Chapter 1 Accounting for Not-for-Profit Organisation
Accounting for Not-for-Profit Organisation have a unique set of principles and practices. Checkout the practices for Accounting for not-for-profit organizations easy aacounting
Shruti Dutta19 May, 2024
Share
Accounting for not-for-profit organisations (NPOs) is key to ensuring transparency, accountability, and effective management of financial resources. Unlike for-profit entities driven by profit maximisation, NPOs pursue social, charitable, or community-oriented objectives without the primary aim of generating income for stakeholders. Their financial reporting and accounting practices differ significantly from those of commercial enterprises.
In this article, we can easily check unique aspects of accounting for not-for-profit organisations, exploring the distinct financial statements they prepare, the principles guiding their financial management, and the importance of accurate and comprehensive reporting in fulfilling their missions.Accounting for Not-for-Profit Organisation
Accounting for not-for-profit organisations involves the systematic recording, summarising, and reporting of financial transactions and activities specific to entities that operate for purposes other than profit-making. Unlike for-profit businesses, which focus on generating income and maximising shareholder returns, not-for-profit organisations prioritise fulfilling their mission or serving a particular cause. The accounting process for not-for-profits includes tracking revenues, such as donations, grants, and fundraising proceeds, as well as expenses related to program activities, administration, and fundraising efforts. For instance, a not-for-profit might record a donation from a supporter, a grant received for a specific project, or the proceeds from a fundraising event. Additionally, not-for-profits must adhere to specific accounting standards and regulations tailored to their sector, ensuring transparency and accountability in financial reporting. Key components of accounting for not-for-profit organisations include- Budgeting,
- Financial statement preparation (such as the statement of financial position, statement of activities, and statement of cash flows),
- Compliance with regulatory requirements, including tax filings and disclosures.
What is Receipt and Payment Account
Receipt and Payment Accounts concisely overview all cash and bank transactions throughout the fiscal year. Understanding and documenting these transactions is important, as they serve as foundational data for preparing income and expenditure accounts and balance sheets in the accounting process for not-for-profit organisations. This account initiates with the recording of cash on hand or in the bank on the receipt side. It is calculated with the closing balance representing the remaining cash or bank funds on the payment side at the period's end. This recording of receipts and payments facilitates accurate financial reporting and analysis, enabling organisations to manage their resources effectively and demonstrate transparency in their financial operations. Here is the format for the Receipt and Payment Account| Receipts | Amount | Payments | Amount |
| Balance b/d | xxx | Balance b/d (Bank overdraft) | xxx |
| Subscriptions | xxx | Rent | xxx |
| General Donations | xxx | Wages and Salaries | xxx |
| Locker Rent | xxx | Rates and Taxes | xxx |
| Legacies | xxx | Insurance | xxx |
| Grant in Aid | xxx | Audit fees | xxx |
| Interest on FD | xxx | Printing and Stationery | xxx |
| Interest on investments | xxx | Maintenance | xxx |
| Membership fees | xxx | Repair and Renewals | xxx |
| Entrance fees | xxx | Purchase of assets | xxx |
| Miscellaneous Receipts | xxx | Purchase of investments | xxx |
| Balance b/d (Bank overdraft) | xxx | Closing b/d | |
| Total | xxx | Total | xxx |
| Also Read | |
| Privatisation: Meaning, Objectives, Methods, Advantage, Example | Organic Farming- meaning, types, advantages, importance, limitations |
| Difference between Agency Theory and Stakeholder Theory | Difference Between National Income and Private Income |
Financial Statements for Not-for-Profit Organisations
Not-for-profit organisations maintain annual financial statements for legal compliance. These statements are essential for ensuring the appropriate use of funds and safeguarding general funds against misuse. Employing the double-entry accounting system, these organisations prepare financial statements comprising:- Receipt and Payment Account
- Income and Expenditure Account
- Balance Sheet
Receipt and Payment Account
A receipt and payment account is a financial statement not-for-profit organisations use to summarise all cash and bank transactions during a specific period, usually a fiscal year. It provides a comprehensive record of money received (receipts) and spent (payments). This account begins with the opening balance of cash on hand and in the bank, includes all incoming funds such as donations, grants, subscriptions, etc., and records all outgoing payments such as salaries, rent, utilities, etc. The Receipt and Payment Account concludes with the closing balance of cash on hand and in the bank at the end of the period. This statement is a key tool for managing finances, ensuring transparency, and facilitating accurate reporting for not-for-profit organisations.| Receipts | Amount | Payments | Amount |
| Opening Balance | 000 | Opening Balance (Bank overdraft) | xxx |
| Subscriptions | 000 | Rent | xxx |
| General Donations | 000 | Wages and Salaries | xxx |
| Locker Rent | 000 | Rates and Taxes | xxx |
| Legacies | 000 | Insurance | xxx |
| Grant in Aid | 000 | Audit fees | xxx |
| Interest on Fixed Deposit | 000 | Printing and Stationery | xxx |
| Interest on investments | 000 | Maintenance | xxx |
| Membership fees | Repair and Renewals | xxx | |
| Entrance fees | 000 | Purchase of assets | xxx |
| Miscellaneous Receipts | xxx | Purchase of investments | xxx |
| Closing Balance (Bank overdraft) | xxx | Closing Balance | |
| Total | xxx | Total |
xxx |
Income and Expenditure Account
The income and expenditure account for a not-for-profit organisation mirrors a business entity's profit and loss account, as detailed in the chapter on accounting for not-for-profit organisations. This statement meticulously records all revenue items accrued during the current period, with a summary of surplus or deficit displayed at the bottom. It is prepared on an accrual basis and features two distinct columns: the expenditure column, encompassing losses and expenses, and the income column, encompassing incomes and gains. Moreover, this account accommodates non-cash items like depreciation, ensuring a comprehensive representation of the organisation's financial performance. Notably, unlike traditional profit and loss accounts, it does not include an opening balance, and the closing balance is depicted as either a surplus or deficit, providing a clear snapshot of the organisation's financial standing at the end of the reporting period.| Expenditure | Amount | Income | Amount |
| Rates and Taxes | xxx | Subscriptions | xxx |
| Lighting | xxx | Entrance fees | xxx |
| Insurance Premium | xxx | Locker Rent | xxx |
| Audit Fees | xxx | Outstanding Interest | xxx |
| Printing and Stationery | xxx | Interest on investment | xxx |
| Salaries and Wages | xxx | ||
| Postage and Courier charges | xxx | ||
| Surplus | xxx |
Balance Sheet for Not-for-Profit Organisation
A Balance Sheet for a Not-for-Profit Organization is a financial statement that provides a snapshot of the organisation's financial position at a specific time, typically the end of a fiscal year. Unlike a balance sheet for a for-profit business, which focuses on assets, liabilities, and equity, a balance sheet for a not-for-profit organisation emphasises fund balances and resource allocation. The balance sheet is divided into two main sections:- Assets : This section lists everything the organisation owns or controls with economic value. It's typically categorised into current assets (cash, receivables, inventory - if applicable), fixed assets (land, buildings, equipment), and other assets (investments, prepaid expenses). Assets are usually listed in order of decreasing liquidity (how quickly they can be converted into cash).
- Liabilities & Net Assets : This section shows what the organisation owes to others (creditors, taxes) and its equity amount. Unlike for-profit entities, non-profits don't have capital stock. Instead, they have net assets, representing the difference between assets and liabilities. Net assets can be further divided into different categories based on restrictions on their use. (unrestricted, temporarily restricted, permanently restricted).
| Assets | Amount (₹) | Liabilities & Net Assets | Amount (₹) |
| Current Assets | Current Liabilities | ||
| Cash | ₹2,50,000 | Accounts Payable | ₹1,00,000 |
| Donations Receivable | ₹50,000 | Accrued Expenses | ₹20,000 |
| Prepaid Expenses | ₹10,000 | ||
| Fixed Assets | Net Assets | ||
| Land & Buildings (net) | ₹1,50,00,000 | Unrestricted Net Assets | ₹1,64,00,000 |
| Equipment (net) | ₹10,00,000 |
- Fixed asset value is typically listed at net book value (original cost minus accumulated depreciation).
- Restricted net assets represent funds donated for specific purposes outlined by the donor.
Begin your journey towards academic excellence in Commerce with our comprehensive Class 11 Commerce courses . Master the CBSE syllabus with expert guidance and ace your exams. Enroll now!”
Accounting for Not-for-Profit Organisation FAQs
What accounting methods can a non-profit organisation use?
A non-profit organisation can choose to record its expenses and income using either a cash or accrual accounting method.
What is the difference between cash and accrual accounting for non-profits?
Cash accounting records transactions when cash is received or paid out, providing a real-time view of cash flow. Accrual accounting, on the other hand, recognises income and expenses when incurred, offering a more comprehensive picture of financial performance over time.
How does the choice of accounting method affect financial reporting for non-profits?
The accounting method chosen can impact how revenue and expenses are recognised, affecting the organisation's financial statements and overall financial health. While cash accounting may be simpler, accrual accounting accuratelyr eflects the organisation's financial position and performance.
Talk to a counsellorHave doubts? Our support team will be happy to assist you!
Check out these Related Articles
Join 15 Million students on the app today!
Live & recorded classes available at easeDashboard for progress trackingMillions of practice questions at your fingertips
Free Learning Resources
PW Books
Notes (Class 10-12)
PW Study Materials
Notes (Class 6-9)
Ncert Solutions
Govt Exams
Class 6th to 12th Online Courses
Govt Job Exams Courses
UPSC Coaching
Defence Exam Coaching
Gate Exam Coaching
Other Exams
Know about Physics Wallah
Physics Wallah is an Indian edtech platform that provides accessible & comprehensive learning experiences to students from Class 6th to postgraduate level. We also provide extensive NCERT solutions, sample paper, NEET, JEE Mains, BITSAT previous year papers & more such resources to students. Physics Wallah also caters to over 3.5 million registered students and over 78 lakh+ Youtube subscribers with 4.8 rating on its app.
We Stand Out because
We provide students with intensive courses with India’s qualified & experienced faculties & mentors. PW strives to make the learning experience comprehensive and accessible for students of all sections of society. We believe in empowering every single student who couldn't dream of a good career in engineering and medical field earlier.
Our Key Focus Areas
Physics Wallah's main focus is to make the learning experience as economical as possible for all students. With our affordable courses like Lakshya, Udaan and Arjuna and many others, we have been able to provide a platform for lakhs of aspirants. From providing Chemistry, Maths, Physics formula to giving e-books of eminent authors like RD Sharma, RS Aggarwal and Lakhmir Singh, PW focuses on every single student's need for preparation.
What Makes Us Different
Physics Wallah strives to develop a comprehensive pedagogical structure for students, where they get a state-of-the-art learning experience with study material and resources. Apart from catering students preparing for JEE Mains and NEET, PW also provides study material for each state board like Uttar Pradesh, Bihar, and others
Copyright © 2025 Physicswallah Limited All rights reserved.