Comprehensive Guide to Non-Profit Accounting: From Receipts to Balance Sheet

 Meaning of Not-for-Profit Organisation (NGO)

A not-for-profit organisation (NGO) is an entity established for the welfare and benefit of society. These organisations operate as charitable institutions and do not function with a profit motive. They generally do not engage in the manufacturing, purchase, or sale of goods, and typically have fewer credit transactions. Therefore, unlike trading organisations, they are not required to maintain extensive books of accounts such as Trading or Profit & Loss Accounts.

The funds raised by such organisations are credited to a Capital Fund or General Fund. Their major sources of income include subscriptions from members, donations, grants-in-aid, and income from investments. At the end of each accounting period (usually a financial year), they must prepare financial statements to ascertain their income, expenditure, and financial position. These statements must be submitted to the statutory authority known as the Registrar of Societies.

Main Characteristics of Not-for-Profit Organisation (NGO)

1. Service-Oriented Objective

These organisations are formed to provide services to a specific group or to the public at large such as education, healthcare, recreation, and sports without discrimination on the basis of caste, creed, or colour. Their primary aim is to render services either free of cost or at a nominal charge, and not to earn profit.

2. Formation Structure

They are usually established as charitable trusts or societies, and their subscribers are known as members.

3. Management

Their activities and operations are managed by a managing or executive committee, which is elected by the members.

4. Sources of Income

The main sources of income for not-for-profit organisations include:

• Subscriptions from members
• Donations
• Legacies
• Grants-in-aid
• Income from investments

5. Fund Management

Funds raised through various activities are credited to the Capital Fund or General Fund.

6. Treatment of Surplus

Any surplus generated in the form of excess of income over expenditure is not distributed among members. It is simply added to the Capital Fund.

7. Reputation Based on Service

Their reputation depends on their contribution to social welfare, not on customer or owner satisfaction.

8. Purpose of Accounting Information

The financial statements and accounting information are intended for current and potential contributors and to fulfil statutory requirements.

Receipt and Payment Account of NGO

A Receipt and Payment Account is prepared at the end of an accounting year based on the cash receipts and cash payments recorded in the Cash Book. It acts as a summary of all cash and bank transactions, classified under different heads.

For example, subscriptions received from members on various dates and recorded on the debit side of the Cash Book are grouped together and shown as one item on the Receipts side of the Receipt and Payment Account with the total amount received during the year.

Similarly, payments such as salary, rent, or electricity charges, which appear on the credit side of the Cash Book, are totalled and shown as single items on the Payments side of the Receipt and Payment Account.

Thus, the Receipt and Payment Account provide a summarised view of all receipts and payments made during the year, irrespective of:

• whether the amounts relate to the current period, previous period, or future period, and
• whether the transactions are of capital nature or revenue nature.

Receipt and Payment Account for the year ending ______

Receipts	Amount (Rs.)	Payments	Amount (Rs.)
Balance b/d	xxx	Balance b/d (Bank overdraft)	xxx
Cash in Hand	xxx	Wages and Salaries	xxx
Cash at Bank	xxx	Rent	xxx
Subscriptions	xxx	Rates and Taxes	xxx
General Donations	xxx	Insurance	xxx
Sale of newspaper/periodicals/waste paper	xxx	Printing and Stationery	xxx
Sale of old sports materials	xxx	Postage and courier	xxx
Interest on fixed deposits	xxx	Advertisement	xxx
Interest/Dividend on general investments	xxx	Sundry expenses	xxx
Locker Rent	xxx	Telephone charges	xxx
Sale of scraps	xxx	Entertainment expenses	xxx
Proceeds from charity show	xxx	Audit fees	xxx
Miscellaneous receipts	xxx	Honorarium	xxx
Grant-in-aid	xxx	Repair and Renewals	xxx
Legacies	xxx	Upkeep of ground	xxx
Specific Donations	xxx	Conveyance	xxx
Sale of Investments	xxx	Newspapers and Periodicals	xxx
Sale of Fixed Assets	xxx	Purchases of Assets	xxx
		Purchase of Investments	xxx
		Balance c/d	xxx
Additional Receipts:		Cash in hand	xxx
Life membership fees	xxx	Cash at Bank	xxx
Entrance fees	xxx
Receipts on account of specific purpose funds	xxx
Interest on specific funds' investments	xxx
Balance b/d (Bank Overdraft)	xxx

Features of Receipt and Payment Account

1. Summary of the Cash Book It is a condensed version of the cash book, showing total cash and bank transactions under various heads.
2. Irrespective of the Period It includes all receipts and payments made during the year, whether they relate to the current year, previous years, or future years.
3. Includes Both Capital and Revenue Items No distinction is made between capital receipts/payments and revenue receipts/payments.
4. No Distinction Between Cash and Bank Transactions Receipts and payments are recorded together, whether they occur in cash or through the bank.
5. Non-Cash Items Are Excluded Transactions that do not involve cash flow such as depreciation, outstanding expenses, accrued income, etc. are not shown in this account.

Steps in the Preparation of Receipt and Payment Account 

1. Record Opening Balances
• Enter opening cash in hand and cash at bank on the debit side.
• If there is a bank overdraft, record it on the credit side.
2. Record All Receipts - Enter the total of all cash and bank receipts on the debit side.
3. Record All Payments - Enter the total of all cash and bank payments on the credit side.
4. Exclude Non-Cash Items - Do not include any receivable income or payable expense, as these do not involve actual cash inflow or outflow.
5. Balance the Account
• If the debit side exceeds the credit side, the balancing figure represents Cash in Hand (debit balance).
• If the credit side exceeds the debit side, the balancing figure represents Bank Overdraft (credit balance).

Example of Receipt and Payment Account of NGO

Illustration  - From the following particulars relating to Silver Point, prepare a Receipt and Payment account for the year ending March 31, 2015.

Receipts

Particulars	Amount (Rs.)
Opening cash balance	1,000
Opening bank balance	7,200
Subscriptions collected:
• 2013–14	500
• 2014–15	7,600
• 2015–16	900
Total Subscriptions	9,000
Sale of refreshments	1,000
Entrance fees received	1,000

Payments

Particulars	Amount (Rs.)
Sale of old sports materials	1,200
Donation received for pavilion	4,600
Rent paid	3,000
Sports materials purchases	4,800
Purchase of refreshments	600
Expenses for maintenance of tennis court	2,000
Salary paid	2,500
Tournament expenses	2,400
Furniture purchased	1,500
Office expenses	1,200
Closing cash in hand	400

Solution 

Books of Silver Point of Receipt and Payment Account for the year ending March 31, 2015.

Receipts	Amount (Rs.)	Payments	Amount (Rs.)
Balance b/d - Cash	1,000	Rent	3,000
Balance b/d - Bank	7,200	Sports materials purchased	4,800
Subscriptions 2013-14	500	Purchase of refreshments	600
Subscriptions 2014-15	7,600	Maintenance expenses for tennis court	2,000
Subscriptions 2015-16	900	Salary	2,500
Total Subscriptions	9,000	Tournament expenses	2,400
Sale of refreshments	1,000	Furniture purchased	1,500
Entrance fees	1,000	Office expenses	1,200
Sale of old sports materials	1,200	Balance c/d - Cash	400
Donation for pavilion	4,600	Balance c/d - Bank (balancing figure)	6,600
Total	25,000	Total	25,000

Income and Expenditure Account of NGO

An Income and Expenditure Account summarise the revenue income and revenue expenses of a not-for-profit organisation for an accounting year. It is analogous to the Profit & Loss Account of a business but is prepared on an accrual basis. The closing balance shows either a Surplus (excess of income over expenditure) or a Deficit (excess of expenditure over income), which is transferred to the Capital Fund in the Balance Sheet.

Key points

1. Includes only revenue items (revenues, expenses, gains and losses of a revenue nature).
2. Prepared on an accrual basis using the Receipt & Payment Account plus adjustments for outstanding, prepaid, accrued and similar items.
3. Surplus (Income > Expenditure) or Deficit (Expenditure > Income) is transferred to the Capital/General Fund.
4. Capital receipts and payments are not shown here; they appear in the Balance Sheet.

Items shown

1. Income side: All revenue receipts and gains for the current accounting period (after adjusting for amounts relating to other periods).
2. Expenditure side: All revenue expenses and losses for the current accounting period (after necessary adjustments).

Steps to prepare the Income & Expenditure Account 

1. Review the Receipt & Payment Account carefully.
2. Exclude opening and closing cash/bank balances  these are not incomes or expenses.
3. Exclude capital receipts and capital payments  these belong to the Balance Sheet.
4. Transfer revenue receipts to the Income side, adjusting for:
• Amounts received in advance (relating to next period) — exclude.
• Amounts relating to previous periods — exclude.
• Revenue of current year not yet received (accrued income) — include.
5. Transfer revenue expenses to the Expenditure side, adjusting for:
• Expenses paid in advance (prepaid) — exclude the portion not relating to current year.
• Outstanding expenses (incurred but unpaid) — include.
6. Adjust for items not in Receipt & Payment Account that affect surplus/deficit, such as:
• Depreciation on fixed assets (charged to the account).
• Provision for doubtful debts, if required.
• Profit or loss on sale of fixed assets (revenue effect).
7. Compute the difference between total income and total expenditure. Record the result as Surplus (credit) or Deficit (debit) and transfer it to the Capital/General Fund in the Balance Sheet.

Example of Income and Expenditure Account of NGO

Illustration – From the receipt and payment account given below, prepare the income and expenditure account of clean Delhi Club for the year ended march 31, 2014

Receipt and Payment Account for the year ending March 31, 2014

Receipts	Amount (Rs.)	Payments	Amount (Rs.)
Balance b/d (Cash in hand)	3,200	Salary	1,500
Subscriptions	22,500	Rent	800
Entrance Fees	1,250	Electricity	3,500
Donations	2,500	Taxes	1,700
Rent of hall	750	Printing & Stationery	380
Sale of investments	3,000	Sundry expenses	920
		Books purchased	7,500
		Govt. bonds purchased	10,000
		Fixed deposit with bank	5,000
		Balance c/d (Cash in hand 400 + Cash at bank 1,500)	1,900

Solution

Income and Expenditure Account for the year ending March 31, 2014

Expenditure	Amount (Rs.)	Income	Amount (Rs.)
Salary	1,500	Subscriptions	22,500
Rent	800	Entrance fees	1,250
Electricity	3,500	Donations	2,500
Taxes	1,700	Rent of hall	750
Printing & Stationery	380
Sundry Expenses	920
Surplus (excess of income over expenditure)	18,200

Income and Expenditure Account vs Receipt and Payment Account

Basis of Distinction	Income and Expenditure Account	Receipt and Payment Account
Nature	Similar to a Profit and Loss Account.	A summary of the Cash Book.
Nature of Items	Records revenue incomes and expenditures only.	Records all cash receipts and payments, whether of capital or revenue nature.
Period Covered	Includes items relating only to the current accounting period.	Includes items of current, previous, and future periods.
Debit Side	Shows expenses and losses.	Shows receipts.
Credit Side	Shows incomes and gains.	Shows payments.
Depreciation	Included (non-cash expense considered).	Not included, as non-cash transactions are excluded.
Opening Balance	No opening balance, since it is a nominal account.	Opening balance shows Cash in Hand, Cash at Bank, or Bank Overdraft.
Closing Balance	Balance indicates Surplus (income > expenditure) or Deficit (expenditure > income).	Balance shows Cash in Hand, Bank Balance, or Bank Overdraft at year-end.

Balance Sheet of NGO

‘Not-for-profit’ organisations prepare a Balance Sheet to ascertain the financial position of the organisation at the end of the accounting year. Its preparation follows the same format and principles as the Balance Sheet of business enterprises. It presents:

1. Liabilities on the left-hand side, and
2. Assets on the right-hand side.

A major difference is that, instead of capital, these organisations maintain a Capital Fund or General Fund. The surplus or deficit as per the Income and Expenditure Account is added to or deducted from this fund accordingly. Some capitalised receipts such as legacies, entrance fees, and life membership fees are often added directly to the Capital/General Fund. 

In addition to the Capital or General Fund, not-for-profit organisations may create specific-purpose funds, such as a Building Fund, Sports Fund, or Prize Fund. These funds are shown separately on the liabilities side, as they can be used only for their designated purpose. Sometimes, it becomes necessary to prepare a Balance Sheet at the beginning of the year to determine the opening balance of the Capital/General Fund, especially when it is not given directly.

Balance Sheet format of NGO

Balance Sheet as on ……………

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Capital Fund:	……	Cash in hand and/or Cash at Bank	……
Opening Balance	……	Outstanding Incomes	……
Add: Surplus	……	Prepaid Expenses	……
OR		Stock of Consumable Items:
Less: Deficit	……	Previous Balance	……
Add: Capitalised Income of the Current Year on account of:		Add: Purchases in the current period	……
– Legacies	……	Less: Value consumed during the period	……
– Entrance Fees	……	Closing Balance	……
– Life Membership Fees	……	Fixed Assets:
Closing Balance	……	Previous Balance	……
Special Fund / Donations:		Add: Purchases in the current period	……
Previous Balance (If any)	……	Less: Book Value of the Asset sold/disposed off	……
Add: Receipts for the item during the period	……	Closing Balance	……
Add: Income earned on fund/Donations’ Investments	……
Less: Expenses paid out of fund/Donations	……
Net Balance	……
Creditors for Purchases and/or Supplies	……
Bank Overdraft	……
Outstanding Expenses	……
Income received in Advance	……
Total	……	Total	……

Important Adjustment – Subscription

Subscription is the annual membership fee paid by members and is one of the primary sources of income for not-for-profit organisations. In the Receipt and Payment Account, the total amount of subscription actually received during the year is recorded, regardless of the period to which it relates.

However, in the Income and Expenditure Account, only the subscription income relating to the current accounting period is shown. This is done irrespective of whether the amount has been received or not. Therefore, adjustments are needed for:

1. Outstanding (accrued) subscriptions
2. Subscriptions received in advance
3. Arrears of previous year received
4. Advance received for next year

Thus, the subscription figure in the Income and Expenditure Account represents the true income of the current year, based on the accrual principle.

Example of Balance Sheet 

A club received Rs. 20,000 as subscriptions during the year 2014-15 of which Rs. 3,000 relate to year 2013-14 and Rs 2,000 to 2015-16 and at the end of the year 2014-15 Rs. 6,000 are still receivable. In this case, the receipt and payment account will show how much amount as receipt from subscriptions?

• Rs 20,000.

The income and expenditure account will show how much amount as income from subscriptions for the year 2014-15?

• Rs 21,000.

Subscriptions received in 2014-15	20,000
Less: Subscriptions for the year 2013-14	3,000
	17,000
Less: Subscriptions for the year 2015-16	2,000
	15,000
Add: Subscriptions outstanding for the year 2014-15	6,000
Income from Subscriptions for the year 2014-15	21,000

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