Non-Profit Organizations

Balance Sheet and Special Accounts

A Balance Sheet is a statement which we prepare at the end of an accounting year after preparing Income and Expenditure Account. The excess of assets over liabilities in Not-for-Profit Organization is known as Capital Fund. We show the surplus or deficit of Income and Expenditure Account by adding or deducting it from the Capital Fund. Also, there are some special accounts which also help in preparing the Balance Sheet.

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Balance Sheet and Special Accounts

1. Donations

A charitable institution often receives donations. Such donations may be the general donation or a specific donation.

General Donation:

General Donation is the donation in which the donor does not specify any condition for its use. The amount of general donation is an income and we credit it to Income and Expenditure Account.

 Specific Donation:

In case the donor specifies the purpose for which the donation should be used, it is a Specific Donation.

For example, a donor donates ₹ 10,00,000 for the library. It means the donation should be used only for the library, i.e., it is a specific donation.

Specific donations are capitalized and are shown on the liabilities side of the Balance Sheet.

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Understand the Basic Accounting Procedure here in detail.

2. Entrance and Admission Fees

Entrance Fees or Admission Fees is the amount that a person pays at the time of becoming a member of a Not-for-Profit Organization. It is a revenue receipt. Therefore, we account it as an income and credit it to Income and Expenditure Account.

3. Subscriptions

Subscription is the amount that a member pays periodically i.e., quarterly or half yearly or yearly so that their membership remains alive. It is a source of income for the Not-for-Profit Organization.

  • We will show the Subscriptions relating to current year whether received or not, on the credit side of the Income and Expenditure Account.
  • We will show the Subscriptions outstanding on the Assets side of the Balance Sheet.
  • Show the Subscriptions received in advance for the following year on the Liabilities side of the Balance Sheet.

Proforma of Subscriptions Account

Subscriptions Account

Particulars Amount Particulars Amount
To Outstanding Subscriptions A/c By Advance Subscriptions A/c
(outstanding in the beginning) (advance in the beginning)
To Income and Expenditure A/c By Bank A/c
(balancing figure) (received in the current year)
To Advance Subscriptions A/c By Outstanding Subscriptions A/c
(advance at the end) (outstanding at the end)

 

Special Accounts

4. Life Membership Fees

Life Membership Fees is a capital receipt and we add it to the Capital Fund on the liabilities side of the Balance Sheet.

We do not account it as an income because a life member makes onetime payment and avails services all through his life.

5. Legacy

Legacy is the amount that a Not-for-Profit Organization receives as a donation under the WILL of a deceased person. The donor may or may not specify the conditions for its use. In case, if:

  1. There is no specific condition; we account it as ‘General Donation’. We account it as revenue receipt and will credit it to Income and Expenditure Account.
  2. There is a specific condition for its use, we account it as ‘Specific Donation’. We account it as capital receipt and will credit to a specific ‘Fund Account’ which we maintain for a purpose, for example, Prize Fund. Being a fund, we apply the principles of Fund Based Accounting, i.e., we will credit the income relating to such fund and will debit the expenses.

6. Sale of Old Newspapers and Periodicals

We will debit the amount that is paid for newspapers, magazines, periodicals, etc. to Income and Expenditure Account., being a revenue expense. Thus, we will credit the amount which we realise from the sale of newspapers, magazines, periodicals, etc.

7. Sale of Old Fixed Assets

Sale of an asset may result in a profit if the sale value is more than the book value; or loss, if sale value is less than the book value; or neither no profit nor loss, if sale value is equal to the book value.

We determine the book value of an asset on that date after charging depreciation up to the date of sale on that asset.

In case of gain, we will credit the sale value to the asset account and in case of loss, we will debit the sale value to the Income and Expenditure Account.

8. Honorarium

The honorarium is a token payment to a person who voluntarily takes as service which would normally command a fee. It is an expression of gratitude rather than a payment for the service. We debit Honorarium to Income and Expenditure Account.

Solved Example on Special Accounts

The Treasurer of the Royal Tennis Club presented the following Receipts and Payments Account for the year ended 31st March 2018.

Receipts And Payments Account

for the year ended 31st March 2018

Receipts         ₹ Payments          ₹
To Balance b/d (Cash at Bank) 1,02,000 By Purchase of Balls    40,000
To Subscriptions 2,40,000 By Creditors for Tennis Equipments 2,20,000
To Sale of Tennis Equipments 3,05,000 By Repairing of Tennis Courts    38,000
To Court Hire    27,000 By Construction of New Court 2,50,000
To Sale of Balls    37,000 By Sundry Expenses    31,000
By Balance c/d (Cash at Bank) 1,32,000
7,11,000 7,11,000

 

He also provides additional information:

  • The Club’s Tennis Courts were valued at ₹ 10,00,000 on 1st April 2017.
Particulars 1st April 2017 (₹) 31st March 2018 (₹)
Tennis Balls in Hand (At Cost)   4,000   9,000
Creditors for Tennis Equipments 40,000 30,000
Subscriptions Outstanding 20,000 35,000

You are required to prepare Income and Expenditure Account for the year ended 31st March 2018 and Balance Sheet.

Ans:

Royal Tennis Club

Income and Expenditure Account

For the year ended 31st March 2018

Expenditure         Amount Income        Amount
To Repairing of Tennis Court    38,000 By Sale of Tennis Balls (WN1)       2,000
To Sundry Expenses    31,000 By Subscriptions (WN2)  2,55,000
To Surplus 3,10,000 By Tennis Equipments:
Sale of Tennis Equipment 3,00,000
Less: Purchase (WN3)       2,10,000     95,000
By Court Hire     27,000
3,79,000 3,79,000

 

Balance Sheet

As at 31st March 2018

Liabilities         ₹ Assets        ₹
Capital Fund (WN4)       10,86,000 Tennis Courts                   10,00,000
Add: Surplus                      3,10,000  13,96,000 Add: New Court                  2,50,000 12,50,000
Creditors for Tennis Equipments       30,000 Tennis Balls        9,000
Subscriptions Outstanding      35,000
Cash at Bank   1,32,000
14,26,000 14,26,000

 

Working notes:

Tennis Ball Account

Date Particulars  Amount Date Particulars  Amount
To balance b/d   4,000 By Bank A/c (sale) 37,000
To Bank A/c (Purchases) 40,000 By Balance c/d   9,000
To Income and Expenditure A/c   2,000
(surplus on sale)
46,000 46,000

 

Subscriptions Account

Date Particulars  Amount Date Particulars  Amount
To Subscriptions Outstanding A/c    20,000 By Bank A/c 2,40,000
To Income and Expenditure A/c 2,55,000 By Subscriptions Outstanding A/c    35,000
2,75,000 2,75,000

Creditors for Tennis Equipments Account

Date Particulars  Amount Date Particulars Amount
To Bank A/c 2,20,000 By Balance b/d    40,000
To Balance c/d    30,000 By Tennis Equipments 2,10,000
(Purchase) (bal. fig)
2,50,000 2,50,000

 

Balance Sheet

As at 1st April 2017

Liabilities Amount Assets   Amount
Creditors for Equipments       40,000 Tennis Courts 10,00,000
Capital Fund (bal. fig) 10,86,000 Tennis Balls         4,000
Cash at Bank   1,02,000
Subscriptions Outstanding      20,000
11,26,000 11,26,000

 

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