Introduction

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. 

The main characteristics of such organisations are: 

1. 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. These are organised as charitable trusts/societies and subscribers to such organisation are called members. 

3. Their affairs are usually managed by a managing/executive committee elected by its members. 

4. The main sources of income of such organisations are: (i) subscriptions from members, (ii) donations (general) (iii) legacies (general) (iv) granting-aid, (v) income from investments, etc.

5. The funds raised by such organisations through various sources are credited to capital fund or general fund. 

6. 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. 

7. 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. 

8. The accounting information provided by such organisations is meant for the present and potential contributors and to meet the statutory requirement. 

Final Accounts or Financial Statements: 

The final accounts of a ‘Not-for-Profit Organisation’ consist of the following: 

1.  Receipt and Payment Account 

2. Income and Expenditure Account, and 

3. Balance Sheet. 

Receipt and Payment Account

It is prepared at the end of the accounting year on the basis of cash receipts and cash payments recorded in the cash book. It is a summary of cash and bank transactions under various heads. Receipt and Payment Account gives summarised picture of various receipts and payments, irrespective of whether they pertain to the current period, previous period or succeeding period or whether they are of capital or revenue nature. It may be noted that this account does not show any non-cash item like depreciation.

Format of Receipt and Payment Account 

Receipt and Payment Account for the year ending ————- 

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.

Income and Expenditure Account for the year ending ————- 

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. 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 

Proforma Balance Sheet