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C H A P T E R

Financial Statements of

Not-for-Profit Organisations

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Not-for-Profit Not-for-Profit Organisations are those organisations whose objective
Organisations is not to earn profit but to render services to its members and to the society.
2. Receipts and Receipts and Payments Account is a summary of cash and bank
Payments Account transactions prepared at the end of the accounting period. It records
all receipts and payments, whether of revenue or capital nature, and
irrespective of the period to which they relate.
3. Income and Income and Expenditure Account is the summary of income and
Expenditure expenditure of the year. It is like Profit and Loss Account. It shows
Account surplus or deficit. It is prepared on accrual basis of accounting.
4. Surplus Excess of income over expenditure of a Not-for-Profit Organisation is
termed as surplus.
5. Deficit Excess of expenditure over income of a Not-for-Profit Organisation is
termed as deficit.
6. Subscription Amount received on an annual basis at the time of renewal of the
membership by a non-profit organisation is subscription.
7. Legacy Legacy is the amount received by an organisation from a deceased person under
his will.
8. Donation It is the amount donated to the organisation in cash or kind.
(a) General Donation When the donor does not specify any condition for using the amount of
donation, it is known as general donation.
(b) Specific Donation If the donation is for a specific purpose, say for the construction of a room
or pavilion, it is known as specific donation.
9. Entrance Fee/ The amount paid by a person at the time of becoming member of a
Admission Fee Not-for-Profit Organisation.
10. Life Membership Fee It is the amount received from a member in lump sum for which he is
given the membership of the organisation for the whole life.
11. Fund Based It is a system of accounting whereby donations, incomes, etc., relating
Accounting to a particular fund is credited to it and expenses are debited.

CHAPTER SUMMARY
• Not-for-Profit (Non-trading) Organisations are those organisations, which are set-up not for earning profits
but for rendering services to public and/or members. Examples are: schools, hospitals, literary societies, etc.
These organisations do not prepare Profit and Loss Account but instead prepare Receipts and Payments Account
and Income and Expenditure Account.
• Receipts and Payments Account is a summary of transactions appearing in the Cash Book showing receipts
and payments during an accounting period under appropriate heads of accounts.
• Income and Expenditure Account is an account drawn to show the results of the activities of such
organisations. It is drawn on the same lines as the Profit and Loss Account.