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Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations : The basis of accounting affects the timing of recognition of income and expenses. When a cash basis of accounting is used, income is recognized once it is received while
expense is recognized once it is paid. On the other hand, using an accrual basis means that income is recognized when it is earned,
even when it has not yet been received, and expenses are recognized when they are incurred even when they have not yet actually been paid.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Final accounts of non-profit organisations:

a) Receipts and Payment accounts-Meaning and features.

b) Income and Expenditure-Meaning and features.

c) Balance Sheet

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Receipt and Payment Account
Accounting for Not-for-Profit Organisation

It is prepared at the end of the accounting year on the basis of cash receipts and cash payments recorded in the cash book. It is a summary of cash and bank transactions under various heads.

For example, subscriptions received from the members on different dates which appear on the debit side of the cash book, shall be shown on the receipts side of the Receipt and Payment Account as one item with its total amount.

Similarly, salary, rent, electricity charges paid from time to time as recorded on the credit side of the cash book but the total salary paid, total rent paid, total electricity charges paid during the year appear on the payment side of the Receipt and Payment Account.

Thus, Receipt and Payment Account gives summarised picture of various receipts and payments, irrespective of whether they pertain to the current period, previous period or succeeding period or whether they are of capital or revenue nature. It may be noted that this account does not show any non cash item like depreciation.

The opening balance in Receipt and Payment Account represents cash in hand/cash at bank which is shown on its receipts side and the closing balance of this account represents cash in hand and bank balance as at the end of the year, which appear on the credit side of the Receipt and Payment Account. However, if it is bank overdraft at the end it shall be shown on its debit side as the last item.

Let us look at the cash book of Golden Cricket Club given in the example to show how the total amount of each item of receipt and payment has been worked out.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Steps in the preparation of Receipt and Payment Account

1. Take the opening balances of cash in hand and cash at bank and enter them on the debit side. In case there is bank overdraft at the beginning of the year, enter the same on the credit side of this account.

2. Show the total amounts of all receipts on its debit side irrespective of their nature (whether capital or revenue) and whether they pertain to past, current and future periods.

3. Show the total amounts of all payments on its credit side irrespective of their nature (whether capital or revenue) and whether they pertain to past, current and future periods.

4. None of the receivable income and payable expense is to be entered in this account as they do not involve inflow or outflow of cash.

5. Find out the difference between the total of debit side and the total of credit side of the account and enter the same on the credit side as the closing balance of cash/bank.

In case, however, the total of the credit side is more than that of the total of the debit side, show the difference on the debit as bank overdraft and close the account.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Income and expenditure statement

The profit and loss statement (sometimes referred to as the income statement) is a summary of an organisation’s income and expenses over a specific period of time. It is prepared at regular intervals (usually monthly and at financial year end) to show the results of operations for a given period.

This statement is important for NFP organisations, as it shows how received funds have been allocated against operating expenses during the reporting period, providing information to all donors and the board or management committee.

Most NFP organisations receive most of their income from grants, donations and membership fees (rather than receiving fees for services) and these are often referred to as contributions. Some organisations will also receive income from trading activity, such as sale of branded goods or goods produced from workshop activities undertaken by clients.

Each source of income for NFPs carries specific characteristics and should be appropriately disclosed in the financial statements. Where income is received with specific conditions on how it is to be used, these conditions should be reported through the financial statements.

This is particularly relevant for grants received that carry reciprocal conditions. A reciprocal grant is a grant that has an agreement specifying the conditional use of the contribution. For reciprocal grants, reporting should include stages of completion. This may be measured by reporting the extent to which the conditions of the grant have been met (i.e. the percentage of funds spent or resources used).

Non-reciprocal grants are essentially transfers of resources from one party to another where the transferers do not directly receive approximately equal value in return. These include everyday transfers such as gifts, donations, government grants and taxes. They may be received as cash, or as other assets, or as reductions in liabilities (for example, forgiven loans). Non-reciprocal transfers are a major source of funding for government and other NFP organisations.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Expenses

In order to complete the financial picture of the operational activities of the NFP, all income (after deducting any cost of goods sold) must be matched against the expenses incurred during the reporting period. Expenses can includeitems such as wages and salaries, rent, advertising, fundraising expenses, client support expenses, etc. The most appropriate way of reporting expenses is to classify them into what is known as functional expense classifications.

The two main functional expense classifications are program services and supporting activities.

• Program services are segregated activities that can be clearly identified and recorded separately. For example, where the organisation undertakes various workshop activities, expenses for each activity would be separately reported under that activity

• Supporting activities typically include management and general activities, fundraising, and membership development.
For each NFP, the classification of functional expense can vary widely.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Balance sheet

The balance sheet provides a picture of the financial health of an organisation at a given moment (usually the end of the month or the financial year). It lists in detail the various assets that the organisation owns, its liabilities and the value of the organisation’s equity (or the net worth of the organisation).

• Assets are the items of value owned by the organisation

• Liabilities are the amounts owed to external stakeholders of the organisation

• Equity is the accumulated funds from the operations of the organisation, often referred to as accumulated funds in the balance sheet for NFPs

The organisation requires assets in order to operate and these assets are either funded by accumulated funds from the operations of the organisation or by borrowing money from external parties.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

Balance sheet categories:

• Assets can include cash, investments, inventory, land, buildings, equipment, machinery, furniture, patents, trademarks, and money due from individuals or other businesses (known as debtors or accounts receivable)

• Liabilities can include funds acquired to support the organisation’s operations by way of loans, overdrafts and other credit used to fund the activities of the organisation including the purchase of capital assets, inventory, and for the payment of general organisational expenses.

• Equity (or net worth or capital) is money injected into the organisation for use by the organisation in acquiring assets and paying for its (sometimes ongoing) cash requirements. For an NFP, this would generally include fundraising funds, grants etc. The general principle is that this figure should never be negative as this would indicate that all the capital has been depleted and the organisations unable to pay its debts. For all organisations, insolvency is a very serious matter.

The categories in the balance sheet will highlight those items that can be turned into cash quickly. Because of the particular focus of NFPs on cash and cash resources, the categories contained within the balance sheet hold significant relevance. Assets are shown in order of how quickly they can be turned into cash with current assets shown first and typically including items that are likely to be realisable within a 12-month period. Fixed assets come next and are ‘longer-term assets’. In the same way, liabilities are listed in order
of how soon they must be repaid with current liabilities (less than 12 months) coming first then non-current liabilities (longer than
12 months), followed by the equity in the organisation.

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

for more details On Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations syllabus check here Accountancy Syllabus

Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations

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Karnataka Class 12 Commerce Accountancy Capital and Revenue Items Books to downloadDownload Link
  • Non Profit Organisations book
  • Need for Maintaining of Accounts books by Non Profit Organisation
 

  • Accounting book 1
 

  • Accounting book 2
  • Accounting book 3
  • Need for Maintaining of Accounts notes by Non Profit Organisation
  • Need for Maintaining of Accounts guide by Non Profit Organisation
  • Need for Maintaining of Accounts guide by Non Profit Organisation 1
  • Need for Maintaining of Accounts guide by Non Profit Organisation 2

To download Karnataka Class 12 Commerce Accountancy Final Accounts of Non Profit Organisations check here Accountancy papers

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