Accounting For Not-For-Profit Organisation

6 minute read
Accounting for Not-for-profit Organisations

Accountancy is a vital subject; it is the backbone of every organisation and exposes students to the relevancy of financial recordkeeping and money management whether you are pursuing commerce with maths or commerce without maths. With the dreaded 12th exams coming closer, we have taken it upon ourselves to ease the burden of preparation and made notes for the important chapter: Accounting for Not-for-Profit Organisations. In this blog, we are going to cover all the essential points for your quick revision!

Not-for-Profit Organisation: Meaning 

A not-for-profit organisation is defined as an organisation whose primary aim is to provide a service to its members for the welfare of a group or society in general according to the chapter accounting for not-for-profit organisations. The organisation is set up as a charitable institution, often managed by trustees and is not in any way driven by profiteering. Examples: schools, charities, trade unions, welfare societies etc. Read more about the introduction to accounting.


According to the accounting for not-for-profit organisation chapter, Not-for-profit organisations are discernable and identifiable because of certain main features. They are mentioned below:

  • These organisations are established to provide a service either at no cost or minimal cost for the advancement of society. The nature of the service varies from education to health to recreation.
  • The aim is the welfare of a specific group or society and not making profits.
  • These organisations function as charitable societies and their subscribers are called members.
  • The organisation’s primary functions are managed by trustees or an executive group of members elected by its own members.
  • These organisations do not participate in any business activities and hence, rely on income sources like subscriptions, donations, grant-in-aid, income from investment or legacies or financial assistance from the government.
  • The funds or any surplus generated by such organisations are credited to the general fund or capital fund.
  • It is legally binding for these organisations to provide a financial record. These organisations prepare financial statements for the statutory requirement and for maintaining control over assets/funds.   

Must Read: Nature and Significance of Management Class 12 Notes

Financial Statements for Not-for-Profit Organisations

Not-for-profit organisations keep a financial statement every year for legal reasons, as mentioned in the chapter Accounting for not-for-profit organisations. A financial statement is necessary for the proper utilization of funds and the safekeeping of the general funds from misappropriation. These organisations follow the double-entry system of accounting. The financial statements of such organisations consist of the following:

  • Receipt and Payment Account
  • Income and Expenditure Account
  • Balance Sheet

Receipt and Payment Account

Receipt and Payment Accounts provide a summary of all the cash and bank transactions that took place during the financial year. It is important to account for receipts and payments because they help in preparing income & expenditure accounts and balance sheets as mentioned in accounting for not-for-profit organisation chapters. This account begins with recording cash in hand/cash in the bank on the receipt side and the closing balance includes cash in hand/bank left at the end on the payment side. Find out more about a career in accountancy.

Read: CBSE Accountancy Class 12

Format of Receipt and Payment Account

The format of the receipt and payment account is tabulated below. It finds important to mention in the chapter on accounting for a not-for-profit organisation. You can have a look here: 

Balance b/dCash in HandCash at the bankxxxBalance b/d (Bank overdraft) xxx
General Donations xxxWages and Salariesxxx
Locker RentxxxRates and Taxes xxx
Grant in AidxxxAudit feesxxx
Interest on FDxxxPrinting and Stationeryxxx
Interest on investmentsxxxMaintenancexxx
Membership feesxxxRepair and Renewals xxx
Entrance feesxxxPurchase of assetsxxx
Miscellaneous ReceiptsxxxPurchase of investmentsxxx
Balance b/d(Bank overdraft)xxxClosing b/dCash in handCash at bankxxx


The features of the same are mentioned below:

  • It is similar to a cash book wherein the receipts are on the debit side and the payments are on the credit side.
  • All receipts and payments are recorded regardless of the financial period.
  • Receipts and payments of a capital nature or revenue nature are certain terms included.
  • Non-cash items such as depreciation, outstanding expenses or accrued income are not recorded.
  • No difference between receipts and payments made out in cash or through a bank transaction.

Income and Expenditure Account

An income and expenditure account for a not-for-profit organisation is like a profit and loss account of any business organisation according to the chapter accounting for a not-for-profit organisation. 

  • The account records all the revenue items of the current period and at the bottom, it records deficit or surplus in the balance column.
  • The income and expenditure account is prepared on an accrual basis and contains two columns, i.e. expenditure column which includes losses and expenses and the income column which includes incomes and gains.
  • This account takes into account non-cash items like depreciation.
  • It does not include an opening balance and the closing balance is written either as surplus or deficit. 

Format of Income and Expenditure Account

There is a proper format for income and expenditure accounts. It is tabulated below:

Rates and TaxesxxxSubscriptionsxxx
LightingxxxEntrance feesxxx
Insurance PremiumxxxLocker Rentxxx
Audit FeesxxxOutstanding Interest xxx
Printing and StationeryxxxInterest on investmentxxx
Salaries and Wagesxxx
Postage and Courier chargesxxx

Balance Sheet

A balance sheet determines the financial position of a business enterprise. A balance sheet for a not-for-profit organisation includes assets, liabilities and capital or general fund and is prepared after income & expenditure as mentioned in the chapter accounting for a not-for-profit organisation. The format of the same is mentioned below: 

CapitalxxxCash in hand/bankxxx
Opening balance
Add surplus
Subtract deficit
xxxOutstanding Incomesxxx
LegaciesxxxPrepaid Expensesxxx
Entrance feesxxxThe stock of Consumable Itemsxxx
Membership feesxxx

Peculiar Items

As mentioned in the chapter Accounting for a not-for-profit organisation, a financial statement of a not-for-profit organisation looks similar to a financial statement of a business enterprise yet there are certain terms that are present only in the former statement, let’s have a look at them:

  • Subscriptions: Subscriptions refer to the fees collected from members of an organisation on an annual basis.
  • Donations: Donations are gifts received by an organisation from a person or enterprise. Donations can be specific or general.
  • Legacies: Legacies refer to the amount received by the organisation because a person left it in their will and is added to the capital fund.
  • Life membership fee: Life membership is a lumpsum amount received from a member and is added to the capital fund. 
  • Entrance fees: It is the fees paid by a prospective member and is added directly to the capital fund.
  • Sale of an old asset: This item is generally included in the receipts section of the receipts and payments account while any profit or loss incurred from this sale is mentioned in the income and expenditure account.
  • Sale of periodicals: This item is represented in the income and expenditure account as income due to its recurring nature.
  • Payment of Honorarium: It refers to the payment given to a guest performer for their service.
  • Endowment Fund: It is included in the liabilities section of a balance sheet and refers to a gift for a specific purpose.
  • Government Grants: Governments support not-for-profit organisations by giving grants.

Accounting For Not-For-Profit Organisation NCERT PDF


How is accounting applied to a non-profit organisation?

Accounting in Non-profit organisations relies on using the statement of financial position i.e., balance sheet along with the statement of activities like income statement and the statement of cash flow.

How many accounts are prepared in not-for-profit Organisation accounting?

The Income and Expenditure Account and a Balance Sheet are usually prepared with the help of a Receipt and Payment Account for Not-for-Profit Organisations.

What statements are usually prepared by Not-for-Profit Organisation?

Not-for-profit organisations use four main financial reporting statements: 
1. balance sheet
2. income statement
3. statement of cash flows
4. statement of functional expenses
3 of these are common for-profit company statements

Explore: Accounts Project Class 12

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  1. The way the design of this website has been is spectacular, easy flow to scroll and the notes are better in comparison to other websites and are also clean and clear. I will recommend my friends to have notes from this website. Thanks for making my day better!

  2. This is very very simplified, thanks very much, I was able to revise this topic in just 30 minutes only.
    God bless you all.

  1. The way the design of this website has been is spectacular, easy flow to scroll and the notes are better in comparison to other websites and are also clean and clear. I will recommend my friends to have notes from this website. Thanks for making my day better!