Income and Expenditure Account :
Income and Expenditure Account serves the same purpose for a Not-for profit organization as the Profit and Loss Account for a business enterprise. This account is a nominal account. This account is preapared by Not-for-Profit organization period. So, we can say that it is the summary of Income and Expenditure of a particular accounting period whether income received or not and whether expenditure paid or not.
Features of Income and Expenditure Account :
Concept of Fund based Accounting :
Not for profit organization receive some funds for some specific purposes and these funds are used only for those purposes for which they have been contributed. Fund Based Accounting refers to the accounting whereby receipt and income pertaining to a particular fund are credited to that particular fund and payments and expenses are debited to it. These funds are created for some specific purposes such as prize fund, building fund, sports fund etc.
Thus, a separate accounting is needed for these specific funds. This type of accounting is called Fund based accounting.
Important Items of Not for Profit Organisations
1. Legacy : Legacy represents the amount or property received by organization under a will on death of the contributors. In other words we can say that ligacies are the donations made by a person in his will, so their donation are called legacy.
(i) Legacies received for a specific purpose must be capitalized in the name of concerned fund for which it is received.
(ii) Legacies received not for any sprcific fund/general may be added to the capital fund.
Example :
Mr. Shyam lal writes his will that his property will be transferred (after his death) to a Not-for-profit Organization. After death of Mr. Shyam lal, his property will
be treated as capital receipt by concerned Not-for-profit Organization under the head
legacy.
2. Entrance Fees : Entrance fee is called admission fee. It refers to the amount recieved from the persons for becoming members. It is a fee paid by members at the time of joining a not-for-Profit organization.
(i) It is an item of recurring nature.
(ii) Generally Entrance fees are treated as income.
3. Grants : Grants are an aid issued by any Govt. agency to any Not-for profit organization for specific purpose or general purpose.
(i) It is an adi from Government.
(ii) Specific grant should be capitalized
(iii) General grant should be treated as revuenue income and shown on the credit side of Income and Expenditure Account.
4. Donation : Donation is the amount received by Not-for-profit Organiza- tions from any person or institution without any consideration and not peri- odically.
Donation can be categorized as under :
(i) General Donation : If donation received for not a specific purpose and can be utilized for any purpose, is known as general donation.
It is treated as Revenue Receipt.(ii) Specific Donation : If donation received for a particular purpose and can be used/spent for the same purpose only, it is known as specific donation. For example, donation received for the construction of the
building.
It is treated as Capital Receipt.
5. Subscription : Subscription is the amount payable by members of Notfor-profit Organizations for renewal of membership periodically.
(i) It is recurring in nature.
(ii) It is treated as Revenue Receipt.
Example : There are 60 members of a Not-for-profit Organization and each member is required to pay a sum of 300 per annum to continue his/her membership. Hence this amount is known as Subscription.
CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
Email Id : [email protected]
