Question

What are not-for-profit organizations and what are the common characteristics of these not-for-profit applications

Answer 1

A Non profit organization is a legal and accounting entity that is operated for the benefit of the society as a whole, rather than for the benefit of a sole proprietor or a group of partners or shareholders. Non-profit making organisations such as public hospitals, public educational institutions, clubs, etc., The main motive of these organisations is to provide service

Mainly Prepare : -

Receipts and Payments Account

Income and Expenditure Account to show periodic performance

Balance Sheet to show financial position at the end of the period.

Receipts and Payments Account

A Receipts and Payments Account is a summary of the cash book. It is an elementary form of account commonly adopted by non-profit making concerns such as hospitals, clubs, societies, etc., for presenting periodically the result of their working. It consists of a classified summary of cash receipts and payments over a certain period together with the cash balances at the beginning and close of the period. The receipts are entered on the left hand side, and payments on the right hand side i.e., same sides as those on which they appear in Cash Book.

Features:

* It is the summary of the cash and bank transactions like cash book, all the receipts (capital or revenue) are debited, similarly, all the expenditures (capital or revenue) are credited.

* It starts with opening cash and bank balances and also ends with their closing balances.

* This account is usually not a part of the double entry system.

* It includes all cash and bank receipts and payments, whether they are related to current, past or future periods.

Surplus or deficit for an accounting period cannot be ascertained from this account, since, it shows only the cash position an excludes all non cash items.

Income and Expenditure Account  

The income and expenditure account is equivalent to the Profit and Loss Account of a business enterprise. It is an account which is widely adopted by non-profit making concerns and is prepared by following accrual principle. Only items of revenue nature pertaining to the period of account are included therein. The preparation of the account, therefore, requires adjustment in relevant accounts of outstanding items of income and expenditure as also exclusion of amounts paid in advance before these are included in Income and Expenditure Account. In so far as this, it resembles a Profit and Loss Account and serves the same function in respect of a non-profit making concern as the later account does for a firm, carrying on business or trade.

Features:

* It is a revenue account prepared at the end of the financial period for finding out the surplus or deficit of that period.

* It is prepared by matching expenses against the revenue of that period concerned.

* Both cash and non-cash items, such as depreciation, are taken into consideration.

* All capital expenditures and incomes are excluded.

* Only current years’ income and expenses are considered.

Balance Sheet

A Balance Sheet is the statement of assets and liabilities of an accounting unit at a given date. It is generally prepared at the end of an accounting period after the Income and Expenditure Account has been prepared. It is classified summary of the ledger balances left over, after accounts of all the revenue items have been closed off by transfer to the Income and Expenditure Account. In not for profit organizations, the excess of total assets over total outside liabilities is known as Capital Fund. The Capital fund represents the amount contributed by members. If however, members have not contributed any amount, the name should be Accumulated Fund. The surplus or deficit, if any, on the year's working as disclosed by the Income and Expenditure Account is shown either as an addition to or deduction from the Capital / Accumulated Fund brought forward from the previous period.

Some Special Items

• Entrance and Admission Fees
• Donations
• Subscription

Characteristics of Not-for-Profit Organizations

1 - Service Motive

Every non profit organisation main aim is to service motive

2. Members:

Every Organisations are formed as charitable trusts or societiesThe subscribers to these organisations are their members.

3. Source of Income

The major sources of income of not-for-profit organisations are subscriptions from members, legacies, donations, government grants, income from investments, etc.

4. Management:

The organisation are normally regulated by a managing/executive committee selected by its members

5 . Users of accounting information:

  The users of the accounting information of non profit  organisations are present and potential contributors and to meet the statutory requirement