Accounting For Non-Profit Making Organization

Commercial and Industrial organizations are set up principally to make profit, but non-profit making organizations like societies, clubs and charitable bodies are not profit oriented, but to provide services to their members. In place of trading, profit and loss account found in the trading concerns, such associations prepare the following accounts to show the financial affairs to their members:

1. Receipts and Payments account.
2. Income and Expenditure account.
3. Balance sheet.

RECEIPTS AND PAYMENTS ACCOUNTS
This is the account that shows the summary of the cash book over a particular period of time. Here, capital receipts and payments, revenue receipts and payments are included and it follows the same principle as the cash book. Amount owing or prepaid will not be shown in this account.

Features

1. All receipts and payments are recorded.
2. Items are treated in the same way as cash book.
3. It is a real account.
4. Amount owing or prepaid are not shown.
5. It is a prime book.
6. It has opening and closing balances.
7. Its closing balance is transferred into the balance sheet.
8. It records both capital and revenue transactions.
9. It is used by non-profit making organizations.
10. Its records are supported by source documents.

 Limitation

1. There is no figure for net income.
2. Lack of comparability between successive years as income and capital items are not separated.
3. It is not a useful guide as to whether or not the organization is paying its way.
4. It does not disclose profit or loss on sale or disposal of fixed assets.
5. It does not disclose accruals or prepayments.
6. Non cash items are not disclosed.

Dr.      Receipts and Payments Account      Cr.

	$		$
Balance b/f Subscriptions Bar takings Donations	xx xx xx xx __ xx	Bar expenses Rent Equipment bought Wages Postage Secretary honorarium Balance c/d	xx xx xx xx xx xx xx xx

 INCOME AND EXPENDITURE ACCOUNTS
An income and expenditure account is prepared based on the same principle as the profit and loss account. It is the equivalent of a profit and loss account prepared by a trading business. The difference between the expenditure and the income gives either a debit or credit balance. When the organization is operating a bar, the profit or loss will be transferred to income and expenditure accounts in accordance with the following rules:

1. Expenses are debited and income are credited.
2. Capital items are excluded.
3. All revenue items relating to the period are credited, whether actually received or not.
4. All items relating to previous or next period are excluded.
5. All expenditure items relating to the period are debited; whether actually paid or not.
6. The balance on the account represents the excess income over expenditure or vice versa.

Features
It is a nominal account prepared in the form of  profit and loss account showing revenue receipts and revenue expenditure. It allows adjustment for prepayments and accruals. Its closing balance represents surplus or deficit and it is used by non-profit making organizations.

Differences between Receipts, Payments account and Income, Expenditure account.

	Receipts and Payment  Account	Income and Expenditure  Account
1.	Only cash transactions  are recorded.	There is adjustment for accruals and prepayments.
2.	It includes capital items.	It excludes capital items.
3.	Balance represents cash in hand or bank overdrafts.	Balance represents surplus  or deficit.

Format of Income and Expenditure account
 Dr.             Income and Expenditure Account                      Cr.

Expenditure	$	Income	$
Rent Wages Postage Secretary honorarium Depreciation Lighting Surplus of income over expenditure	xx xx xx xx xx xx xx xx	Subscriptions Donations Rent received Profit on bar	xx xx xx xx __ xx

 
Sources of Income To Non-profit Making Organizations

1. Entrance fees: This is the registration fees paid by new members.
2. Subscription/Dues: This is the periodic amount paid by members to keep their membership.
3. Donations
4. Profits from bar
5. Government subvention.
6. Interest from investments.
7. Life membership due.
8. Disposal of assets.
9. Profits from special events.
10. Gift.
11. Proceeds from rentals. 

In non-profit making organizations, surpluses are not distributed to members as dividend. They engage more often in social or welfare activities of their members or of their community. They fund their operations largely on the basis of contribution from their members.



Accumulated fund
It is the fund that corresponds to the capital of a partnership or a sole proprietor and it will be calculated using the statement of affairs. This is the excess of the assets over the liabilities of a non-profit making organization, which takes the place of the capital found in the trading organization.

Subscription in arrears
This is the sum of money due from members, but remained unpaid. Subscriptions in arrears are treated as debtors in the balance sheet.

Subscription in advance
This is the sum of money paid for future years by the members. It is treated as current liabilities item.

A separate account can be prepared for subscription to adjust the arrears and advance before being posted to the credit of income and expenditure account.

Dr.              Subscription account                  Cr.

	$		$
Owing Income and expenditure Prepaid c/d Balance b/d	xx xx xx xx xx	Prepaid b/d Cash Owing c/d Balance b/d	xx xx xx xx xx

TERMS USED

	Profit-oriented organization	Non-profit making organization
1.	Cash Book	Receipt and Payment
2.	Trading Account	Bar Trading
3.	Profit and Loss Account	Income and Expenditure Account
4.	Capital	Accumulated fund
5.	Net profit	Surplus of income over expenditure
6.	Net loss	Deficit of income over expenditure

TRADING ACTIVITIES
Many associations take part in activities designed to improve their financial position. They can run bars, restaurants and other commercial activities.
When a club is operating a bar, it is usual to prepare a separate trading account to show the results of its activities. The profit or loss is carried to the income and expenditure account and loss will be debited.