BHTM- FInal accounts for Non Profit organisation and companies Financial Accounting- Topic 6
Topic 6 Non Profit Organisations and Companies
Non- profit making organisations
There are organisations whose objective is not to make a profit but instead provide facilities for their
members to pursue a hobby, sporting activity or provide voluntary services. These clubs and
associations do not have to prepare an income statement since they are not formed to carry on
trading and make profits. Instead the financial statements prepared by them are either ‘receipts and
payments accounts’ or ‘income and expenditure accounts’.
Receipts and payments account
Receipts and payments account are usually prepared by the treasurer of the club or association.
This account is a summary of the cash book for the period and if the organisation has no assets
(other than cash) and no liabilities, a summary of the cash book tells the members all they need to
know about the financial activities during a period.
Example of a receipts and payments account
The HM Club
Receipts and Payments Account for the year ended 31 December 2011
Receipts Rs Payments Rs
Bank balance 01 Jan 2011 2,360 Wages 10,000
Subscriptions received for 2011 11,640 Sports ground expenses 1,760
Rent received 1,000 Committee expenses 280
Printing and stationery 110
Bank balance 31 Dec 2011 2,850
15,000 15,000
Income and expenditure accounts
When assets are owned, and/or there are liabilities, the receipts and payments account is not a good
way of drawing up financial statements. Other than the cash received and paid out, it shows only the
cash balances; the others assets and liabilities are not shown at all.
What is required is:
• A Statement of Financial Position, and
• An account showing whether the association’s capital has increased.
The second of the two requirements is provided via an Income and expenditure account. Such an
account follows the same rules as income statement, the only differences being the terms used.
1
, BHTM- FInal accounts for Non Profit organisation and companies Financial Accounting- Topic 6
A comparison of terms used now follows:
Profit-making organisation Non-profit organisation
Income statement Income and expenditure account
Net profit Surplus of income over expenditure
Net loss Excess of expenditure over income
Accumulated fund
A sole trader or partnership would have capital accounts. A non-profit making organisation would
instead have an accumulated fund. It is in effect the same as a capital account, for it is the difference
between assts and liabilities. For a sole trader or partnership:
CAPITAL = ASSETS – LIABILITIES
In a non- profit making organisation:
ACCUMULATED FUND = ASSETS - LIABILITIES
Subscriptions
No subscriptions owing
Where there is no subscriptions owing, or paid in advance, at the beginning and the end of a
financial year, then the amount shown on the credit side of the subscriptions account can be
transferred to the credit side of the income and expenditure account as follows:
Dr Subscriptions Cr
2011 Rs 2,011 Rs
Income &
expenditure a/c
Bank (total
31-Dec 3,598 31-Dec received) 3,598
Income and Expenditure Account for the year ended 31 December 2011 (extract)
Rs
Income:
Subscriptions 3,598
2
Topic 6 Non Profit Organisations and Companies
Non- profit making organisations
There are organisations whose objective is not to make a profit but instead provide facilities for their
members to pursue a hobby, sporting activity or provide voluntary services. These clubs and
associations do not have to prepare an income statement since they are not formed to carry on
trading and make profits. Instead the financial statements prepared by them are either ‘receipts and
payments accounts’ or ‘income and expenditure accounts’.
Receipts and payments account
Receipts and payments account are usually prepared by the treasurer of the club or association.
This account is a summary of the cash book for the period and if the organisation has no assets
(other than cash) and no liabilities, a summary of the cash book tells the members all they need to
know about the financial activities during a period.
Example of a receipts and payments account
The HM Club
Receipts and Payments Account for the year ended 31 December 2011
Receipts Rs Payments Rs
Bank balance 01 Jan 2011 2,360 Wages 10,000
Subscriptions received for 2011 11,640 Sports ground expenses 1,760
Rent received 1,000 Committee expenses 280
Printing and stationery 110
Bank balance 31 Dec 2011 2,850
15,000 15,000
Income and expenditure accounts
When assets are owned, and/or there are liabilities, the receipts and payments account is not a good
way of drawing up financial statements. Other than the cash received and paid out, it shows only the
cash balances; the others assets and liabilities are not shown at all.
What is required is:
• A Statement of Financial Position, and
• An account showing whether the association’s capital has increased.
The second of the two requirements is provided via an Income and expenditure account. Such an
account follows the same rules as income statement, the only differences being the terms used.
1
, BHTM- FInal accounts for Non Profit organisation and companies Financial Accounting- Topic 6
A comparison of terms used now follows:
Profit-making organisation Non-profit organisation
Income statement Income and expenditure account
Net profit Surplus of income over expenditure
Net loss Excess of expenditure over income
Accumulated fund
A sole trader or partnership would have capital accounts. A non-profit making organisation would
instead have an accumulated fund. It is in effect the same as a capital account, for it is the difference
between assts and liabilities. For a sole trader or partnership:
CAPITAL = ASSETS – LIABILITIES
In a non- profit making organisation:
ACCUMULATED FUND = ASSETS - LIABILITIES
Subscriptions
No subscriptions owing
Where there is no subscriptions owing, or paid in advance, at the beginning and the end of a
financial year, then the amount shown on the credit side of the subscriptions account can be
transferred to the credit side of the income and expenditure account as follows:
Dr Subscriptions Cr
2011 Rs 2,011 Rs
Income &
expenditure a/c
Bank (total
31-Dec 3,598 31-Dec received) 3,598
Income and Expenditure Account for the year ended 31 December 2011 (extract)
Rs
Income:
Subscriptions 3,598
2
