Non Profit Accounting

Capital Funds and Special Funds

A non-profit organization keeps proper books of accounts. It aims to provide a simple and convenient calculation of items of income and expenditure and finding the correct position of assets and liabilities of the organization. Let us study the accounting treatment of capital funds and special funds.

Capital Funds and Special Funds

Following are the concepts of some funds which organizations generally maintain

  • Capital Fund
  • Special Fund
  • Donations
  • Entrance Fees or Admission Fees
  • Subscriptions

(i) Capital Fund

In non-profit organizations, the Capital Funds are accumulated along with capital Receipts and receipts that are capitalized by further increasing the surplus or decreased by the deficit, during the year.

At the beginning of a non-trading organization, there is no formal capital Fund.

Thus, if it earns any surplus during the year constitute the Capital Funds at the end of the year. The balance sheet of a non-profit organization and business organization is similar

But the assets of the organization are recorded on the Right side and liabilities on the Left side of the balance sheet.

Non-profit organizations do not use the word Capital. They use the term General Fund or Accumulated Fund.

Therefore instead of capital, general Fund or accumulated Fund appears on the Balance Sheet.

Browse more Topics under Non Profit Accounting

Learn more about Financial Statements here

  (ii) Special Fund

The NPO also create a special fund, such as prize fund or match fund etc. The purpose of these funds is to meet the expenses related to the purpose for which it is created.

Therefore, The incomes derived from the amount which is invested from these funds accrue to the fund alone and not the income and expenditure account.

For example, A trust has a “Prize Fund”. It may use it for some specific expenses or for acquiring an asset.

If it derives any income out of investments from this fund or if any profit or loss occurs due to the sale of such investments, then transfer such income or profit or loss to this specific fund.

Other Treatments

  • If the Special Fund is used for incurring an expense:
Date Particulars   Amount(Dr.) Amount(Cr.)
XXX Special Fund A/c Dr. XXX
     To Bank A/c XXX
(Being creation of fund)

Show the balance of the Fund as a liability.

If we transfer the balance is to Capital Fund, the entry will be:

Date Particulars   Amount(Dr.) Amount(Cr.)
XXX Special Fund A/c Dr. XXX
     To Capital Fund A/c  


(Being creation of fund)
  • If the Special Fund is used to purchase an asset:

Date Particulars   Amount(Dr.) Amount(Cr.)
XXX Asset A/c Dr. XXX
     To Bank A/c  XXX
(Being assets purchased)
XXX Special Fund A/c Dr.   XXX
     To Capital Fund A/c  XXX
(Being adjustment entry passed)

 Capital Funds


 (iii) Donations

(a) Donation received for a specific purpose should be credited to the Special Fund. For example, Credit the donation for Building to Building Fund Account.

(b) For other donations received by the firm should be adjusted as per the laws or rules of the concern followed.

(c) If there is no such rule made by the firm, donations received of non-recurring nature will be credited to the Capital Fund. Also, Recurring donations received will be credited to the Income & Expenditure Account.

(d) Debit the donation that the concern pays to Income & Expenditure Account.

(iv) Legacy received

Directly add it to the Capital Fund after deduction of appropriate tax, (if any). It is like receiving donation according to the will made by a deceased person.

(v) Entrance Fees or Admission Fees

(a) The organization shall follow the rules or by-laws regarding this.

(b) In the absence of such rules, add the admission or entrance fees that the members pay only once for acquiring a membership to the Capital Fund.

(c) If such fees are of small amounts covering the expenses of admission only, we may credit the fees to Income & Expenditure Account.

(vi) Subscriptions

(a) Annual subscriptions are credited to Income & Expenditure Account following accrual basis.

(b) We need to credit Life membership subscription to a separate account disclosing it as a liability.

Annual Subscription apportioned out of that is credited to Income & Expenditure Account and deducted from the liability.

Also, we need to carry forward the balance lying in the account is until the contribution by a member fully exhausts.

If any member dies beforehand, the organization transfers the balance of his life Membership contribution to Capital Fund or General Fund.

Solved Question for You

On 31st December 2018, a club had a subscription in arrears of Rs. 8,000 and in advance 2,000. During the year ended 31-12-2018, the club received a subscription of Rs. 1,04,000 of which 5200 was related to 2019. On 31st December 2018, there were 4 members who had not paid the subscription for 2018 @ 800 per person. Write up subscription Account for the year 2018.


We shall prepare a single subscription account to reflect both advance and arrears figures. The balancing figure should reflect the subscription amount that will be recognized as Income and transferred to I & E A/c as shown below:

Lessor account

Date Particulars Amount Date Particulars Amount
To Balance c/d (arrears) 8000 By Balance c/d (advance) 2000
To Income & Exp. A/c (income for 2014) (Balancing figure) 96000 By Receipts & Payments A/c 104000
By Balance c/d (arrears) 3200
To Balance c/d (advance) 5200
    109200       109200


Share with friends

Customize your course in 30 seconds

Which class are you in?
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
Ashhar Firdausi
IIT Roorkee
Dr. Nazma Shaik
Gaurav Tiwari
Get Started


Non Profit Accounting
  • Capital Funds and Special Funds

Leave a Reply

Your email address will not be published. Required fields are marked *


Non Profit Accounting
  • Capital Funds and Special Funds

Download the App

Watch lectures, practise questions and take tests on the go.

Customize your course in 30 seconds

No thanks.