Study Material & Notes-Non Profit Organization

Study Material & Notes for the Chapter 1

Non-Profit Organization


Two types of Organizations – For Profit organization and Non-Profit Organization

A.  For-Profit Organization
  • A For-profit organization is the one that operates with the mission is to generate profit and forward these profits to the business’s owners and shareholders as well as to maximize wealth of the owners/shareholders.
  • For-profit organizations can be in the form of a sole proprietorship, partnership firm or a company.
  • For-profit organizations develop effective products and services that are valuable to consumers and makes profit by directly/indirectly selling these goods or services.
  • For-profit organizations fund their assets through owner’s capital, loans and revenue generated from sales
B. Non-Profit Organizations
  • NPO are organizations whose main objective is to render services to its members and society
  • These activities include charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children, old or animals
  • Its profits/surplus is recycled back into the nonprofit corporation’s public benefit mission and activities.
  • A nonprofit organization can be constituted in the form of trust, clubs, society, committee
  • Nonprofits seek out private donations of time and money, corporate sponsorships, and government grants. They source revenue mainly through donations, subscriptions, or membership fees.
C. Difference between For-Profit & Non-Profit Organization
Table 1.1.C


  • NPO receives donations for specific purposes and accordingly create a specific fund for the said purpose
  • Two categories of fund – General Fund and Specific Fund
  • In the Fund based accounting, receipt of donations and incomes relating to a particular fund are credited to that fund and payments and expenses are debited to it
A. Funds – Inflow/Outflows
B. General Fund - Capital fund
C. Specific Fund – Building Fund
D. Intra Fund Adjustments

From building Fund to Capital Fund: Building Under Construction

Transfer from Building to Capital Fund (+) Capital Fund (-) Building Fund

E. Funds Fund expenses over Fund Balance (Specific Fund-Tournament Fund)

If after adding incomes to fund, further donations received and deducting expenses, the fund shows debit balance, it is transferred i.e., shown on the Debit side of Income and Expenditure A/c


A. Computation of Consumable Items

Option-1 With formula

Consumable Items = Opening Stock + Purchases (Net) – Closing Stock

Opition-2 by drawing up ledger account

Creditors Account
Stock Account
Income and Expenditure Account
B. Please note :
A. Computation of Subscription Income


Subscription Income = Number of members X Annual Fee per member


B. Calculation of Salary expense
A. For-Profit Organization & Non-Profit Organization
B. Capital & Revenue Receipts
C. Capital & Revenue Payments
D. Receipts and Payments Account
  • Like Cash Account
  • Only Cash transactions are recorded, credit/accrual transactions are not recorded
  • Is a summary of cash and bank transactions prepared at the end of the accounting year
  • Receipts include Capital as well Revenue Receipts, similarly Payments include both Capital & Revenue Payments
  • Receipts & Payment could pertain to any Accounting year…Current, previous, or future
Receipts & Payments Account
E. Income & Expenditure Account
  • Like Profit & Loss Account…summary of Income & Expenditure of an accounting year
  • Transactions are recorded on accrual basis hence both cash & credit transactions are recorded
  • Only transaction of revenue nature is recorded, capital transactions are not recorded
  • Accrual adjustments done (+)/(-) Outstanding at end/beginning (+)/(-) Prepaid at the beginning/end
  • If Income > Expenditure, it is surplus else Deficit (Expenditure > Income)
Receipts & Payments Account
F. Difference between Receipts & Payments Account and Income and Expenditure Account
G. Balance Sheet
  • Balance Sheet shows the Financial position of an NPO at the reporting date/end of accounting year
  • Similar to Balance sheet of For Profit Organizations
  • The Balance sheet shows Capital Fund, Specific fund, Liabilities and Assets
  • Surplus/deficit of the Income & Expenditure Account is shown under Capital fund
  • If Opening Capital Fund is not given, it is computed making Opening Balance Sheet
Balance Sheet
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