ACCOUNTING FOR NOT-FOR-PROFIT ORGANIZATIONS RECEIPTS AND PAYMENTS ACCOUNTS AND INCOME AND EXPENDITURE ACCOUNTS For example

charities, clubs, associations and other non-profit oriented organizations, that do not prepare trading and profit and loss accounts. Instead they prepare receipts and payments accounts or income and expenditure accounts. Receipts and Payments Accounts This a summary of the cash book for the period for an organization with no assets other than cash and no liabilities hence the cash book reveals everything about what happened financially during the period.

Income and expenditure account Used when the organization owns other assets apart from cash and it also has liabilities. The income and expenditure account is prepared in the same way and the trading profit and loss account; the only difference is the terms used.

Profit oriented organizations 1) Trading profit and account 2) Net profit 3) Net loss

Non-profit oriented organizations loss Income and expenditure account Surplus of income over expenditure Deficit of income over expenditure

Profit or loss for a special purpose Profit from trading organizations For any trading activity carried out in a non-trading organization, a trading account is prepares to determine the profit or loss from such services for example sale of food -as an activity by club members; profits from social events; interest receipts from dividends 1

Any profit from the trading activities is transferred to the income and expenditure account. Accumulated fund A non-profit oriented organization has an accumulated fund n lace of capital. It is in effect the same as capital i.e. accumulated fund =assets liabilities Donations It is shown as an income in the period of receipt Amounts received from well wishers are known as donations. They may be specific or general. General donations A donation not meant for a specific purpose. On receipt of a general donation: DR- receipt and payments (similar to a cashbook) CR- income and expenditure

Specific donations Donations for a specified purpose for example purchase of an asset. Specified donations should not be recognized as an income until that purpose has been achieved. When this amount is received, it is normally transferred to a specific fund account. DR- receipts and payments CR- fund account Once the objective is achieved, the balance on the specific fund account is transferred to the accumulated fund account. 2

FINAL ACCOUNTS Income and expenditure account It records any revenue transactions that is; Revenue receipts and revenue expenditures It is similar to the profit and loss account Income and expenditure account for the year ended INCOME Donations xxx Subscriptions xxx Bar profit xxx Dinner dances profit xxx Gain on non-current asset disposal xxx xxx

EXPENDITURE Salaries xxx Electricity xxx Stationery xxx Depreciation xxx 3

Dinner dance loss xxx Restaurant loss xxx Surplus/ xxx The balance sheet Prepared in the same as that one of a sole proprietor with the exception of the capital section: Financed by: Accumulated fund Specific fund Surplus/ deficit xxx xxx xxx xxx Other accounts Subscription account This account records amounts paid by club members as membership fee each period. (xxx) deficit

Subscription account DETAILS AMOUNT DETAILS Balance b/d (advance) Receipts and payments AMOUN T xxx xxx

Balance b/d (arrears) Xxx Income and Xxx expenditure

Advance c/d

Xxx Xxx

Arrears c/d

xxx xxx

Most clubs usually write off arrears c/d for a long time as a bad debt in the income and expenditure account. However, unless otherwise told, such subscription in arrears should be considered as current assets (exam situation) while the subscription in advance should be considered as current liabilities in the balance sheet.

Life membership fund This is the amount paid y members who intend to become life members of a club. The whole amount received should not be recognized as income in the year of receipt rather an annual portion is deducted every year which is an estimate as the whole amount is divided by the expected period the member is expected to enjoy the benefits in order to get the annual amount. The estimate of the annual amount is decided upon by the committee of the club or society. When the amount is received: DR- receipts and payments CR- life membership fund An annual charge is debited in the life membership fund account and transferred to the income an expenditure account each year. The balance on the account is shown in the balance sheet as a liability. (Unless other instructions are given by the examiner)

Entrance fee by members It is normally included in the income in the year of receipt unless otherwise told. 5