NAME OF EXAM AND YEAR: ACCOUNTANCY 2019-20

NAME OF STUDENT: SIMPLE CHOUHAN

CHSE ROLL NO.:

REGISTRATION NO.:

SIGNATURE OF INTERNAL SIGNATURE OF EXTERNAL

SUBMISSION DATE : _________________

STUDENT SIGNATURE:_________________
SUMMARY
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my

accountancy teacher “Mrs. Rajni Sharma” for their able guidance
and support in completing my project.
I would also like to extend my gratitude to the principal mam
“Mrs. Balbinder Kaur” for providing me with all the facilities that
was required.
I would like to express my gratitude toward my parents for their
kind cooperation and encouragement which helped me in the
completion of this project.
My thanks and appreciations also go to my classmates in
developing the project and to the people who have willingly helped
me out with their abilities.

DATE : SIMPLE CHOUHAN

+2 2 ND YEAR COMMERCE
 CERTIFICATE

This is to certify that SIMPLE CHOUHAN, a student of +2 2nd year

commerce has successfully completed the research on the below mentioned
project under the guidance of “Mrs Rajni Sharma” during the year 2019-20
in partial fulfilment of Accountancy practical examination conducted by
CHSE, Odisha.

Signature of External Teacher Signature of Accountancy Teacher

CONTENT
INTRODUCTION OF NOT FOR PROFIT ORGANISATION :

There are certain organisations which are set up for providing

service to its members and the public in general. Such organisations
include clubs, charitable institutions, schools, religious organisations,
trade unions, welfare societies and societies for the promotion of art
and culture. These organisations have service as the main objective
and not the profit as is the case of organisations in business.
Normally, these organisations do not undertake any business activity,
and are managed by trustees who are fully accountable to their
members and the society for the utilization of the funds raised for
meeting the objectives of the organisation. Hence, they also have to
maintain proper accounts and prepare the financial statement which
take the form of Receipt and Payment Account; Income and
Expenditure Account; and Balance Sheet. at the end of for every
accounting period (normally a financial year). This is also a legal
requirement and helps them to keep track of their income and
expenditure, the nature of which is different from those of the
business organisations. In this chapter we shall learn about the
accounting.

Meaning and Characteristics of Not-for-Profit

Organisation :

Not-for -Profit Organisations refer to the organisations that are for

used for the welfare of the society and are set up as charitable
institutions which function without any profit motive. Their main aim
is to provide service to a specific group or the public at large.
Normally, they do not manufacture, purchase or sell goods and may
not have credit transactions. Hence they need not maintain
many books of account (as the trading concerns do) and Trading and
Profit and Loss Account. The funds raised by such organisations are
credited to capital fund or general fund. The major sources of their
income usually are subscriptions from their members donations,
grants-in-aid, income from investments, etc. The main objective of
keeping records in such organisations is to meet the statutory
requirement and help them in exercising control over utilisation of
their funds. They also have to prepare the financial statements at the
end of each accounting period (usually a financial year) and ascertain
their income and expenditure and the financial position, and submit
them to the statutory authority called Registrar of Societies.

CHARACTERISTICS OF NOT FOR PROFIT ORGANISATION:

1. SERVICE MOTIVE: Such organisations are formed for providing

service to a specific group or public at large such as education, health
care, recreation, sports and so on without any consideration of caste,
creed and colour. Its sole aim is to provide service either free of cost
or at nominal cost, and not to earn profit.
2. MEMBER : These are organised as charitable trusts/societies and
subscribers to such organisation are called members.
3. MANAGEMENT :Their affairs are usually managed by a
managing/executive committee elected by its members.
4. SOURCE OF INCOME :The main sources of income of such
organisations are: (i) subscriptions from members, (ii) donations, (iii)
legacies, (iv) grant-in-aid, (v) income from investments, etc.
The funds raised by such organisations through various sources are
credited to capital fund or general fund.
5. SURPLUS: The surplus generated in the form of excess of income
over expenditure is not distributed amongst the members. It is simply
added in the capital fund.
6. REPUTATION: The Not-for-Profit Organisations earn their
reputation on the basis of their contributions to the welfare of the
society rather than on the customers’ or owners’ satisfaction.
7. USERS OF ACCOUNTING INFORMATION: The accounting
information provided by such organisations is meant for the present
and potential contributors and to meet the statutory requirement.

Objectives of a Nonprofit Organization :

1. Strategic Objectives : A non-profit organization’s strategic

objectives focus on the services provided to its target market.
This requires identifying the needs of the relevant community
and developing programs and projects geared at fulfilling those
needs.

2. Financial Objectives : Nonprofits are not required to show

financial surpluses, but they need to generate enough income to
cover their costs and establish reserves for lean financial times.

3. Operational Objectives : The operational objectives of a non-

profit organization relate to the management of funds and
resources to achieve specific tasks. These objectives commonly
show quantitative performance measurements, such as the type
and frequency of activities and the number of people served or
helped.

4. Governance Objectives : Non-profit organizations are subject

to stringent governance requirements, mainly because they
usually use donor or grant funding to do their work. This makes
them accountable to their donors and the grant programs, as well
as to the public whose taxes go toward grant funding.
 5. Partnership Objectives : Partnerships are vital aspects of non-
profit management, with organizations using in-kind donations
of much-needed products and services.

ADVANTAGES OF NOT FOR PROFIT ORGANISATION :

1. Tax exemption: Organizations that qualify as public charities

under Internal Revenue Code 501(c)(3) are eligible for federal
exemption from payment of corporate income tax. Once exempt
from this tax, the non-profit will usually be exempt from similar
state and local taxes. If an organization has obtained 501(c)(3) tax
exempt status, an individual's or company's charitable
contributions to this entity are tax-deductible.
2. Eligibility for public and private grants: Many foundations and
government agencies limit their grants to public charities. Non-
profit organizations also can offer tax deductions to individuals
or businesses that give charitable contributions.
3. Formal structure: A non-profit organization exists as a legal
entity in its own right and separately from its founder(s).
Incorporation puts the non-profit’s mission and structure above
the personal interests of individuals associated with it.
4. Limited liability: Under the law, creditors and courts are limited
to the assets of the non-profit organization. The founders,
directors, members, and employees are not personally liable for
the non-profit’s debts. However, there are exceptions. A person
cannot use the corporation to shield illegal or irresponsible acts
on his/her part. Also, directors have a fiduciary responsibility; if
they do not perform their jobs in the non-profit’s best interests,
and the non-profit is harmed, they can be held liable.
DISADVANTAGES OF NOT FOR PROFIT ORGANISATION :

1. Cost: Creating a non-profit organization takes time, effort, and

money. Fees are required to apply for incorporation and tax
exemption. The use of an attorney, accountant, or other consultant
may also be necessary.
2. Paperwork: As an exempt corporation, a non-profit must keep
detailed records and submit annual filings to the state and IRS by
stated deadlines in order to keep its active and exempt status.
3. Shared control: Although the people who create non-profits like
to shape and control their creations, personal control is limited. A
non-profit organization is subject to laws and regulations,
including its own articles of incorporation and bylaws. In some
states, a non-profit is required to have several directors, who in
turn are the only people allowed to elect or appoint the officers
who determine policy.
4. Scrutiny by the public: A non-profit is dedicated to the public
interest; therefore, its finances are open to public inspection. The
public may obtain copies of a non-profit organization's state and
Federal filings to learn about salaries and other expenditures.

BOOKS OF ACCOUNTS:

1. MEMBERS REGISTER: Members register denotes a record of

all members or all subscribes of the organisations.
2. MINUTES BOOK : Minute book denote a record of various
proceedings in the general body meeting.
3. STOCK REGISTER: Separate stock register is maintained for
fixed asset.

FINAL ACCOUNTS:
In accounting for non-profit organizations, instead of maintaining a
Capital A/c, these organizations maintain Capital Fund or General
Fund A/c. They credit this account with the surplus, life membership
fees, donations, legacies, etc.
The not-for-profit organisations also require to prepare the final
accounts or the financial statements at the end of the accounting year
as per the accounting principles. The final accounts of these
organisations consist of:
1. Receipts and Payments Account
2. Income and Expenditure A/c
3. Balance Sheet

RECEIPT AND PAYMENT ACCOUNT:

“A receipt and payment account is a summarized cash book for a

given period”. “This is a summary of the cash transactions as in the
cash book”. Non-profit organizations prepare receipt and payment
account at the end of the year. With the help of this account and some
additional information, we prepare income and expenditure account to
disclose the true results of non-profit organizations.
FORMAT:

The receipts and payments account has a debit side to record all receipts
and a credit side to record all payments made by non-trading concerns
during the period. The format of this account is shown below:
Receipt and Payment Account for the year ending ————-

RECEIPT AMOUNT PAYMENT AMOUNT

Balance b/d (Bank overdraft XXX
Balance b/d Wages and Salaries XXX
Cash in Hand XXX Rent XXX
Cash at Bank XXX Rates and Taxes XXX
Subscriptions XXX Insurance XXX
General Donations XXX Printing and Stationery XXX
Sale of newspaper XXX Postage and courier XXX
Sale of old sports materials XXX Advertisement XXX
Interest on fixed deposits XXX Sundry expenses XXX
Interest/Dividend on generaL Telephone charges XXX
INVESTMENT XXX Entertainment expenses XXX
Locker Rent XXX Audit fees XXX
Sale of scraps XXX Honorarium XXX
Proceeds from charity show XXX Repair and Renewals XXX
Miscellaneous receipts XXX Upkeep of ground XXX
Grant-in-aid** XXX Conveyance XXX
Legacies XXX Newspapers and Periodicals XXX
Specific Donations XXX Purchases of Assets XXX
Sale of Investments XXX Purchase of Investments XXX
Sale of Fixed Assets XXX Balance c/d XXX
Life membership fees XXX Cash in hand XXX
Entrance fees XXX Cash at Bank XXX
Receipts on account of specific
purpose funds XXX
Interest on specific funds' xxx
investments XXX
Balance b/d (Bank Overdraft) XXX

XXXXX XXXXX
Income and Expenditure Account :

It is the summary of income and expenditure for the accounting year.

It is just like a profit and loss account prepared on accrual basis in case
of the business organisations. It includes only revenue items and the
balance at the end represents surplus or deficit. The Income and
Expenditure Account serves the same purpose as the profit and loss
account of a business organisation does. All the revenue items relating
to the current period are shown in this account, the expenses and losses
on the expenditure side and incomes and gains on the income side of
the account. It shows the net operating result in the form of surplus (i.e.
excess of income over expenditure) or deficit (i.e. excess of expenditure
over income), which is transferred to the capital fund shown in the
balance sheet.

FORMAT :
The Income and Expenditure Account has a expenditure side to record
all expenses and a income side to record all amount received.
INCOME AND EXPENDITURE Account for the year ending ————-

EXPENDITURE AMOUNT INCOME AMOUNT

XXX
XXX
TO SALARY XXX BY SUBSCRIPTION XXX
TO CHARITY XXX BY DONATION RECEIVED XXX
TO RENT XXX BY ADMISSION FEE RECEIVED XXX
TO DONATION PAID XXX BY GRANT RECEIVED XXX
TO STATIONARY XXX BY RENT RECEIVED XXX
TO LOSS ON SALE OF ASSET XXX BY INTEREST RECEIVED XXX
TO DEPRECIATION XXX BY PROFIT AND SALE OF ASSET XXX
BY DEFICIT*(EXCESS OF
TO SURPLUS*(EXCESS INCOME EXPENDITURE OVER INCOME) XXX
OVER EXPENDITURE) XXX XXX

XXXXX XXXXX
Distinction between Income and Expenditure Account and
Receipt and Payment Account :

Basis For Receipts And Income And

Difference Payment Expenditure
Account Account
Introduction Account that records all Account that records
cash and bank receipts cash and non cash
and payments income and expenditure
Type Real Account Nominal Account

Accrual Basis No Yes

Purpose/Objective To know closing To know surplus/deficit

balance
Type Of Only cash transactions Both cash and non cash
Transaction

Balance Sheet No Yes

Required?

Opening Balance Yes No

Similar To Cash Book Profit and loss account

Double Entry It ignores It follows

System

Compulsory No Yes

Part Of Final No Yes

Account ?

Based On Cash Basis Accrual Basis

Debit Items Cash and bank receipts Expenses or losses

Credit Items Payments Income

Adjustment No Yes
Required
BALANCE SHEET :

‘Not-for-Profit’ Organisations prepare Balance Sheet for ascertaining

the financial position of the organisation. The preparation of their
Balance Sheet is on the same pattern as that of the business entities. It
shows assets and liabilities as at the end of the year.
Assets are shown on the right hand side and the liabilities on the left
hand side. However, there will be a Capital Fund or General Fund in
place of the Capital and the surplus or deficit as per Income and
Expenditure Account which is either added to/deducted from the
capital fund, as the case may be.
It is also a common practice to add some of the capitalised items like
legacies, entrance fees and life membership fees directly in the capital
fund.
Besides the Capital or General Fund, there may be other funds created
for specific purposes or to meet the requirements of the
contributors/donors such as building fund, sports fund, etc. Such
funds are shown separately in the liabilities side of the balance sheet.
Some times it becomes necessary to prepare Balance Sheet as at the
beginning of the year in order to find out the opening balance of the
capital/general fund.
FORMAT :

Balance sheet is financial statement of company which include assets

on one side and liability on other. In balance sheet we have asset is
equal to liabilities and equity. A proforma Balance Sheet is given for
the proper understanding of preparing the balance sheet.

Balance Sheet
Year ending:
Assets Liabilities

Cash assets: xxx Current liabilities: xxx

Petty cash: xxx Accounts payable: xxx
Accounts receivable: xxx Notes payable: xxx
Inventory value: xxx Long-term liabilities: xxx
Investments: xxx Taxes (state): xxx
Prepaid expenses: xxx Taxes (federal): xxx
Land: xxx Taxes (property): xxx
Land improvements: xxx Taxes (misc.): xxx
Buildings: xxx Payroll/wages: xxx
Vehicles: xxx Misc: xxx
Equipment: xxx
Furnishings: xxx

Miscellaneous assets: xxx

Intangible assets: xxx

Total assets: xxxxx Total liabilities: xxxxx

TREATMENT OF SOME IMPORTANT ITEMS :

1. Capital fund
Capital fund (also known as general fund and accumulated fund) is a
balance sheet item which represents the surplus of assets over
liabilities of a non-trading concern. In other words, we can say that
the capital fund of non-profit organizations is equivalent to the capital
of for-profit organizations. It increases as a result of surplus and
decreases as a result of deficit computed by preparing an income and
expenditure account.

Treatment of capital fund

The capital fund is shown on the liabilities side of the balance sheet of
non profit organizations. At any given date, the capital fund of the
organization may be computed by applying the following
equation/formula:

Capital fund = Total assets – Total liabilities

2. Subscription
Subscription is usually the main source of revenue for non trading
concerns. It is the amount that members pay regularly to keep their
membership alive. The amount of subscription normally becomes due
at the beginning of each accounting period. All members of the
organization are usually required to pay their subscription within a
period specified by the rules of the organization. If a member does not
pay his subscription within specified period, his membership may be
cancelled.
Treatment of subscription
The subscription is treated as income and is shown on the credit or
income side of the income and expenditure account. While entering in
income and expenditure account, the total amount of subscription
received during a period must be adjusted for outstanding and
advance payments. Any unpaid subscription for the current period
should be included and any subscription received in advance should
be excluded.

3. Donation
The donation is the amount given to the organization by supporters
and well wishers. Sometime members of the organization also provide
donation in addition to their regular subscription. The donation may
be general or for a special purpose such as donation for constructing a
building or donation for buying some sports items or other assets etc.

Treatment of donation
The small and recurring donations should be credited to income and
expenditure account for the relevant period. But if the amount of
donation is large and non-recurring in nature, it should be added to the
capital fund of the organization. Any donation received in the form of
a non-cash asset should be credited to the particular fund for which
the asset has been donated. In case of absence of such particular fund,
the amount should be credited to the capital fund account.

If rules and regulations of the organization provide specific directions

regarding donation, the amount of donation should be treated
accordingly.
 4. Life membership fee
Some organizations provide its members an option to pay a lumpsum
amount to become members for the the whole life. The members
opting for the payment of life membership fee are not required to pay
periodic subscription.

Treatment of life membership fee

The amount of life membership fee is initially credited to a special
fund account. Each year an amount equal to annual subscription is
credited to income and expenditure account till the amount in special
fund is fully exhausted. If a member who has paid life membership
fee dies before the whole amount paid by him has been transferred to
income and expenditure account, the balance should be transferred to
capital fund account on the date of death.

An alternative approach is to transfer the entire amount of life

membership to the capital fund account in the year in which it is
received from the member.

5. Admission or entrance fee

Admission or entrance fee is the one time fee that a person is required
to pay at the time of becoming a member of the organization. This is
usually a small amount and is used to cover admission related
expenses of the organization.

Treatment of admission or entrance fee

Generally, the admission/entrance fee is considered as revenue receipt
and is credited to the income and expenditure account for the period
concerned. But where the amount received as admission/entrance fee
is large, it should be treated as capital receipt and credited to the
capital fund account in the year in which it is received from the
member.

6. Legacy
Legacy is the cash or another item of value that a deceased person
gives to the organization under the terms of a will. It may be general
or for a specific purpose.

Treatment of legacy
If the legacy is for specific purpose it should be transferred to a
special fund in the name of that specific purpose. If the legacy is
general, it should be credited to capital fund account.

7. Honorarium
It is a voluntary payment to a person who has provided some service
to the organization voluntarily. Normally, the person providing the
service does not demand a fee. The honorarium is therefore an
expression of gratitude rather than payment of remuneration for the
work done.

Treatment of honorarium
Any amount paid to someone as honorarium is treated as revenue
expenditure and is debited to income and expenditure accounting for
the period concerned.

8. Special fund
Special fund is different from capital fund. It is the fund that non
profit organizations create for some special purpose such as
construction of a new building, purchase of an equipment or machine
etc. The amount for the creation of special fund comes from special
donations, excess of income over expenditure and/or special fund-
raising activities performed by the organization.
The amount of fund is invested in some trusted securities for a
specific period. At the end of specific period, the investment is sold
and the fund is used for the purpose for which it was created.

Treatment of special fund

The special fund is a balance sheet item which is shown on the
liabilities side of the balance sheet of non profit organizations. The
investment related to special fund is shown as asset on the assets side.

All special funds are transferred to capital fund at the time of the
completion of purpose for which they were created.
 QUESTIONS

Question 1:
From the following information, calculate amount of subscriptions to be
credited to the Income and Expenditure Account for the year ended 31st
March, 2019:

₹
1st April, 2018 Subscriptions in Arrears 50,000
Subscriptions Received in
30,000
Advance
31st March,
Subscriptions in Arrears 25,000
2019
Subscriptions Received in
70,000
Advance

Subscriptions received during the year ended 31st March, 2019 – ₹ 3,00,000
Subscription still in arrears for the year 2017 – 18 – ₹ 10,000.
ANSWER:

Statement of Subscription
for the year ended March 31, 2019
Amount
Particulars
(₹)
Subscription received during the year 2018-19 3,00,000
Less: Subscription-in-Arrears for 2017-18 50,000
Add: Subscription-in-Arrears for 2018-19 25,000
Add: Subscription-in Advance for 2018-19 30,000
Less: Subscription-in Advance for 2019-20 70,000
Subscription to be Credited to Income and Expenditure Account 2,35,000
Question 2:

From the following information and Receipts and Payments Account of

Delhi Medical Society, prepare Income and Expenditure Account for the
year ended 31st March, 2019 and Balance Sheet as at that date.
RECEIPTS AND PAYMENTS ACCOUNT
for the year ended 31st March, 2019
Cr.
Receipts (₹) Payments (₹)
31,
To Balance b/d By Rent 16,800
900
5,
To Entrance Fees By Wages 24,500
500
1,80,
To Subscriptions By Lighting Charges 7,200
000
16,
To Donations By Books 24,800
500
To Life Membership 25, 1,00,0
By Medicines (Polio Eradication Project)
Fees 000 00
To Government Grant
2,00, By Salaries to Doctors (Polio Eradication
(Polio Eradication 80,000
000 Project)
Project)
23,
To Proceeds of Seminar By Office Expenses 45,000
200
2, 1,20,0
To Interest on Deposits By 8% Fixed Deposits
400 00
(On 1st October, 2018)
By Seminar Expenses 20,200
By Cash in Hand 26,000
By Bank A/c (Polio Eradication Project) 20,000

4,84, 4,84,5
500 00

Other information:
On 31st March, 2018, the Club possessed books of ₹ 2,00,000 and Furniture
of ₹ 85,000. Provide depreciation on these assets @ 10% including the
purchases during the year.
Subscriptions in arrears in the beginning of the year amounted to ₹ 3,500 and
at the end of the year ₹ 5,500 were outstanding.
The Club paid three months' rent in advance both in the beginning and at the
end of the year.
SOLUTION

Books of Delhi Medical Society

Income and Expenditure Account
for the year ended March 31, 2019
Dr. Cr.
Amoun Amoun
Expenditure t Income t
(₹) (₹)
Rent 16,800 Entrance Fees 5,500
Add: Advance in the 4,200 Subscriptions 1,80,00
beginning 0
Less: Advanced at the (4,200 16,800 Add: Arrears at the 5,500
end ) end
Wages 24,500 Less: Arrears in the (3,500) 1,82,00
beginning 0
Lighting Charges 7,200 Donations 16,500
Office Expenses 45,000 Interest on Deposits 2,400
Depreciation on: Add: Accrued 2,400 4,800
Interest
Furniture 8,500 Profit from Seminar:
Books 22,480 30,980 Proceeds 23,200
Surplus (Balancing Figure) 87,320 Less: Expenses (20,200 3,000
)
2,11,80 2,11,80
0 0
 Balance Sheet
as on April 01, 2018
Amount Amount
Liabilities Assets
(₹) (₹)
Advance Rent 4,200
Subscription-in-Arrears 3,500
Books 2,00,000
Capital Fund (Balancing Figure) 3,24,600 Furniture 85,000
Cash in Hand 31,900
3,24,600 3,24,600

Balance Sheet
as on March 31, 2019
Amount Amount
Liabilities Assets
(₹) (₹)
Subscription-in-Arrears 5,500
Advance Rent 4,200
Books 2,00,000
Government Grant 2,00,000 Add: Purchase 24,800
Less: Medicines 1,00,000 2,24,800
Less: Salaries 80,000 20,000 Less: 10% (22,480) 2,02,320
Depreciation
Capital Fund 3,24,600 Furniture 85,000
Add: Surplus 87,320 Less: 10% 8,500 76,500
Depreciation
Add: Life 25,000 4,36,920 Cash in Hand 26,000
Membership
Cash at Bank 20,000
8% Fixed Deposit 1,20,000
Add: Accrued Interest 2,400 1,22,400
4,56,920 4,56,920

Working Note:

Calculation of Interest Accrued on Fixed Deposits

Interest on Fixed Deposits (1,20,000 × 8% × 6/12) 4,800

Less: Interest Received (2,400)
Interest Accrued on Fixed Deposits 2,400