit
- surplus
- gross profit
- capital
Show answer
Answer: (2) surplus
NPOs don't aim at profit, so the excess is called surplus (and the shortfall is a deficit); it is added to the capital fund.
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