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What is the main purpose of accounting for not for profit organisations?
The main purpose is to ensure transparency in fund utilisation and to maintain legal and statutory records.
Which financial statements are prepared by not-for-profit organisations?
They prepare the Receipt and Payment Account, the Income and Expenditure Account, and the Balance Sheet.
Is the Income and Expenditure Account prepared on a cash basis?
No, it is prepared on an accrual basis.
Donations can be treated as revenue or capital depending on their nature.
Identifying Important Topics for Class 11 Commerce early allows students to manage time wisely, prepare strategically, and avoid last-minute stress before exams.
Accounting for Not-for-Profit Organisations Class 12
Check how Accounting for Not-for-Profit Organisation Class 12 helps students understand key concepts, financial statements, and formats for effective exam preparation.
Muskan Verma7 Jun, 2025
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Accounting for Not for Profit Organisation: Accounting plays a central role in all types of organisations, whether for-profit or not-for-profit. For Class 12 Accountancy students, one of the important chapters in the curriculum is "Accounting for Not-for-Profit Organisation." This topic introduces students to how organisations that are not driven by profit motives maintain their financial records. In this article, we will discuss the meaning, characteristics, and financial statements involved in accounting for not-for-profit organisations, including the Receipt and Payment Account, the Income and Expenditure Account, and the Balance Sheet.
What is a Not-for-Profit Organisation?
A not-for-profit organisation refers to an institution that is established to provide services to the community or specific groups without focusing on earning profit. According to the topic accounting for not for profit organisations, these institutions function primarily on donations, subscriptions, government grants, and other voluntary contributions. Examples of such organisations include educational institutions, charitable trusts, sports clubs, welfare societies, and NGOs.
Characteristics of Not-for-Profit Organisation
The unique characteristics of these organisations make them different from business enterprises:
Service-oriented objective: The primary goal is to provide services at no or nominal cost.
No profit motive: These organisations do not function for generating profit; rather, any surplus is reinvested in their operations.
Managed by trustees: Management is generally in the hands of trustees or a governing body.
Sources of income: Income is generated from donations, membership fees, government aid, and interest.
Capital fund: The accumulated surplus or donations form the capital or general fund.
Statutory obligations: These organisations must prepare financial records to maintain transparency and accountability.
Importance of Accounting for Not-for-Profit Organisations
Accounting for not for profit organisations is important for multiple reasons:
It ensures proper utilisation of funds.
It helps in maintaining transparency.
It supports the preparation of necessary financial statements.
It assists in audits and compliance with legal requirements.
Financial Statements Prepared
The financial accounting process of not-for-profit organisations involves preparing three main statements:
Receipt and Payment Account
Income and Expenditure Account
Balance Sheet
Each of these plays a distinct role in the accounting for not for profit organisations.
Receipt and Payment Account
This account is a summary of all cash and bank transactions during an accounting period. It is similar to a cash book and includes both capital and revenue items.
Features:
Includes all cash inflows and outflows.
Records receipts and payments irrespective of the financial period.
Opening and closing balances of cash and bank are shown.
Non-cash items are excluded.
Receipt and Payment Account Format
Receipts
Amount
Payments
Amount
Opening Balance
xxx
Rent
xxx
Subscriptions
xxx
Salaries
xxx
Donations
xxx
Stationery
xxx
Interest on Investments
xxx
Repairs
xxx
Entrance Fees
xxx
Purchase of Assets
xxx
Miscellaneous Receipts
xxx
Closing Balance
xxx
Income and Expenditure Account
This account is prepared to determine the surplus or deficit of the organisation during the accounting period. It includes only revenue items and is similar to the profit and loss account of a business.
Features:
Prepared on an accrual basis.
Includes only current period income and expenditure.
Non-cash items like depreciation are included.
Closing balance represents surplus or deficit.
Income and Expenditure Account Format
Expenditure
Amount
Income
Amount
Rent
xxx
Subscriptions
xxx
Salaries
xxx
Donations
xxx
Depreciation
xxx
Interest Income
xxx
Audit Fees
xxx
Locker Rent
xxx
Surplus
xxx
Entrance Fees
xxx
Balance Sheet
A Balance Sheet shows the financial position of a not-for-profit organisation on a particular date. It includes assets, liabilities, and the capital/general fund.
Balance Sheet Format
Liabilities
Amount
Assets
Amount
Capital Fund
xxx
Cash and Bank
xxx
Add: Surplus
xxx
Fixed Assets
xxx
Entrance Fees
xxx
Investments
xxx
Donations
xxx
Accrued Income
xxx
Outstanding Expenses
xxx
Prepaid Expenses
xxx
Peculiar Items in Accounting for not for profit organisations
While studying accounting for not for profit organisations, students come across specific items that are unique to such organisations:
Subscriptions: Annual fees are collected from members.
Donations: Voluntary contributions, either general or specific.
Legacies: Amounts received as per a deceased person’s will.
Entrance Fees: Paid by new members, often treated as capital.
Life Membership Fees: A Lump sum amount added to the capital fund.
Government Grants: Financial support from government authorities.
Honorarium: Paid to guest speakers or performers.
Endowment Fund: A Fund created from a donation for a specific purpose.
Accounting for not for profit organisations is essential for maintaining financial discipline and accountability. It helps these institutions to keep a track of their income and expenses, ensures proper use of public funds, and fulfills legal obligations. Understanding the structure of the Receipt and Payment Account, Income and Expenditure Account, and Balance Sheet prepares Class 12 students not just for exams but also builds a foundation for real-world applications.
Whether you're revising for your upcoming board exams or simply want to strengthen your grasp of the subject, mastering accounting for not for profit organisations will enhance your overall understanding of accountancy.
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