{"id":378611,"date":"2023-05-05T14:04:22","date_gmt":"2023-05-05T08:34:22","guid":{"rendered":"https:\/\/leverageedu.com\/blog\/?p=378611"},"modified":"2025-11-26T09:05:16","modified_gmt":"2025-11-26T03:35:16","slug":"accounting-for-not-for-profit-organisation","status":"publish","type":"post","link":"https:\/\/leverageedu.com\/blog\/accounting-for-not-for-profit-organisation\/","title":{"rendered":"Accounting for Not-For-Profit Organisation: A Beginner\u2019s Guide for Students"},"content":{"rendered":"\n<p>Accountancy is a vital subject and is the backbone of every organisation. It exposes students to the relevance of financial record-keeping and money management. So, whether you are pursuing commerce with maths or commerce without maths, a good understanding of this subject is a must for you. As the exams for Class 12th are approaching, we are offering you an easy way to prepare by making 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, so that your burden can be relieved.<\/p>\n\n\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-not-for-profit-organisation-meaning-nbsp\"><span id=\"not-for-profit-organisation-meaning\">Not-for-Profit Organisation: Meaning&nbsp;<\/span><\/h2>\n\n\n\n<p>A Not-for-Profit Organisation (NPO) is an entity formed not for earning profit but for promoting the welfare of its members or society at large through rendering services. These organisations are usually established as charitable institutions, clubs, or societies and are managed by a group of trustees or an elected managing committee. Their primary objective is service to the community rather than profit generation.<\/p>\n\n\n\n<p><strong>Examples:<\/strong> Schools, hospitals, religious institutions, sports clubs, professional bodies, trade unions, welfare societies, NGOs, and charitable trusts.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-key-characteristics-of-not-for-profit-organisations\"><span id=\"key-characteristics-of-not-for-profit-organisations\">Key Characteristics of Not-For-Profit Organisations<\/span><\/h2>\n\n\n\n<p>According to the accounting for not-for-profit organisations chapter, these organisations are discernible and identifiable because of certain main features. The following features distinguish NPOs while studying Accounting for Not-For-Profit Organisation:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Main objective is to provide services (education, healthcare, sports, cultural activities, etc.) either free of cost or at nominal charges.<\/li>\n\n\n\n<li>Profit earning is not the motive; any surplus is used for achieving the organisation\u2019s objectives.<\/li>\n\n\n\n<li>Members are the owners, not shareholders; they are called subscribers or members.<\/li>\n\n\n\n<li>Managed by elected members or trustees.<\/li>\n\n\n\n<li>Major sources of funds include subscriptions, donations, legacies, government grants, entrance fees, life membership fees, and income from investments.<\/li>\n\n\n\n<li>Surplus is not distributed among members but added to the Capital Fund or General Fund.<\/li>\n\n\n\n<li>They are required to maintain proper books of account and prepare financial statements for transparency and statutory compliance.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-financial-statements-for-not-for-profit-organisations\"><span id=\"financial-statements-for-not-for-profit-organisations\">Financial Statements for Not-for-Profit Organisations<\/span><\/h2>\n\n\n\n<p>Not-for-profit organisations prepare annual financial statements to meet legal requirements, as explained in the chapter Accounting for Not-for-Profit Organisations. These statements help ensure that funds are used appropriately and protect general funds from misuse. Like other entities, not-for-profit organisations also maintain their accounts using the double-entry bookkeeping system. Their financial statements typically include the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Receipt and Payment Account<\/li>\n\n\n\n<li>Income and Expenditure Account<\/li>\n\n\n\n<li>Balance Sheet<\/li>\n<\/ul>\n\n\n\n<p>These statements are prepared following the double-entry system and ensure proper utilisation and safeguarding of funds.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-receipt-and-payment-account\"><span id=\"receipt-and-payment-account\">Receipt and Payment Account<\/span><\/h2>\n\n\n\n<p>A Receipt and Payment Account is a summary statement that records all cash and bank transactions made during a financial year. It captures every amount received and every payment made, making it useful for preparing the Income and Expenditure Account as well as the Balance Sheet of not-for-profit organisations.<\/p>\n\n\n\n<p>This account opens with the cash or bank balance available at the beginning of the year on the receipts side, and it shows the closing cash or bank balance on the payments side at the end of the year. Let&#8217;s understand the format of the Receipt and Payment Account in the next section.<\/p>\n\n\n\n<p class=\"has-black-color has-pale-ocean-gradient-background has-text-color has-background\"><strong>Also Read: <a href=\"https:\/\/leverageedu.com\/explore\/career-counselling\/self-introduction-for-cabin-crew-interview\/\"><strong>Best Self-Introduction for Cabin Crew Interview<\/strong><\/a><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-format-of-receipt-and-payment-account\"><span id=\"format-of-receipt-and-payment-account\">Format of Receipt and Payment Account<\/span><\/h2>\n\n\n\n<p>The format of the receipt and payment account is tabulated below. It is important to mention in the chapter on accounting for a not-for-profit organisation. You can have a look here:&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#e7f5fe\"><tbody><tr><td><strong>Receipts<\/strong><\/td><td><strong>Amount<\/strong><\/td><td><strong>Payments<\/strong><\/td><td><strong>Amount<\/strong><\/td><\/tr><tr><td>Balance b\/dCash in HandCash at the bank<\/td><td>xxx<\/td><td>Balance b\/d (Bank overdraft)&nbsp;<\/td><td>xxx<\/td><\/tr><tr><td>Subscriptions<\/td><td>xxx<\/td><td>Rent<\/td><td>xxx<\/td><\/tr><tr><td>General Donations&nbsp;<\/td><td>xxx<\/td><td>Wages and Salaries<\/td><td>xxx<\/td><\/tr><tr><td>Locker Rent<\/td><td>xxx<\/td><td>Rates and Taxes&nbsp;<\/td><td>xxx<\/td><\/tr><tr><td>Legacies<\/td><td>xxx<\/td><td>Insurance<\/td><td>xxx<\/td><\/tr><tr><td>Grant in Aid<\/td><td>xxx<\/td><td>Audit fees<\/td><td>xxx<\/td><\/tr><tr><td>Interest on FD<\/td><td>xxx<\/td><td>Printing and Stationery<\/td><td>xxx<\/td><\/tr><tr><td>Interest on investments<\/td><td>xxx<\/td><td>Maintenance<\/td><td>xxx<\/td><\/tr><tr><td>Membership fees<\/td><td>xxx<\/td><td>Repair and Renewals&nbsp;<\/td><td>xxx<\/td><\/tr><tr><td>Entrance fees<\/td><td>xxx<\/td><td>Purchase of assets<\/td><td>xxx<\/td><\/tr><tr><td>Miscellaneous Receipts<\/td><td>xxx<\/td><td>Purchase of investments<\/td><td>xxx<\/td><\/tr><tr><td>Balance b\/d(Bank overdraft)<\/td><td>xxx<\/td><td>Closing b\/dCash in handCash at bank<\/td><td>xxx<\/td><\/tr><tr><td>Total<\/td><td>xxx<\/td><td><\/td><td>xxx<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-features\"><span id=\"features\">Features<\/span><\/h2>\n\n\n\n<p>The features of the same are mentioned below:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Starts with opening cash and bank balances (debit side).<\/li>\n\n\n\n<li>All cash receipts (revenue and capital) are recorded on the debit side.<\/li>\n\n\n\n<li>All cash payments (revenue and capital) are recorded on the credit side.<\/li>\n\n\n\n<li>Ends with closing cash and bank balances.<\/li>\n\n\n\n<li>Prepared on a cash basis; non-cash items like depreciation or accruals are not recorded.<\/li>\n\n\n\n<li>Both revenue and capital items are included without distinction.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-income-and-expenditure-account\"><span id=\"income-and-expenditure-account\">Income and Expenditure Account<\/span><\/h2>\n\n\n\n<p>An income and expenditure account is a financial statement used by not-for-profit organisations and serves a purpose similar to the profit and loss account prepared by business enterprises. It records all revenue-related transactions pertaining to the current accounting period. After listing the incomes and expenses, the statement shows either a surplus or a deficit at the end.<\/p>\n\n\n\n<p>This account is prepared on the accrual basis of accounting, meaning that all expenses and incomes are recorded when they are incurred or earned, regardless of actual cash movement. It includes two main sections:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Expenditure section<\/strong> \u2013 covering all expenses and losses<\/li>\n\n\n\n<li><strong>Income section<\/strong> \u2013 covering all incomes and gains<\/li>\n<\/ul>\n\n\n\n<p>Non-cash items such as <strong>depreciation<\/strong> are also included in this statement.<\/p>\n\n\n\n<p>Unlike some other financial statements, it does not begin with an opening balance. The final figure appears as either a surplus (excess of income over expenditure) or a deficit (excess of expenditure over income).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-format-of-income-and-expenditure-account\"><span id=\"format-of-income-and-expenditure-account\">Format of Income and Expenditure Account<\/span><\/h2>\n\n\n\n<p>There is a proper format for income and expenditure accounts. It is tabulated below:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#e9fbe5\"><tbody><tr><td><strong>Expenditure<\/strong><\/td><td><strong>Amount<\/strong><\/td><td><strong>Income<\/strong><\/td><td>Amount<\/td><\/tr><tr><td>Rates and Taxes<\/td><td>xxx<\/td><td>Subscriptions<\/td><td>xxx<\/td><\/tr><tr><td>Lighting<\/td><td>xxx<\/td><td>Entrance fees<\/td><td>xxx<\/td><\/tr><tr><td>Insurance Premium<\/td><td>xxx<\/td><td>Locker Rent<\/td><td>xxx<\/td><\/tr><tr><td>Audit Fees<\/td><td>xxx<\/td><td>Outstanding Interest&nbsp;<\/td><td>xxx<\/td><\/tr><tr><td>Printing and Stationery<\/td><td>xxx<\/td><td>Interest on investment<\/td><td>xxx<\/td><\/tr><tr><td>Salaries and Wages<\/td><td>xxx<\/td><td><\/td><td><\/td><\/tr><tr><td>Postage and Courier charges<\/td><td>xxx<\/td><td><\/td><td><\/td><\/tr><tr><td>Surplus<\/td><td>xxx<\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-balance-sheet\"><span id=\"balance-sheet\">Balance Sheet<\/span><\/h2>\n\n\n\n<p>A balance sheet presents the financial status of an organisation at a specific point in time. In the case of a not-for-profit organisation, it shows the assets, liabilities, and the capital or general fund. It is prepared after completing the Income and Expenditure Account, as discussed in the chapter on accounting for not-for-profit entities. The standard format of the balance sheet is given below.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fcf0ef\"><tbody><tr><td><strong>Liabilities<\/strong><\/td><td><strong>Amount<\/strong><\/td><td><strong>Assets<\/strong><\/td><td><strong>Amount<\/strong><\/td><\/tr><tr><td>Capital<\/td><td>xxx<\/td><td>Cash in hand\/bank<\/td><td>xxx<\/td><\/tr><tr><td>Opening balance<br>Add surplus<br>Subtract deficit<\/td><td>xxx<\/td><td>Outstanding Incomes<\/td><td>xxx<\/td><\/tr><tr><td>Legacies<\/td><td>xxx<\/td><td>Prepaid Expenses<\/td><td>xxx<\/td><\/tr><tr><td>Entrance fees<\/td><td>xxx<\/td><td>The stock of Consumable Items<\/td><td>xxx<\/td><\/tr><tr><td>Membership fees<\/td><td>xxx<\/td><td><\/td><td><\/td><\/tr><tr><td>Donations<\/td><td>xxx<\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-peculiar-items\"><span id=\"peculiar-items\">Peculiar Items<\/span><\/h2>\n\n\n\n<p>As discussed in the chapter on accounting for not-for-profit organisations, their financial statements resemble those of business enterprises. However, some terms and items are unique to not-for-profit accounting. These include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Subscriptions<\/strong>: Main recurring source; shown in Income and Expenditure A\/c after adjusting outstanding and advance subscriptions.<\/li>\n\n\n\n<li><strong>Donations<\/strong>: Amounts received as gifts from individuals or organisations. Donations may be general or meant for a specific purpose.\n<ul class=\"wp-block-list\">\n<li>General \u2192 Credited to Income and Expenditure A\/c<\/li>\n\n\n\n<li>Specific \u2192 Added to the specific fund or capitalised<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Legacies<\/strong>: Amount received as per will; treated as capital receipt and added to Capital Fund.<\/li>\n\n\n\n<li><strong>Life membership fee<\/strong>: It is a one-time lump sum payment; added directly to the Capital Fund.<\/li>\n\n\n\n<li><strong>Entrance fees:<\/strong> It is usually treated as a capital receipt and added to the Capital Fund (unless policy says otherwise).<\/li>\n\n\n\n<li><strong>Sale of an old asset<\/strong>: The proceeds from selling an asset appear in the receipts side of the Receipts and Payments Account. Any profit or loss from the sale is recorded in the Income and Expenditure Account.<\/li>\n\n\n\n<li><strong>Sale of periodicals<\/strong>: Since this income is recurring, it is shown on the income side of the Income and Expenditure Account.<\/li>\n\n\n\n<li><strong>Payment of Honorarium<\/strong>: A payment made to guest performers or specialists for their services.<\/li>\n\n\n\n<li><strong>Endowment Fund<\/strong>: A fund created out of a donation meant for a specific purpose. It is shown on the liabilities side of the balance sheet.<\/li>\n\n\n\n<li><strong>Government Grants<\/strong>: Financial assistance provided by the government to support the organisation\u2019s activities.<\/li>\n<\/ul>\n\n\n\n<p>Mastering these concepts is essential for understanding Accounting for Not-For-Profit Organisation as prescribed in Class 11 and Class 12 NCERT syllabus. Proper treatment of peculiar items and preparation of the three financial statements form the core of this chapter.<\/p>\n\n\n\n<p class=\"has-black-color has-pale-ocean-gradient-background has-text-color has-background\">Also Read:&nbsp;<a href=\"https:\/\/leverageedu.com\/learn\/bachelor-of-aviation\/\"><strong>Bachelor of Aviation: Top Courses, Universities, Fees<\/strong><\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-faqs\"><span id=\"faqs\">FAQs<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1659421608234\"><strong class=\"schema-faq-question\">What is the accounting for a non-profit organization?<\/strong> <p class=\"schema-faq-answer\">Accounting for a non-profit organization involves tracking donations, grants, expenses, and fund balances while preparing financial reports like receipts and payments, income and expenditure, and balance sheets.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1659421968870\"><strong class=\"schema-faq-question\">How many accounts are prepared in not-for-profit Organisation accounting?<\/strong> <p class=\"schema-faq-answer\">The\u00a0Income and Expenditure Account and a Balance Sheet are usually prepared with the help of a Receipt and Payment Account for Not-for-Profit Organisations.   <\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1659422101462\"><strong class=\"schema-faq-question\">What statements are usually prepared by a Not-for-Profit Organisation?<\/strong> <p class=\"schema-faq-answer\">Not-for-profit organisations use four main financial reporting statements:\u00a0<br \/>1. Balance sheet<br \/>2. Income Statement <br \/>3. Statement of cash flows<br \/>4. Statement of functional expenses<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1751280702666\"><strong class=\"schema-faq-question\">What is the final accounting for a not-for-profit organisation?<\/strong> <p class=\"schema-faq-answer\">The final accounting for a not-for-profit organisation includes preparing the Receipts and Payments Account, Income and Expenditure Account, and a Balance Sheet to show financial performance and position.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1751280703576\"><strong class=\"schema-faq-question\">What is an example of a not-for-profit organisation in accounting?<\/strong> <p class=\"schema-faq-answer\">Examples of not-for-profit organisations include schools, hospitals, charitable trusts, clubs, and religious institutions, where accounting tracks funds received through donations, grants, and subscriptions, not profit.<\/p> <\/div> <\/div>\n\n\n\n<p><strong>Related Reads:<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong><a href=\"https:\/\/leverageedu.com\/discover\/indian-exams\/how-to-join-dgca\/\"><strong>How to Join DGCA (Directorate General of Civil Aviation)?<\/strong><\/a><\/strong><\/td><td><a href=\"https:\/\/leverageedu.com\/blog\/cma-course-details\/\"><strong>CMA Course<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/leverageedu.com\/explore\/online-courses\/online-bba\/\"><strong>Online BBA: Colleges, Job Prospects<\/strong><\/a><\/td><td><a href=\"https:\/\/leverageedu.com\/learn\/bcom-banking-and-finance\/\"><strong>BCom Banking and Finance: Eligibility, Colleges, Scope<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/leverageedu.com\/explore\/online-courses\/bba-distance-education\/\"><strong>Top 10 Institutes for BBA Distance Education<\/strong><\/a><\/td><td><a href=\"https:\/\/leverageedu.com\/blog\/animation-course-after-12th\/\"><strong>Animation Courses After 12th<\/strong><\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Hopefully, this blog was helpful for a quick revision of Accounting for Not-for-Profit Organisations. For more exciting and educational content, follow<a href=\"https:\/\/leverageedu.com\/\"><strong> Leverage Edu<\/strong><\/a> on Youtube, Linkedin, Instagram and Quora! If you need help or want to find out about <strong><a href=\"https:\/\/leverageedu.com\/blog\/courses-for-commerce-students\/\">courses for commerce students<\/a>,<\/strong> get in touch with our <a href=\"https:\/\/leverageedu.com\/\"><strong>Leverage Edu<\/strong> <\/a>experts. Sign up for a free session today!<\/p>\n","protected":false},"excerpt":{"rendered":"Accountancy is a vital subject and is the backbone of every organisation. It exposes students to the relevance&hellip;\n","protected":false},"author":27,"featured_media":828608,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"editor_notices":[],"footnotes":""},"categories":[5597,18298,29524,1480],"tags":[],"class_list":{"0":"post-378611","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-accountancy","8":"category-cbse-guide","9":"category-class-12th","10":"category-commerce"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Accounting for Not-For-Profit Organisation: A Beginner\u2019s Guide for Students Class 12 Notes I Leverage Edu<\/title>\n<meta name=\"description\" content=\"Accounting For Not-For-Profit Organisation: Notes, Theory, Class 12 Solutions, Problems, What Is Accounting For Non Profit 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