Chapter 1: Accounting for not for profit organizations
Questions and answers
1. Write any four difference between Receipt and Payment Account and Income and Expenditure Account?
Difference between income and expenditure account and receipts and payments account
| Basis | Income and expenditure account | Receipts and payments account |
| Nature of account | It is like a profit and loss account | It is a summary of the cash book |
| Nature of items | It records income and expenditure of revenue nature only | It records receipts and payments of revenue as well as capital nature |
| Period | It records revenue items relate to the current year only | It records receipts and payments relate to the current year previous year and succeeding year |
| Type of Account | Nominal Account | Real Account |
| Depreciation | Record depreciation | Never record depreciation |
| Debit side | Debit side of this account records expenses and losses | Debit side of this account records cash receipts |
| Credit side | Credit side of this account records incomes and gain | Credit side of this account Records cash payments |
| Opening balance | There is no opening balance | Balance in the beginning represents cash in hand/at bank (or bank o/d) |
| Closing balance | Balance at the end represents surplus or deficit | Balance at the end represents closing cash in hand/at bank (or bank over draft) |
2. During the year 2017 -18 there was 1500 members in DXB sports club. The yearly subscription was fixed at Rs. 50 per member. There was unearned subscription of Rs. 3000 at the beginning of the year.The unearned subscription at the end of the year was Rs.1800. Show how the amount of subscription appears in the following financial statements of the club. a)Income and Expenditure aAccount b)Receipts and payment account?
Ans: Subscription for the year 2017-18 = Number of members X Subscription per member
1500 x 50 = 75,000
In Income and expenditure Account
Rs.75,000 should be credited to Income and expenditure account
In Receipt and payment Account-Receipt side
| Subscription for the year 2017-18 (1440 x 50)(Opening prereceived | 72,000 |
| adjusted,3000/50=60members) | |
| Add: subscription received during the year 2017-18 for the next year(Closing | 1,800 |
| perceived) | |
| Rs.1,800,i.e 36 members @Rs.50 | |
| Subscription in Receipt and payment A/C | 73,800 |
Unearned (Subscription received in advance) subscription at the beginning Rs.3000 should be shown the asset side of the opening balance sheet.Unearned (Outstanding) subscription at the end Rs.1800 should be shown the asset side of the closing balance sheet.
3. One of your friend Manu wants to take membership in a sports club. He does not know anything about Not-for-Profit organization. Can you explain him what it is? And what are different accounting records maintained in such organization and step for preparing Final Accounts?
ANS: Not-For Profit Organizations are those type of organizations established for the purpose of rendering service. They are not expected to earn profit, but are organized mainly for social, cultural, educational, religious and charitable purposes. Sports and arts clubs, hospitals, libraries, etc come under this group. The final accounts of a Not-For Profit Organisations consists of the following:Receipts and Payment Account Income and Expenditure Account Balance Sheet
Steps in the preparation of receipts and payments account
1. Take the opening balances of cash in hand and at bank and enter the same on the debit side.( In case there is bank over draft at the beginning it should be entered on the credit side)
2. Show the total amounts of all receipts on its debit side irrespective of their nature (i.e capital or revenue) and period (i.e current year,previour or succeeding years)
3. Show the total amounts of all payments on its credit side irrespective of their nature and period.
4. Accrued incomes and outstanding expenses etc not to be entered in this account as they do not involve inflow or out flow of cash.
5. Find out the difference between the total of the debit side and the total of the credit side of the account and if the total of the debit side is more than the total of the credit side, it is ‘closing cash in hand/bank’.
Steps in the preparation of income and expenditure account
1. Follow the receipts and payments account thoroughly.
2. Exclude the opening and closing balances shown in the Receipts and Payments Account.
3. Exclude the capital receipts and capital payments as they are to be shown in the balance sheet.
4. Identify the revenue incomes relating to the current year from the debit side of Receipts and Payment Account and record it in the income side. Any accrued income must be added and income received in advance must be deducted.
5. Identify revenue expenses to the expenses relating to the current year from the credit side of Receipts and Payments Account and record it in the expenditure side. Any outstanding expenses must be added and prepaid expenses must be deducted.
6. Consider the following items not appearing in the receipt and payment account that need to be taken into this account for determining the surplus/deficit for the current year:
o Depreciation of fixed assets
o Provision for doubtful debts
o Profit or loss on sale of fixed assets.
4. From the following calculate the amount to be debited in the Income and Expenditure Account in respect of stationary. Payment made for stationary Rs. 980. Stock of stationary on the opening date and closing date Rs. 100 and Rs.120 respectively. Amount due for stationary during the year Rs. 140
ANS:Calculation of Expense of stationery during the year:
| Amount paid for stationery (R&P A/C) Add: Opening stock of stationery Closing outstanding (Cr) | 100 140 | 980 240 |
| 1220 | ||
| Less: Closing stock of stationery | 120 | 120 |
| Stationery Consumed During the Year | 1,100 |
5. Mr. Riju, the Secretary of Laya Arts and Sports Club is not aware about the treatment of fund in their Balance Sheet. As a Commerce students you are required to help him based on the following details. Tournament expenses Rs.15,000 Tournament fund Rs.28,000 Donation for Tournament Rs.12,000. Collection from the sale of tournament tickets Rs. 8000.?
ANS:
| Liabilities | Amount |
| Tournament fund: Tournament Fund 28,000 Add: Collection from sale of ticket 8,000 Donation for Tournament 12,000 48,000 Less: Tournament Expense 15,000 | 33,000 |
6. From the following particulars calculate the amount of subscription to be credited to the Income and Expenditure Account for the year ending 31st, March 2018.Subscription received during 2017-2018 Rs.50,000, Outstanding subscription 31st March 2018 Rs.4000 ,Outstanding subscription 1st April 2017 Rs.3200 Subscription received in Advance 31st March 2018 Rs.1800, Subscription received in advance 1st, April 2017 Rs.1200?
| Subscription received during the year ended 31-3-18 Add: Closing out standing Opening pre-received | 4,000 1,200 | 50,000 5,200 |
| Less: Opening out standing Closing pre-received | 3,200 1,800 | 55,200 5,000 |
| Income from subscription during the current year | 50,200 | |
| (shown in the I &E a/c) |
7. Ram sports club received Rs.150000 as subscription for the year ended 31st March 2017. Consider the following adjustments and mention whether we should add or deduct each items to find out subscription for the year. Subscription outstanding on 31st March 2017 Rs.10,000, Subscription outstanding on 1st April 2016 Rs.15,000, Subscription received in advance as on 1st April 2016 Rs. 5000, Subscription received in advance as on 31st of March 2017 Rs.8000?
ANS:
| Subscription received during the year ended 31-3-17 Add: Closing out standing Opening pre-received | 10,000 5,000 | 1,50,000 15,000 |
| Less: Opening out standing Closing pre-received | 15,000 8,000 | 1,65,000 23,000 |
| Income from subscription during the current year | 1,42,000 | |
| (shown in the I &E a/c) |
8. Write any two Salient features of the Receipt and Payment account.
ANS:
· It is a real account.
· It is a summary of cash book.
· It is prepared at the end of an accounting year on the basis of cash book.
· It is debited with all cash receipts and credited with all cash payments.
· It is prepared on cash basis (records only actual cash receipts and payments).
· It records all receipts and payments of current year, previous and succeeding years. It records all receipts and payments whether they are of capital and revenue nature.
9. How will you treat the following items in the final account of a Not-for-Profit Organization : legacy and life membership fees?
ANS: Legacy: It is directly added to the capital fund in the balance sheet, because it is not a recurring nature.
Life membership fees: Some members prefer to pay lump sum amount as life membership fee instead of paying periodic subscription. Such amount is treated as capital receipt and added directly to the capital fund in the balance sheet.
10. During the year 2018 Priya Arts Club received Rs.100000 as entrance fees. As per the account policy of the club 30% of the entrance fees is to be capitalized. How will you deal with the entrance fees received by the club?
ANS:Total entrance fee = 1,00,000
30% of entrance fee to be capitalized,i.e , 1,00,000 8 30/100 =30,000
So,Rs. 70,000 should be shown on income side(Credit side) of the income and expenditure Account
Rs.30,000(capitalized portion) should be added to the capital fund in the liability side of the Balance Sheet.
11. The amount received by a not-for profit making organization from the estate of a deceased person under a will is called ——
ANS:Legacy
