Non-profit Organisations Accounts, Receipts and Payments and Income and Expenditure Accounts
What is Non-profit Organisations Accounts, Receipts and Payments and Income and Expenditure Accounts?
An organisation established for purposes other than profit, focusing on service delivery to its members or the public.
Key formula / rule: Surplus Calculation
Key points
- Understand the nature and purpose of NPOs.
- Differentiate between Receipts and Payments Account and Income and Expenditure Account.
- Prepare Receipts and Payments Account and Income and Expenditure Account.
- Identify surplus or deficit and its treatment.
Common exam trap
Confusing cash basis with accrual basis.
Definitions
- Term
Non-profit Organisation (NPO)
- Meaning
An organisation established for purposes other than profit, focusing on service delivery to its members or the public.
- Term
Receipts and Payments Account
- Meaning
A summary of cash and bank transactions of an NPO over a period, prepared on a cash basis.
- Term
Income and Expenditure Account
- Meaning
An account prepared by NPOs on an accrual basis to ascertain the surplus or deficit for a specific period.
- Term
Surplus
- Meaning
The excess of income over expenditure for a given period.
- Term
Deficit
- Meaning
The excess of expenditure over income for a given period.
- Term
Accrual Basis of Accounting
- Meaning
Recognises revenues when earned and expenses when incurred, regardless of cash flow.
- Term
Cash Basis of Accounting
- Meaning
Recognises revenues when cash is received and expenses when cash is paid.
Learning objectives
Understand the nature and purpose of NPOs.
Differentiate between Receipts and Payments Account and Income and Expenditure Account.
Prepare Receipts and Payments Account and Income and Expenditure Account.
Identify surplus or deficit and its treatment.
Formulae
- Name
Surplus Calculation
- Note
Calculated in the Income and Expenditure Account.
- Expression
Surplus = Total Income - Total Expenditure
- Name
Deficit Calculation
- Note
Calculated in the Income and Expenditure Account.
- Expression
Deficit = Total Expenditure - Total Income
Prerequisites
Basic accounting principles.
Understanding of cash basis and accrual basis of accounting.
Knowledge of business accounting concepts (e.g., revenue, expense, capital).
Common mistakes
Confusing cash basis with accrual basis.
Including capital receipts/payments in Income and Expenditure Account.
Not accounting for outstanding incomes/expenses in Income and Expenditure Account.
Treating sale of assets as income.
Keywords
Non-profit Organisation
NPO
Receipts and Payments Account
Income and Expenditure Account
Surplus
Deficit
Cash Basis
Accrual Basis
General Fund
Capital Fund
Practice preview
Which of the following is a capital receipt for a non-profit organisation?…
easy
The Income and Expenditure Account of a non-profit organisation is similar to which of the following accounts of a business entity?…
easy
During the year, a club paid Rs. 10,000 for the current year's rent, Rs. 5,000 for the previous year's outstanding rent, and Rs. 7,000 for the next year's advance rent. If the club maintains its accounts on an accrual ba…
medium