Not-for-profit organisations

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NPO

-are set up with the prime objective of providing services and not to earn profit thereby enhancing the welfare of society. Such organisations include schools, hospitals, religious organisations -the person or group of individuals who govern and manage the working of an NPO are known as trustees -sources of income include donations, subscriptions, grants and because they are not profit motivated, they do not set up a trading and profit and loss account and instead, they maintain a receipts and payments account, income and expenditure account and balance sheet

receipts and payments account

A summary of the cash book. All cash receipts are recorded on the receipts side, that is the debit side and all cash payments are recorded on the payments side, that is the credit side of receipts and payments account

Capital fund

Capital fund is the excess of NPO assets over its liabilities. Any excess of assets over liabilities in a for profit organisation is termed as capital, while in not for profit organisations, its called capital fund. Any surplus or deficit generated from the income and expenditure account is added or deducted respectively from the capital fund. It is also termed as accumulated fund.

Income and expenditure account

Income and expenditure account is a nominal account. It records all the losses and expenses on the debit side and all the incomes and gains are recorded on its credit side. For the balance, if the total of credit side is more than total of debit side, it represents excess of income over expenditure or if total of debit side is more than total of credit side, it's represents excess of expenditure over income.

Difference btw receipts and payments a/c and income and expenditure a/c

R&P a/c is a summary of cash book while Y&X a/c is similar to a profit and loss a/c Debit side of R and P a/c records recipts and credit side records payment, Debit side of Y and X a/c records expenses while credit side records income R and P a/c is a real a/c while Y and X a/c is a nominal a/c Opening balance of R and P a/c starts with the opening balance of cash and bank while there is no opening balance for Y and X a/c R and P a/c records receipts and payments both of capital and revenue nature. While Y and X a/c records incomes and expenditures only of revenue nature. Adjustments are considered while prepared R and P a/c, while adjustments need to be considered while preparing Y and X a/c R and P a/c records all receipts and payments whether they relate to previous, current or next year, while Y and X a/c records income and expenditure of only revenue nature

Subscription

Subscription is the main source of income for an NPO besides entrance fees, donations and grants etc. Subscription refers to the amount of money paid by members on a periodic basis for keeping the membership with their organisation alive. It is shown on the debit side of receipts and payment account with the total amount received during the year that may be related to the current, previous or next accounting period.

Difference between Y and X a/c and P and L a/c

Y and X a/c is prepared by a non-trading institution, while P and L is prepared by a trading concern Y and X a/c is prepared with the help of receipt and payments a/c, while P and L a/c is prepared with the help of trial balance Y and X a/c's objective is to know the excess of income over expenses or the excess of expenses over income, while the objective of the P and L a/c is to find out net profit or net loss of a business Gross profit or Gross loss cannot be obtained from Y and X a/c as it is a non-trading concern, while gross profit or gross loss can be obtained from P and L a/c before net profit or net loss since it is prepared in a trading concern


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