Archive for the ‘NOT FOR PROFIT ORGANISATIONS’ Category


Not – for – Profit – Organisation

1 Mark Questions

Q.1         Define the Not for profit organisation ?

Q.2         What are the objectives of accounting for NPO ?

Q.3         Explain accounting treatment of ‘Sale of old newspaper and magazine by NPO ?

Q.4         During the year 2007 a club received Rs. 1, 00,000 as entrance fees.  According to accounting policy for the club 40% of the entrance fees is to be capitalised.  How will you deal with entrance fees received by NPO?

Q.5         What is meant by Fund Based Accounting ?

Q.6         Mention any two categories of funds ?

Q.7         What is Endonoment fund ?

Q.8         How would you calculate the amount of consumable materials ?

Q.9         How would you account for the cost of prizes purchased for distribution, of a ‘Prize-Flood’ is maintained ?

Q.10       Give two main sources of income of a Not  for profit organisation ?

Q.11       Give any two points of difference between receipts and payment account and cash book ?

Q.12       Difference between receipt and payment account and trial balance ?

Q.13       What do you mean by legacy ?

Q.14       What is honorarium ?

Q.15       Write any four features of receipt and payment account ?

Q.16       Write any four features of income and expenditure account ?

Q.17       Write any two limitation of receipts and payment account ?

Q.18       Explain the treatment of aid from government and other institutions ?

3-5 marks questions :

Q.1         Explain accounting treatment of ‘Life Membership Fees in case of NPO ?

Q.2         A club has 500 members each paying annual subscription received in advanced for the current year Rs. 10,000. Subscription received during the year Rs. 30,000.  Calculate the amount of outstanding subscription ?

Q.3         Define restricted fund and unrestricted fund ?

Q.4         Define subscription, donation and grant ?

Q.5         Distinguish between fund based accounting and non fund accounting ?

Q.6         Distinguish between profit – seeking organisation and not for profit organisation ?

Q.7         Write any four features of non profit organisation ?


Ans.1     Not for profit organisation (NPO) can be defined as, “an economic entity that provides services beneficial to the society without making profits”.  These organisations work for the promotion of charity, religion, education, literature, sports, art and culture, with out aiming at profit.

Ans.2     i)       To assess financial performance of the organisation.

               ii)      To appraise the members about the financial affairs of the organisation.

               iii)     To evaluate the organisation’s efficiency in spending money on some social  cause.

Qns.3     Amount received from the sale of old newspapers and magazine are treated as revenue receipts because it is a regular feature of NPO.  Hence sale of old newspaper etc. are shown on the credit side of income and expenditure account.

Ans.4     Entrance fees Rs. 60,000 (i.e. 60% of Rs. 1,00,000) will be credited to ‘Income and Expenditure Account’ and Rs. 40,000 (i.e. 40% of Rs. 1,00,000) will be added to capital fund in the balance sheet.

Ans.5     In fund based accounting separate accounts are maintained for specific activities of the organisation such as sports fund, price fund etc. All items related the specific fund are recorded fund wise and consolidation of these statements or accounts are presented in the financial results.

Ans.6     i)       Fixed Assets fund : These are the funds specially for investment in fixed asses or already invested in fixed assets.  Creating a separate fixed assets fund may imply to some extent that fixed assets are same how not related to the day- to day operation of the organisation.

               ii)      Anuity fund : These funds are use to account for resources that are given to Not for profit organisation accept to make periodic payment to the designated recipient.  In this situation the original amount will be credited to the equity fund.

Ans.7     Endowment funds contains assets donated by the donors with the donation that only the income covered by these assets can be used to finance the specific activities and not the principle amount.

Ans.8     Opening stock of Material + purchase during the year – closing stock of material = consumable material.

Ans.9     The main sources of income of a not for profit organisation are :

               i)       Membership subscription.

               ii)      Donations.

               iii)     Life membership fees.

               iv)     ‘Profit from the sale of food in the club, restaurant or cafeteria.

               v)      ‘Profit from bar sales.

               vi)     Profit from social events, such as dinner – dance

vii)              Interest received on investment.

Ans.10   Receipts and payment account and cash book :

  Basis Fund Based Accounting Non fund based Accounting
i) Accounting base It is on cash basis Non fund based accounting.  It is an accrual basis
ii) Funds Specific funds are used for specific purposes except for general fund Funds can be used for any profit earning purpose.
iii) Economic interest Owners have no economic interests Owners have economic interest in the form of profit.
iv) Account ability Accountability is towards law, regulations, legislature, parliament contributors and donors of fund. Accountability is towards all stock holders, viz, owners creditors, government regulations etc.
v) Usual earnings Usually expenditure is more than income known as deficit. The result of matching of revenue and expenses may either be profit or loss.


Ans.11   Difference between receipts and payment A/c and Trial balance

Ans.12   Legacy : It is the amount received as per the will of a deceased person.  It appears on the receipts side of the Receipt and payment account and is directly added to capital fund / general fund in the balance sheet.

Ans.13   Honorarium : A token payment made to a person who has voluntarily undertaken a service which will normally demand of fee.  It is thus an expression of gratitude rather than a payment for the work done.

Ans14.   Silent features of Non-profit organisation are :

               i)      Such organisation are formed for providing services to a specific group or public.

               ii)     The main sources of income of such organisation are :

                        a)   Subscription

                        b)   Donations

                        c)    Legacies

                        d)   Grant-in-aid

                        e)   Income from investments.

               iii)    The funds raised by such organisation through various sources are credited to capital fund or general fund.

               iv)     Their affairs are usually managed by a managing executive committee elected           by its members.

Ans.15   The main features of Income and Expenditure Account :

               i)      It is prepared for an accounting period on accrual concept following the matching principle.

               ii)     Only revenue items are considered, while capital item are excluded.

               iii)    All items both cash and non cash (depreciation) are recorded. 

iv)         Expenditure are recorded on the debit side and incomes on the credit side.


Ans.1     It is a non recurring receipt, therefore, it is not credited to income and expenditure account but shown separately on the liabilities side of the Balance sheet.  If membership is create d it is transferred to capital fund.

Ans.2     Rs. 10,000.

Ans.3     i)       Restricted fund : Restricted fund is that fund, the use of which is restricted to the activities for which this fund is created the donors.       For example : the use of prize fund will be restricted to the cawarding of prizes.

               ii)      Unrestricted fund : Unrestricted fund is also known as capital fund or general fund.

               The organisation is free to use this fund in any manner it likes.  The accounting basis of the unrestricted fund is the actual method as used by profit making organisations that primary sources of income for this fund is annual subscription or membership fees general government grants, gifts from individuals and income from investments.

Ans.4     Subscription: A periodic amount received by a not for profit organisation from its members for keeping their membership alive is called subscription.

               Donation : Donation is an amount received by way of gift.  If donation is received for a specific purpose, it should be shown distinctly on the liabilities side of the Balance sheet and should be used for assigned purpose.

               Government grant : Not for profit organisation receives different types of

Ans.5     The main difference between fund base accounting :

Ans.6     A profit seeking organisation may be distinguished from a not for profit organisation as under :

Ans.7     The main features of Receipts and payment account :

               i)      It is a real account.

               ii)     It does not show the date of  transactions.

               iii)    It gives summary of all cash receipts and cash payment.

         iv)   It does not show net income or net loss i.e. surplus or deficit.s