Accounting for NPO

Special Items and their Accounting

Non-Profit Organizations are established for the welfare of the society or for the promotion of art and culture in society. These are set up with a service motive, unlike other organizations which have profit earning as their motive.

Also, the trustees who are elected by the members of the organization manage them. In order to meet their objectives, these organizations raise funds from its members as well as from the general public.

Charitable institutions, religious organizations, clubs, educational institutions, trade unions, etc. are examples of Non-Profit Organizations. However, there are some special items which we will discuss here.

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Special Items and their Accounting

The main motive of the non-profit organizations is to provide service. However, they can earn profits in the due course. Usually, they do not manufacture, purchase or sell goods or provide services.

Hence, they do not prepare Trading and Profit and Loss A/c instead they prepare Receipts and Payments A/c, Income and Expenditure A/c, and Balance Sheet.

Special items


Some of the items of revenue and expenses of the non-profit organizations are special in nature and thus, require special treatment. These special items are:

Entrance Fees

It is the amount which a member pays at the time of admission. Thus, it is a one-time fee and also non-recurring in nature. As per the rules of the organization, it is either capitalized or treated as revenue.

The assumption behind treating it as a revenue receipt is that admission of a member is a regular activity and it will receive such fees every year.


The organization may utilize this amount for meeting revenue or capital expenses. However, when it receives the donations for a special purpose then it needs to credit this amount to a separate fund before disbursing it.

The organization can invest this fund in securities and has to credit the income from these investments to the fund. It can treat the donation receipts, not for any specific purpose as revenue receipts.


It is the amount which passes to a trust after the death of the person in whose memory the trust is formed. Thus, legacy is the one-time and non-recurring receipt. It thus becomes a part if the capital fund.


It is the amount that is received in the form of donations but has to be utilized only as per the directions of the donor. Thus, these are capital receipts.

Life membership Fees

At the time of receipt, the organization may treat it as deferred receipt and credit every year a specific amount to the Income and Expenditure A/c. Alternatively, it can treat it as a capital receipt and debit a specific amount every year.


It is the amount that a member pays every year as the membership fees to the organization. These are the revenue receipts and also the major source of income. These are recognized based on the accrual concept.

Though the non-profit organizations do not trade in goods or provide services with a profit motive, they also need to keep proper records of incomes, expenses, assets, and liabilities.

They need to keep proper books due to their accountability towards the members and the contributors and also because the requirements of law so that the government can keep proper control over the grants.

These organizations maintain Capital Fund or General Fund A/c. They credit this account with the surplus, life membership fees, donations, legacies, etc.

Solved Example on Special Items

What are the financial statements required to be made by non-profit organizations?


Non-profit organizations also need to maintain proper books of accounts. The financial statements assist them in getting the donations from the present and the future contributors. The final accounts of these organizations consist of:

  1. Receipts and Payments A/c: This account is the summary of the cash and bank transactions and aids in the preparation of Income and Expenditure A/c and Balance Sheet.
  2. Income and Expenditure A/c: This account is similar to the Profit and Loss A/c and determines the surplus or deficit if any.
  3. Balance Sheet: We prepare it in the same manner as the Balance Sheet of concerns with the profit motive.
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Accounting for NPO
  • Special Items and their Accounting

3 responses to “Special Items and their Accounting”

  1. Santosh says:

    How do treat a transaction where you buy a product from the charitable organisation

  2. Rafi Asraf says:

    life membership fees are the worst thing I’ve seen… 😔

  3. Hussain Kanchwala says:

    How is Subscription for relief fund treated in income and expenditure account

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Accounting for NPO
  • Special Items and their Accounting

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