Accounting for Non-Profit Organizations: Receipts & Payments, Income & Expenditure and Balance Sheet Questions

Question 1

Define Receipts and Payments Account.

Accepted Answer

**Receipts & Payments Account** is a summary of all **cash and bank receipts and payments** of an NPO during an accounting period.

Question 2

Define Income and Expenditure Account.

Accepted Answer

**Income & Expenditure Account** is an accrual-based account prepared by an NPO to find **surplus or deficit** for the year.

Question 3

What is capital fund (general fund)?

Accepted Answer

**Capital fund (general fund)** is the accumulated fund of an NPO, equivalent to **capital**, representing excess of assets over liabilities.

Question 4

What is surplus in an NPO?

Accepted Answer

**Surplus** is the excess of income over expenditure in Income & Expenditure Account for the year.

Question 5

Outstanding subscriptions are shown where in Balance Sheet?

Accepted Answer

Outstanding subscriptions are shown as an **asset** in the Balance Sheet of an NPO.

Question 6

Give one example of a capital item in NPO accounts.

Accepted Answer

Purchase of **furniture** (or building, equipment) is a capital item in NPO accounts.

Question 7

Differentiate Receipts & Payments A/c and Income & Expenditure A/c (any three points) with a table.

Accepted Answer

### **Receipts & Payments vs Income & Expenditure**

- R&P is prepared on **cash basis**; I&E is prepared on **accrual basis**.
- R&P includes **all** cash items (capital + revenue); I&E includes only **revenue** items.
- R&P shows closing cash/bank balance; I&E shows **surplus/deficit**.

Table:

| Basis | R&P A/c | I&E A/c |
|---|---|---|
| Basis | cash | accrual |
| Capital items | included | excluded |
| Result | closing cash/bank | surplus/deficit |

Thus, R&P is cash summary, while I&E shows performance of the year.

Question 8

Explain capital fund (general fund) and how it is computed (any three points) with a small formula table.

Accepted Answer

Capital fund is the accumulated fund of an NPO.

Points (any three):
- it is equivalent to **capital** in a business.
- opening capital fund is computed as **Assets − Liabilities** at beginning.
- during the year, **surplus is added** and **deficit is subtracted**.

Formula table:

| Item | Formula |
|---|---|
| Opening capital fund | Assets − Liabilities |
| Closing capital fund | Opening fund + Surplus − Deficit |

Thus, capital fund represents the net worth of the NPO.

Question 9

Explain treatment of subscriptions (outstanding and advance) (any three points) with a mini table.

Accepted Answer

Subscriptions are adjusted on accrual basis in I&E A/c.

Points (any three):
- outstanding subscriptions at end are **added** to subscription income for the year.
- subscriptions received in advance at end are **deducted** from subscription income.
- outstanding subscriptions are shown as **asset**; advance subscriptions as **liability** in Balance Sheet.

Mini table:

| Item | I&E treatment | Balance Sheet |
|---|---|---|
| Outstanding (end) | add | asset |
| Advance (end) | less | liability |

Thus, subscription adjustments ensure correct income for the year and correct position.

Question 10

Differentiate general donation and specific donation (any three points) with a table.

Accepted Answer

Donations may be revenue or capital depending on purpose.

- **General donation** is usually treated as **revenue income** and shown in I&E A/c.
- **Specific donation** (e.g., building donation) is treated as **capital receipt** and shown as a fund/capital item in Balance Sheet.
- Specific donation is used only for that specific purpose.

Table:

| Basis | General donation | Specific donation |
|---|---|---|
| Nature | revenue | capital/fund |
| Shown in | I&E A/c | Balance Sheet |
| Use | general purpose | specific purpose |

Thus, the purpose of donation decides its accounting treatment.

Question 11

Explain treatment of entrance fees and life membership fees (any three points) with a table.

Accepted Answer

Entrance fees and life membership fees are common incomes of NPOs.

Points (any three):
- **Entrance fee** may be treated as revenue income (common) or partly/fully capitalised as per policy.
- **Life membership fee** is often treated as capital receipt or spread over years because benefit relates to many years.
- In exams, always follow the treatment **given in the question**; if not given, mention "as per policy".

Table:

| Item | Usual nature | Notes |
|---|---|---|
| Entrance fee | revenue (often) | may be capitalised partly/fully |
| Life membership fee | capital/long-term | may be spread over years |

Thus, treatment depends on policy and the nature of benefit.

Question 12

Explain special funds (sports fund/prize fund): treatment of related income and expenses (any three points) with a mini table.

Accepted Answer

Special funds are maintained for a specific purpose (sports, prize, building, etc.).

Points (any three):
- the **fund balance** appears on liabilities side of Balance Sheet.
- related incomes (donations/interest) are **added to the fund**.
- related expenses are **deducted from the fund**, not charged to general I&E A/c (unless stated).

Mini table:

| Fund item | Effect |
|---|---|
| Fund balance | liability |
| Related income | add to fund |
| Related expense | less from fund |

Thus, special fund accounting ensures money is used only for the specified purpose and shown separately.

Question 13

Explain Receipts & Payments Account (exam-style): features and limitations with a table.

Accepted Answer

### **Receipts & Payments Account — Exam-Style**

**Meaning:** It is a summary of all cash and bank transactions of an NPO during a period.

**Features:**
- prepared on **cash basis**.
- includes all receipts and payments (both **capital and revenue**).
- ignores outstanding and prepaid items.
- shows opening and closing cash/bank balances.

**Limitations:**
- does not show true surplus/deficit because it ignores accrual adjustments.
- capital receipts/payments are mixed with revenue.
- cannot show financial position alone.

Table:

| Point | R&P A/c |
|---|---|
| Basis | cash |
| Capital items | included |
| Result | cash/bank balance |

**Conclusion:** R&P A/c provides cash summary, but for performance we need I&E A/c and Balance Sheet.

Question 14

Explain Income & Expenditure Account (exam-style): features and preparation logic with a flowchart.

Accepted Answer

### **Income & Expenditure Account — Exam-Style**

**Meaning:** I&E A/c is prepared on **accrual basis** to determine **surplus/deficit** of an NPO.

**Features:**
- includes only **revenue incomes and revenue expenditures**.
- ignores capital receipts/payments.
- makes adjustments for outstanding, prepaid, accrued and advance items.
- depreciation is charged.

Preparation logic:
- Start from cash receipts/payments (from R&P) and convert to accrual by adding/deducting adjustments.

Flowchart:

```text
Receipts & Payments (cash) → Remove capital items → Add accrual adjustments → I&E A/c → Surplus/Deficit
```

**Conclusion:** I&E A/c shows true performance of the year because it follows matching and accrual concepts.

Question 15

Prepare a specimen Balance Sheet of an NPO and explain treatment of special funds (exam-style) with a mini table.

Accepted Answer

### **Balance Sheet of NPO — Exam-Style**

Balance sheet shows financial position (assets and liabilities) at a date.

Specimen (heads):

| Liabilities | Amount | Assets | Amount |
|---|---:|---|---:|
| Capital fund / General fund |  | Cash/Bank |  |
| Outstanding expenses |  | Subscriptions outstanding |  |
| Subscriptions received in advance |  | Fixed assets (less depreciation) |  |
| Special funds (Sports/Prize) |  | Investments |  |

**Special funds treatment:**
- fund appears on liabilities side.
- related incomes are added to fund; related expenses are deducted from fund.

Mini table:

| Fund item | Treatment |
|---|---|
| Fund balance | liability |
| Related income | add to fund |
| Related expense | less from fund |

**Conclusion:** Balance sheet reflects capital fund and special funds separately and shows true net worth of the NPO.

Basis	R&P A/c	I&E A/c
Basis	cash	accrual
Capital items	included	excluded
Result	closing cash/bank	surplus/deficit

Accounting for Non-Profit Organizations: Receipts & Payments, Income & Expenditure and Balance Sheet

Receipts & Payments vs Income & Expenditure

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