CBSE Class 12 Accountancy: Accounting For Not For Profit Organization NCERT Solutions

Not-for-Profit Organizations (NPOs) are entities established with the primary objective of rendering services to the public or a specific group, rather than aiming to generate profit. Their core purpose is to promote social welfare, education, health, sports, or other community benefits. Examples of such organizations include schools, hospitals, libraries, charitable trusts, sports clubs, and cultural associations. The individuals who manage and oversee the operations of an NPO are often referred to as trustees. The financial resources for these organizations primarily come from sources like donations, subscriptions from members, grants, and life membership fees. Since NPOs are not driven by profit, they do not prepare a Trading and Profit and Loss Account. Instead, they maintain specific financial statements like the Receipts and Payments Account, the Income and Expenditure Account, and the Balance Sheet to reflect their financial position and performance.

The Receipts and Payments Account serves as a summarized version of the Cash Book for a Not-for-Profit Organization. It is a real account that records all cash and bank receipts on its debit side and all cash and bank payments on its credit side. This account is prepared based on the cash and bank transactions that are systematically recorded in the Cash Book throughout the accounting period. It commences with the opening balances of cash and bank and concludes by showing the closing balances of cash and bank, which are determined as the balancing figure at the end of the accounting year. The account includes all cash and bank transactions, whether they are of a capital nature (like the purchase of a major asset) or revenue nature (like paying salaries). Importantly, it also incorporates transactions that may relate to previous or future accounting periods, as long as the cash or bank movement occurred during the current period. The primary utility of the Receipts and Payments Account is to ascertain the closing cash and bank balances and to provide an overview of the organization's liquidity position.

The Income and Expenditure Account (I&E Account) is an important financial statement prepared by Not-for-Profit Organizations. It is analogous to the Profit and Loss Account prepared by business entities. While the Profit and Loss Account determines the net profit or net loss, the I&E Account is used to ascertain the 'surplus' or 'deficit' for a specific accounting period. This account is a nominal account, meaning it deals with incomes and expenses, and it is prepared on the accrual basis of accounting. It records all revenue-related transactions that pertain specifically to the current accounting period. This includes incomes earned and expenses incurred, regardless of whether they have been received or paid, or are outstanding or prepaid. All expenses and losses are debited to the Expenditure side, while all incomes and gains are credited to the Income side. The balancing figure of the I&E Account represents the surplus if the total income exceeds the total expenditure, or a deficit if the total expenditure exceeds the total income.