NCERT Solutions for Class 12 Accountancy Chapter 1 - Accounting for Not-for-Profit Organisation

1. State the meaning of ‘Not-for-Profit’ organizations?

Ans: Not-for-profit organisations are those organisations that are established for a charitable or social purpose and not with a view to earning profit these organisations render services to their members and to the society voluntarily or for the promotion of art culture education in sports and other social and charitable purposes.

2. State the meaning of receipt and payment account?

Ans: Receipt and payment account is prepared at the end of the year from the cash book. It includes all receipts and payments of cash including bank despite the fact whether they relate to the current year preceding year or future period or whether they are of capital or revenue nature.

3. State the meaning of income and expenditure account

Ans: Income and expenditure account is prepared to depict the result of a not for profit organisation during an accounting period. This principle of preparation of profit and loss accounts applies to the preparation of income and expenditure accounts. It is prepared on an accrual basis of accounting-based or on the principle of matching concept.

4. What are the features of Receipt and Payment accounts?

Ans: The following are the features of the receipt and payment account:

1. Receipts and payments account is a summarised form of cash book so it is a real account. Thus, all receipts are recorded on the debit side and all payments are recorded on the credit side.

2. All the receipts and payments are recorded whether they are of capital nature or revenue nature. The basis of recording is cash basis.

3. It starts with opening the balance of cash in hand or cash at the bank. Cash always has a debit balance while banks may have debit or credit balance (overdraft). Similarly, the closing balance also represents cash in hand or cash at the bank.

4. No adjustments for outstanding, depreciation, accrued income, etc. are made in it as all transactions are recorded on a cash basis.

5. It covers a period of the accounting year. All receipts whether related to the current year, previous year or future year are recorded on the receipt side. Similarly, all payments made during the year are shown on the credit side whether they relate to the current year, previous year or future year.

6. Receipts and Payments A/c merely depict cash in hand and cash at the bank at the end. It does not represent excess income over expenditure and vice versa.

5. What steps are taken to prepare an Income and Expenditure account from a Receipt and Payment account?

Answer: The steps that are involved in the preparation of the Income and Expenditure account from the Receipt and Payment account are as follows:

1. The opening balance of cash in hand and bank balance appearing in the reception payment account will be shown on the asset side of the opening balance sheet similarly closing balance of cash and bank will be shown in the closing balance sheet.

2. All the cash receipts are shown on the liabilities side of the balance sheet keeping in mind that expenses related to these funds are deducted from the concerned fund and income related to the concerned fund is added to it.

3. The items of revenue expenditure are debited to the income and expenditure account after making the necessary adjustments for outstanding and prepaid expenses in the concerned expense.

4. The income and expenditure account is closed and balanced. It will either reveal surplus or deficit.

6. What is a subscription? How is it calculated?

Answer: Subscription is the amount paid by the members of a Not-for-profit organisation on a periodical basis so that their membership is not cancelled. Thus, it is a recurring source of revenue from its members. It is calculated as under:

Computation of Subscriptions

7.  What is the capital fund? How it is calculated?

Ans: The excess of assets over liabilities in the case of a not for profit organisation is called a capital fund. The balance of income and expenditure account in the form of surplus or deficit is transferred to the Capital fund every year. This fund is also called an accumulated fund or general fund. It is calculated as:

8. Explain the statement: “Receipts and Payment Account is a summarised version of Cash Book’’.

Ans: A receipt and payments Account is prepared at the end of the year from the cash book. The receipt and payment account begins with opening cash and bank balance on the debit side. All receipts are recorded on the debit side and all payments on the credit side balance represent the closing cash and bank balance.

The similarity between receipt and payments account and cash book

The following are the features of receipt and payment account that are common to those of cash book:

1. All receipts are recorded on the debit side and all payments are recorded on the credit side in both.

2. Receipts and payment account is a real account as cash book

3. It starts with the opening balance of cash in hand and cash at the Bank and the closing balance also represents cash in hand and cash at the bank similar to the cash book.

4. No adjustment for outstanding depreciation accrued income etc. is made like the transactions recorded in the cash book.

5. Like a cash book, it helps to ascertain the cash in hand and cash at the bank at the end of the accounting period.

 Based on the similarities the above statement, receipt and payment account is a summarised version of the cash book is justified.

9. “Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern”. Explain the statement.

Ans: The income and expenditure account is a nominal account it is prepared to depict the result of a not for profit organisation during an accounting period. The principles of preparation of profit and loss accounts apply for the preparation of income and expenditure accounts as well. It is prepared on an accrual basis of accounting based on the principle of matching concept.

Similarities between income and expenditure account and profit and loss account.

1. Both the accounts are nominal accounts.

2. Revenue expenses and revenue incomes are recorded related to the current accounting period, in both accounts.

3. Both cash and non-cash items like Bank that depreciation etc are taken into consideration as both the accounts are prepared on an accrual basis.

4. Both accounts record transactions related to the current year, previous year and next year transactions are excluded.

Based on the above similarities, the income and expenditure account of a not-for-profit organisation is keen to profit and loss account of a business concern.

10. Distinguish between Receipts and Payments Account and Income and Expenditure Account.

Ans:

11. Explain the basic features of Income and Expenditure Account and Receipt and Payment Account.

Ans: The following are the features of the income and expenditure account:

1. It is a nominal account so expenses and losses are debited while gains and incomes are credited to this account.

2. It is prepared for an accounting period showing all expenses and incomes of the accounting period are shown whether paid or due.

3. Income and expenditure accounts are prepared on an accrual basis to show adjustments related to outstanding expenses, prepaid expenses and accrued income received in advance are made. Similarly provision for doubt that depreciation is made.

4. It does not include capital expenditures and capital receipts.

5. Both cash and non-cash items like bad depreciation etc are taken into consideration.

6. If an asset is sold during the year, profit on the sale of assets for loss on sale of the asset is shown in the income and expenditure account.

7. The balance of income and expenditure accounts at the end represents their surplus or deficit.

8. Income and expenditure accounts are followed by a balance sheet which consists of personal accounts and real accounts.

The following are the features of the receipt and payments account:

1. The receipts and payments account is a summarised form of cash book so it is a real account. Thus, all receipts are recorded on the debit side and all payments are recorded on the credit side.

2. All the receipts and payments are recorded whether they are of capital nature or revenue nature. The basis of recording is cash basis.

3. It starts with opening the balance of cash in hand or cash at the bank. Cash always has a debit balance while banks may have debit or credit balance(overdraft). Similarly, the closing balance also represents cash in hand or cash at the bank.

4. No adjustment for outstanding, depreciation, accrued income, etc. is made in it as all transactions are recorded on a cash basis.

5. It covers a period of the accounting year. All receipts whether related to the current year, previous year or future year are recorded on the receipt side. Similarly, all payments made during the year are shown on the credit side whether they relate to the current year, previous year or future year.

6. Receipts and Payments A/c merely depict cash in hand and cash at the bank at the end. It does not represent excess income over expenditure and vice versa.

12.  Show the treatment of the following items by a not-for-profit organisation:

(i) Annual subscription

(ii) Specific donation

(iii) Sale of fixed assets

(iv) Sale of old periodicals

(v) Sale of sports materials

(vi) Life membership fee

(i) Annual subscription

Ans:

(i) It is shown on the debit side of the receipts and payments account

(ii) Amount related to the current year whether received or not received are shown on the credit side of the income and expenditure account.

(iii) Advance subscriptions are shown on the liability side of the balance sheet

(iv) Subscription outstanding are shown on the asset side of the balance sheet

(ii) Specific donation

Ans:

(i) Specific donation received is shown on the debit side of the receipts and payments account.

(ii) These are shown on the liability side of the balance sheet account.

(iii) Sale of fixed assets

Ans:

(i) The amount received from the sale of fixed assets are recorded on the debit side of the receipts and payments account

(ii) Profits on the sale of assets is credited and losses on the sale of fixed assets are debited to the income and expenditure account

(iii) The book value of the fixed assets sold is deducted from its respective assets on the asset side of the balance sheet

(iv) Sale of old periodicals

Ans:

(i) Sound received from the sale of old periodicals are shown on the debit side of the receipts and payments account

(ii) Sale of old periodicals is shown on the credit side of the income and expenditure account

(v) Sale of sports materials

Ans:

(i) The amount received from the sale of sports material are debited to the receipts and payments account

(ii) Sale of sports material is shown on the credit side of the income and expenditure account as it is a revenue income

(vi) Life membership fee

Ans:

(i) It is debited to the receipts and payments account

(ii) Life membership fees are added to the capital fund on the liabilities side of the balance sheet as it is a capital receipt.

13. Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.

Ans: Income and expenditure are prepared on the accrual basis of accounting based on the principle of matching concept i.e. adjustment relating to outstanding expenses prepaid expenses accrued income received in advance and depreciation are made. Incomes are shown on the credit side while expenses are shown on the debit side. There is no opening balance in the income and expenditure account but the closing balance reveals surplus if there is an excess of income over expenditure and reveals deficit if there is an excess of expenditure over income. The treatment of items when there is a specific fund for those items:

Treatment

(Tournament/Match/Prize, etc.) Fund Account

Dr.                                                                                                                         Cr.

(a)   If the receipts exceed the expenses for specific purposes then the difference between the two is shown in the Liabilities side of the Balance Sheet.

(b)  If the expenses exceed the receipts for the specific purpose then the difference between the two is shown in the Expenditure side of the Income and Expenditure Account.

14. What is a Receipt and Payment Account? How is it different from Income and Expenditure Account?

Ans: Receipt and payment account is a summary of cash and Bank transactions during an accounting year of a not for profit organisation. Receipts and payments account is prepared at the end of the year from the cash book. The reception and payments account includes all receipts and payments of cash including Bank despite the fact that they are related to the current year preceding year or future period or whether they are of capital nature or revenue nature.

Numerical Questions

1. From the following particulars taken from the Cash Book of a health club, prepare a Receipts and Payments Account.

Ans:

2. The Receipt and Payment Account of Harimohan charitable institution is given:

Receipt and Payment Account for the year ending March 31, 2015

Prepare the Income and Expenditure Account for the Year ended on March 31, 2015, after considering the following:

i. Liabilities to be provided for are:
Rent Rs. 800; Salaries Rs. 1,200; advertisement Rs. 200.

ii. Rs. 2,000 due for interest on investment was not actually received.

Ans:

Working:

(i) Legacies = 50% of 24000 = 12000
Donations = 50% of 32000 = 16000

3. From the following particulars, prepare an Income and Expenditure account:

Ans:

Working:
Purchase of Periodicals = 40000 – 31000 = 9000

4. Following is the information given in respect of certain items of a Sports Club. Show these items in the Income and Expenditure Account and the Balance Sheet of the Club:

Ans:

5. How will you deal with the following items while preparing for the Bombay Women Cricket Club its income and expenditure account for the year ending 31.3.2017 and its Balance Sheet as of 31.3.2017:

Give reasons for your answers.

Ans: (a)

Reason:

A donation for the construction of the Pavilion is a donation for a specific purpose.

Expense on construction on the Pavilion is a Capital Expenditure.

b.

Reason:

All funds received are treated as capital receipts and expenses related to any fund are reduced from the concerned funds

c.

Reason:

Life Membership Fees are considered as capital receipts and are shown on the Liabilities side on the Balance Sheet if nothing is specified about its treatment. But if it is to be treated as a revenue item, then it is shown on the credit side of the Income and Expenditure account.

6. From the following receipts and payments and information given below, Prepare Income and Expenditure Account and opening Balance Sheet of Adult Literacy Organization as of December 31, 2017.

Receipt and Payment Account for the year ending as on December 31, 2017

Information:

(i) Subscription outstanding as on 31.12.2016 were Rs.2,000 and on December 31, 2017 were Rs.1,500.

(ii)On December 31, 2017, Salary outstanding was Rs.600, and one month rent was paid in advance.

(iii) On Jan. 01, 2016 orgnisation owned Furniture Rs.12,000, Books Rs.5,000.

Ans:

7. The following is the Receipt and Payment Account of the Nari Kalyan Samittee for the year ended December 31, 2017:

You are required to prepare an Income and Expenditure Account after the following adjustments:

(a) Subscription still to be received are Rs.750, but subscription includes Rs.500 for the year 2018.

(b) At the beginning of the year the Samiti owned building Rs.20,000 and furniture Rs.3,000 and Books Rs.2,000.

(c) Provide  depreciation on furniture @5% (including purchase ), books  @ 10% and building @ 5%.

Ans:

8. Following is the Receipt and Payment Account of Indian Sports Club, prepared Income and Expenditure Account, Balance Sheet as of December 31, 2017:

Receipt and Payment Account for the year ending December 31, 2017

Other Information:

Subscription outstanding was on December 31, 2016, Rs.1,200 and Rs.3,200  on December 31, 2017. Locker rent outstanding on December 31, 2017 Rs.250. Salary outstanding on December 31, 2017, Rs.1,000.

On January 1, 2017, club has Building Rs.36,000, furniture Rs.12,000, Sports equipments Rs.17,500. Depreciation charged on these items @ 10% (including Purchase).

Ans:

9. From the following Receipt and Payment Account of Jan Kalyan Club, prepare Income and Expenditure Account and Balance Sheet for the year ending March 31, 2017.

Receipt and  Payment  Account for the year ending March 31, 2017

Additional Information:

Ans:

10. Receipt and Payment Account of Shankar Sports club is given below, for the year ended March 31, 2017

Receipt and Payment Account for the year ending March 31, 2017 the 

Prepare Income and Expenditure Account and Balance Sheet with help of the following Information:

Subscription outstanding on March 31, 2016,ofofThe stock is Rs.1, 200 and Rs.2, 300 on March 31, 2017, opening stock of postage stamps is Rs.300 and closing stock is Rs. 200, Rent Rs.1, 500 related to 2015 and Rs.1, 500 is still unpaid.

On April 1, 2016 the club owned furniture Rs.15, 000, Furniture valued at  Rs. 22,500 as on March 31, 2017. On March 31, 2016, the club had a loan of Rs.20,000 (@ 10% p.a).

Ans:

11. Prepare Income and Expenditure Account and Balance Sheet for the year ended March 31, 2016, from the following Receipt and Payment Account and Balance Sheet of culture club:

Receipt and Payment Account for the year ending March 31, 2016

Balance Sheet for the year ending March 31, 2015

Ans: