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 Page 1


ACCOUNTING FOR
NON-PROFIT 
ORGANIZATION
Page 2


ACCOUNTING FOR
NON-PROFIT 
ORGANIZATION
NON PROFIT ORGANIZATIONS
DEFINITION
“A Non-Profit seeking entity which does not usually involve in trading activities,
but engages in rendering services to members and society. ”
? Non profit organizations are established for the purpose of rendering service.
? They are not expected to earn profit, but are organized for social, educational,
religious or charitable purpose.
? They take the form of sports and arts club, hospitals, libraries, charitable
institutions like orphanages, educational institutions, religious institutions etc.
Page 3


ACCOUNTING FOR
NON-PROFIT 
ORGANIZATION
NON PROFIT ORGANIZATIONS
DEFINITION
“A Non-Profit seeking entity which does not usually involve in trading activities,
but engages in rendering services to members and society. ”
? Non profit organizations are established for the purpose of rendering service.
? They are not expected to earn profit, but are organized for social, educational,
religious or charitable purpose.
? They take the form of sports and arts club, hospitals, libraries, charitable
institutions like orphanages, educational institutions, religious institutions etc.
FEATURES OF A NON-PROFIT 
ORGANIZATIONS
o Their main objective is to rent a services to members and public.
o They are not expected to earn profit.
o They do not normally engage in trading activities.
o Credit transactions are not usually made.
o Usually such concerns keep only cashbook to record daily transactions.
o They prepare a summary of cashbook at the end called receipts and payments a/c.
o No trial balance is prepared.
o Do not prepare trading, profit and loss a/c, but prepares income and expenditure a/c.
o Do not have capital, but they have only capital fund representing accumulated
services.
Page 4


ACCOUNTING FOR
NON-PROFIT 
ORGANIZATION
NON PROFIT ORGANIZATIONS
DEFINITION
“A Non-Profit seeking entity which does not usually involve in trading activities,
but engages in rendering services to members and society. ”
? Non profit organizations are established for the purpose of rendering service.
? They are not expected to earn profit, but are organized for social, educational,
religious or charitable purpose.
? They take the form of sports and arts club, hospitals, libraries, charitable
institutions like orphanages, educational institutions, religious institutions etc.
FEATURES OF A NON-PROFIT 
ORGANIZATIONS
o Their main objective is to rent a services to members and public.
o They are not expected to earn profit.
o They do not normally engage in trading activities.
o Credit transactions are not usually made.
o Usually such concerns keep only cashbook to record daily transactions.
o They prepare a summary of cashbook at the end called receipts and payments a/c.
o No trial balance is prepared.
o Do not prepare trading, profit and loss a/c, but prepares income and expenditure a/c.
o Do not have capital, but they have only capital fund representing accumulated
services.
ACCOUNTING STATEMENTS
? Usually non-profit making concerns follow the cash system of accounting. Under cash
system, cash book is the most important book where all cash receipts and payments are
recorded in a chronological order.
? A memorandum book is maintained to record the name of the persons and
institutions from whom amounts have not been received.
? A stock register is kept to record the purchase of assets like furniture, books,
equipment etc.
? A non-profit organization prepares three statements at the end of the accounting
year, which form its final accounts. These statements are:
? Receipts and payments account.
? Income and expenditure account.
? Balance sheet.
Page 5


ACCOUNTING FOR
NON-PROFIT 
ORGANIZATION
NON PROFIT ORGANIZATIONS
DEFINITION
“A Non-Profit seeking entity which does not usually involve in trading activities,
but engages in rendering services to members and society. ”
? Non profit organizations are established for the purpose of rendering service.
? They are not expected to earn profit, but are organized for social, educational,
religious or charitable purpose.
? They take the form of sports and arts club, hospitals, libraries, charitable
institutions like orphanages, educational institutions, religious institutions etc.
FEATURES OF A NON-PROFIT 
ORGANIZATIONS
o Their main objective is to rent a services to members and public.
o They are not expected to earn profit.
o They do not normally engage in trading activities.
o Credit transactions are not usually made.
o Usually such concerns keep only cashbook to record daily transactions.
o They prepare a summary of cashbook at the end called receipts and payments a/c.
o No trial balance is prepared.
o Do not prepare trading, profit and loss a/c, but prepares income and expenditure a/c.
o Do not have capital, but they have only capital fund representing accumulated
services.
ACCOUNTING STATEMENTS
? Usually non-profit making concerns follow the cash system of accounting. Under cash
system, cash book is the most important book where all cash receipts and payments are
recorded in a chronological order.
? A memorandum book is maintained to record the name of the persons and
institutions from whom amounts have not been received.
? A stock register is kept to record the purchase of assets like furniture, books,
equipment etc.
? A non-profit organization prepares three statements at the end of the accounting
year, which form its final accounts. These statements are:
? Receipts and payments account.
? Income and expenditure account.
? Balance sheet.
RECIEPTS AND PAYMENTS 
ACCOUNT
? It is a summary of cash and bank transactions which helps in the preparation
of income and expenditure account and the balance sheet.
? A receipts and payments account is a statement prepared at the end of an
accounting year, giving a summary of all receipts and payments recorded in cash
book.
? It is prepared by analyzing and classifying the entrees in the cashbook of a
particular accounting year.
? It is debited with all items of receipts and credited with all payments.
? In preparing these accounts, no distinction is made between capital and
revenue items.
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41 videos|106 docs|56 tests

FAQs on PPT - Accounting for Not-for-Profit Organizations - Accountancy Class 12 - Commerce

1. What is the difference between for-profit and not-for-profit organizations?
Ans. For-profit organizations aim to generate profit for their owners or shareholders, while not-for-profit organizations operate for the benefit of the public and do not aim to generate profit. Instead, their surplus revenue is reinvested into the organization's mission.
2. Can not-for-profit organizations receive donations from individuals or corporations?
Ans. Yes, not-for-profit organizations can receive donations from individuals and corporations. In fact, donations and grants are one of the primary sources of revenue for not-for-profit organizations.
3. How should not-for-profit organizations account for donated goods and services?
Ans. Not-for-profit organizations should account for donated goods and services as contributions in their financial statements. The fair value of the donated goods or services should be recognized as revenue and as an expense, if applicable.
4. What are the financial statements that not-for-profit organizations are required to prepare?
Ans. Not-for-profit organizations are required to prepare four financial statements: a statement of financial position (balance sheet), a statement of activities (income statement), a statement of cash flows, and a statement of functional expenses.
5. Can not-for-profit organizations generate income from activities unrelated to their mission?
Ans. Not-for-profit organizations can generate income from activities unrelated to their mission, but they must pay taxes on that income. This is called unrelated business income, and it is subject to taxation under certain conditions. Not-for-profit organizations should consult with a tax professional to determine if their activities qualify as unrelated business income.
41 videos|106 docs|56 tests
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