Accounting Not For Profit Organisation

Step 1: Define Receipts and Payments Account (R& P A/c).
It is a real account that summarises all cash and bank transactions (both revenue and capital in nature, current and past/future) of a non-profit organisation. It starts with opening cash/bank balance and ends with closing balance.
Step 2: Purpose.
It acts like a Cash Book in summary form. It helps to know the cash position of the organisation.
Step 3: Define Income and Expenditure Account (I& E A/c).
It is a nominal account prepared on an accrual basis by non-trading organisations. It records only revenue incomes and expenses relating to the current year, to ascertain surplus or deficit.
Step 4: Distinguish between them.

Basis: R& P A/c is cash basis; I& E A/c is accrual basis.
Nature: R& P includes capital & revenue, past, present or future; I& E includes only revenue items of current year.
Opening/Closing Balance: R& P starts with opening cash/bank balance and shows closing balance; I& E has no such balances.
Objective: R& P shows cash position; I& E shows surplus or deficit.

Final Answer: % Quciktip

Step 1: Opening computation.
Prepare the opening Balance Sheet of the NPO. Compute:
Step 2: Year-end adjustment.
Closing Capital Fund (e.g., life membership fees if capitalised, entrance fee if treated as capital).
Final Answer: % Quciktip

Step 1: Meaning of honorarium.
Honorarium = payment made to someone (like Secretary, Treasurer) for services voluntarily rendered to the organisation.
Step 2: Nature of expense.
It is recurring in nature and is part of day-to-day operations → hence, it is a revenue expenditure.
Step 3: Eliminate wrong options.
- Capital expenditure → creates asset, not applicable.
- An income → completely wrong.
- All of these → cannot be correct as it is specifically a revenue expenditure.
Final Answer:

Step 1: Receipts and Payments A/c.
This account records all cash transactions (current year + previous year + future year). It is not limited to one year.
Step 2: Income & Expenditure A/c.
This is similar to a Profit & Loss A/c, prepared only for one accounting year. It includes only current year’s revenue incomes and expenses on accrual basis.
Step 3: Conclude.
Thus, Income & Expenditure A/c shows only one year’s transactions.
Final Answer:

Step 1: Nature of entrance fee.
Entrance fee (also called Admission fee) is paid by members only once, at the time of joining a club or organisation.
Step 2: Reasoning.
Since it is a one-time payment, it is not recurring. Therefore, it is considered a capital receipt, as it adds to the capital fund.
Step 3: Conclude.
Thus, entrance fee is treated as a capital receipt.
Final Answer:

Step 1: Cash and bank transaction records.
Cash A/c and Bank A/c record daily transactions, but they are individual accounts. For a summary, we need a combined account.
Step 2: Receipts and Payments A/c.
Receipts and Payments A/c is a summary of all cash and bank transactions (whether capital or revenue, current year or previous year).
Step 3: Conclude.
Thus, the summary of cash and bank transactions is shown in Receipts and Payments A/c.
Final Answer:

Step 1: Types of donations.
- General donations = revenue receipts, used for general purposes.
- Specific donations (e.g., building fund, sports fund) = used only for that specific purpose.
Step 2: Treatment in accounts.
Specific donations cannot be used freely; they are treated as liabilities until utilised for the specified purpose.
Step 3: Conclude.
Therefore, donations for specific purposes are treated as liabilities.
Final Answer:

Step 1: Opening Balance Sheet.
When a not-for-profit organisation is formed, its opening Balance Sheet is prepared to show its initial financial position.
Step 2: Source of data.
The Receipts & Payments A/c provides information of cash and bank balances, assets, and liabilities, which are used to prepare the opening Balance Sheet.
Step 3: Conclude.
Thus, the opening Balance Sheet is prepared from Receipts & Payments A/c.
Final Answer:

Step 1: Receipts and Payments A/c.
This is a summary of cash transactions, both capital and revenue, but it does not show surplus or deficit.
Step 2: Income & Expenditure A/c.
This account is prepared on an accrual basis. It includes only revenue items (incomes and expenditures) and matches them for the year.
Step 3: Conclusion.
The difference between total revenue income and total revenue expenditure gives surplus or deficit.
Final Answer:

Step 1: Meaning.
When a non-trading organisation receives subscription for the next year in advance, it has not yet been earned.
Step 2: Why liability?
The organisation is obliged to provide services in the next year for which subscription is already received. Until then, it remains an unearned income.
Step 3: Treatment.
Hence, subscription received in advance is shown as a liability in the Balance Sheet.
Final Answer:

Step 1: Meaning of legacy.
Legacy means the amount received by a non-trading organisation as a gift or bequest under a will.
Step 2: Nature of receipt.
- It is received occasionally and not regularly.
- It is not a capital receipt because it is not meant for long-term use or investment.
Step 3: Accounting treatment.
As per accounting treatment, legacies are treated as revenue receipts and recorded in the Income and Expenditure Account.
Step 4: Conclude.
Therefore, legacies are treated as revenue receipts.
Final Answer: