Definition: Non-profit organization are established to provide aid to society. They are entrenched to develop charity, commerce, religion, or any other fruitful objects. Their main objective is to provide services without the intention of earning profits in return, like trading organizations.
Content: Non-profit organization
- Types of accounts
- Features of Non-profit organization
- Advantages of Non-profit organization
- Disadvantages of Non-profit organization
- Distinction between Receipt & payment account and Income and Expenditure account
Types of accounts
Since, these organizations don’t work for profit-making, preparing trading and profit and loss account is not relevant for them, these organizations prepare:
Receipts and payments account: Numerous charitable organizations assemble receipt and payment account which shows the arbitrary of the cash transactions, it is competent for small organizations, but it has a detriment that pre-payments and accrual payments are not recorded in it.
It only debits the account with all the receipts and credits the account with all the payments irrespective of its nature,
It can be revenue or capital nature payments for the current year, the previous year, successive year, and at last, it displays only bank or cash balance.
For the year ended 31, December 2019
|To balance b/d|
|To life membership fees||xxx||By stationery||xxx|
|To donations||xxx||By bank charges||xxx|
|To interest||xxx||By travelling expenses||xxx|
|To dividend||xxx||By sundry expenses||xxx|
|To entrance fees||xxx||By repairs||xxx|
|To sundry receipts||xxx||By balance c/d|
Income and expenditure account: Income and expenditure account is the final account for the non- profit organization; it is like a profit and loss account, which displays the restricted summary for the current accounting year.
In the form of revenue expenses, revenue incomes and losses counting surplus also and the deficit or the surplus gets transferred to Capital account of the proprietor.
Format of Income and expenditure account
For the year ended 31, December 2019
|To salary and wages||xxx||By donation||xxx|
|To depreciation||xxx||By dividends||xxx|
|To repairs||xxx||By interest on deposits||xxx|
|To bad debts||xxx||By subscription||xxx|
|To postage||xxx||By subscriptions||xxx|
|To printing and stationery||xxx||By entrance fees||xxx|
|To rent||xxx||By all revenue receipts||xxx|
|To all revenue payments||xxx||By grants received||xxx|
*(excess of income over expenditure)
*(excess of expenditure over income)
Balance sheet: After preparing receipt and payment, income and expenditure account, Non-profit organization prepare Balance sheet, as usual, the other organizations prepare at the end of the financial year.
The surplus of assets over liabilities is known as Capital fund, which includes surplus, capitalized receipts and the capital receipts as well.
Format of Balance sheet
As at 31, December 2019
|Capital account |
Cash and bank balance
|Bank overdraft||xxx||Fixed assets|
(-)sale of furniture
Features of Non-profit organization
- Its main element is to serve society.
- No surplus gets distributed among its members.
- Major funding is done by donation and contribution in the non-profit organization.
- The non-profit organization also considered a separate legal entity.
- The elected members of the organization handle the administration.
- Numerous non-profit organizations are dependent on the active assistance of the volunteers.
Advantages of Non-Profit Organization
- Enduring existence: Non- profit organizations have life even if the benefactor leaves the organization, as they stay admissible, and endure to make revenue.
- Tax exemption: Non- trading organization are excused from paying taxes to the government; thus, can regulate their whole income back in the organization’s advancement.
- Government grants: Non- profit organizations get a various allocation from the government for the betterment of the organization.
- Defined debts: In case of any dispute creditors have explicit rights for suing on the organization; they can only recover their debts with the organization’s assets, and the owner is not liable to pay any indebtedness with his personal assets.
- Inherent Compensation: Non- profit organization administer services and favour to the overlooked or neglected section of the society, such as impoverished children.
Disadvantages of Non-Profit Organization
- Time and money: For starting a non-profit organization, it takes a lot of money and devotion towards work, without any intention of earning profit in return.
- Maintenance expenses: Non-profit organization has to maintain the costs incurred during the year from the limited available funds so that the organization continues for long run efficiently.
- Public inquiry: Anyone from the general public can ask for the fillings of the non-profit organization and can review their incomes and expenditures.
If you have a broad public-facing organization, you become liable to answer their questions to maintain the image of your organization.
- Filling burden: To maintain the active and exempt status, the non-profit organization’s need to acknowledge annual fillings to the government.
- No gain: Non-profit organizations don’t offer any profit to its shareholders; thus, it becomes difficult sometimes to bring out concern from the likely investors.
Distinction between Receipt & payment account and Income and Expenditure account
|Basis of comparison||Receipt and Payment account||Income and Expenditure account|
|Initiation||It is automatically initiated with the opening balance carried forward from the previous year.||It does not have any opening and closing balance.|
|Nature||It is arbitrary of cash affairs.||It is analysis of income and expenses of the organization.|
|Items||It comprise of both capital and revenue receipts and payments.||It only consist of revenue items.|
|Balancing||At the time of closing accounts the balance left in this account is treated as cash-in-hand or bank balance.||It shows the surplus or the deficit at the end of the year.|
|Recordings||In receipt and payment accounts no provision, depreciation,bad debts are recorded.||Provisions,bad debts, and depreciation is recorded is this account.|
|Debit/Credit||Receipts are debited and payments are credited in this account.||All expenses and losses are debited whereas; all incomes and gains are credited in this account.|
|System||Cash system of accountancy is used for preparing this account.||Mercantile system of accountancy is used for making of this account.|
|Accounts||It is treated as a real account.||It is treated as a nominal account.|
|Outstanding expenses and incomes are not considered in this account,it only deal with cash transactions.||All the outstanding expenses and incomes are considered in this account.|
Non-profit organizations work for the betterment of humanity without any hope of rewards in monetary and non-monetary form, and the members in it work with devotion towards society and provide various charitable services for which government and various investors provide the fund to these organization.
These organizations are free from the tax burden, i.e. they do not have to pay taxes to the government in the form of income tax, but for getting this advantage, they need to maintain proper records of their works in the organized format.