Accountancy (Class 11 Semester II) Chapter 8: Financial Statements of Non-Profit Organizations
Q. 1. What is a non-profit organization (or “not-for-profit” organization)? Give examples.
Answer: Organizations that are established as permanent non-commercial entities with the purpose of serving the public selflessly, and whose aim is not to earn profit, are called non-profit organizations (or “not-for-profit” organizations).
Q. 2. Write the features of a non-profit organization (or “not-for-profit” organization).
Answer: The features of a non-profit organization are:
a) These organizations are established permanently with the aim of providing continuous service to the public selflessly.
b) They follow a periodic or recurring accounting system.
c) Since there is no specific owner, there is no capital; instead, they have general funds or capital funds.
d) To determine their financial results, income-expense accounts are prepared annually, and a statement of financial position is prepared at the end of each year.
Q. 3. Write the differences between non-profit organizations (or “not-for-profit” organizations) and profit-seeking organizations.
Answer: The differences are:
a) Main objective is service or public welfare; profit may be earned incidentally.
Main objective is to earn profit, though some activities may benefit society.
b) No ownership; surplus or net income is retained for organizational needs.
Has owners; surplus or net profit is taken by the owners.
c) Usually prepares a cash account of receipts and payments at the end of the accounting period.
Does not prepare a receipts-payments account from cash at the end of the accounting period.
d) When total expenses exceed total income, it is called a deficit; if less, surplus.
When total expenses exceed total income, it is net loss; if less, net profit.
e) Financial results are determined via annual income-expense accounts and a statement of financial position at year-end.
Final accounts are divided into five parts: Manufacturing Account, Trading Account, Profit-Loss Account, Profit-Loss Appropriation Account, and Balance Sheet.
Q. 4. What is a Receipts & Payments Account?
Or, what is a Cash Receipts and Payments Account?
Answer: A Receipts & Payments Account (or Cash Receipts and Payments Account) is a summarized statement prepared at the end of an accounting period that classifies all cash inflows and outflows during the period along with opening and closing cash balances.
Q. 5. Write the features of a Receipts & Payments Account.
Answer: Features of a Receipts & Payments Account are:
a) All cash receipts are recorded on the debit side (left) and all cash payments on the credit side (right) of the account.
b) Opening cash is shown first on the debit side, and closing cash is shown last on the credit side.
c) Both capital and revenue cash transactions are included.
d) It is an asset account.
e) It is not a double-entry account; it is just a statement.
f) It is prepared on the last day of a specific accounting period.
Q. 6. Write the advantages of a Receipts & Payments Account.
Answer: Advantages of a Receipts & Payments Account are:
a) It provides a clear summary of receipts and payments under different heads at a glance.
b) It shows the cash on hand at the end of the period and allows reconciliation with the actual cash.
c) It helps verify the arithmetic accuracy of the cash book.
d) It assists in the preparation of the organization’s Income & Expenditure Account.
Q. 7. Write the disadvantages of a Receipts & Payments Account.
Answer: Disadvantages of a Receipts & Payments Account are:
a) Since it is cash-based, it does not provide information on accruals or receivables/payables.
b) It does not provide information about non-cash transactions.
c) It does not show details of receipts or payments under specific heads.
d) It does not indicate the organization’s surplus or deficit.
Q. 8. Write the difference between Cash Book and Receipt & Payment Account.
Or,
Write the difference between Cash Transaction Account and Cash Book.
Answer: The differences between Cash Book and Receipt & Payment Account are:
a)
Whenever a cash transaction occurs, it is recorded immediately in the Cash Book, and the book continues throughout the year.
In the Receipt & Payment Account, cash transactions are recorded at the end of the accounting period from the cash summary.
b)
Daily cash balance can be determined from it.
Daily cash balance cannot be determined from it.
c)
Both non-profit organizations and business organizations prepare it.
Only non-profit organizations prepare it.
d)
It is a current account.
It is a periodical or terminal account.
e)
Preparation of this account is mandatory.
Preparation of this account is not mandatory.
Q. 9. What is an Income & Expenditure Account? Write its features.
Answer:
An Income & Expenditure Account is prepared to determine the financial results or the income-expenditure position of a non-profit organization.
Features of Income & Expenditure Account:
a) It is a nominal account.
b) Expenses are shown on the debit side, and income is shown on the credit side.
c) Since it is prepared at the end of the accounting period, it is a periodical or terminal account.
d) There is no opening balance in this account.
e) If the account has a credit balance, it is called a surplus; if it has a debit balance, it is called a deficit.
Q. 10. Write two advantages of Income & Expenditure Account.
Answer: Two advantages of Income & Expenditure Account are:
a) Through this account, the financial results of a particular accounting period of a non-profit organization are determined.
b) Based on this account, financial statements are prepared to determine the financial position of a non-profit organization.
Q. 11. Write the difference between Income & Expenditure Account and Profit & Loss Account.
Answer: The differences between Income & Expenditure Account and Profit & Loss Account are:
a)
Non-profit organizations prepare the Income & Expenditure Account.
Profit-seeking or business organizations prepare the Profit & Loss Account.
b)
This account does not start with any opening balance.
This account starts with the balance from the Trading Account, i.e., net profit or net loss.
c)
The final balance of this account is called surplus or deficit.
The final balance of this account is called net profit or net loss.
d)
The determined surplus cannot be distributed among members.
The net profit obtained from this account is fully or partially distributed among the owner(s).
Q. 12. Write the difference between Receipt & Payment Account and Income & Expenditure Account.
Answer: The differences between Receipt & Payment Account and Income & Expenditure Account are:
a)
It is a real account (asset account).
It is a nominal account.
b)
Both revenue and capital transactions are recorded in it.
Only revenue transactions are recorded in it.
c)
The debit side shows “Receipt” and the credit side shows “Payment.”
The debit side shows “Revenue Expenditure” and the credit side shows “Revenue Income.”
d)
Opening cash and bank balances are recorded at the beginning.
There is no opening balance at the beginning.
e)
There is no obligation to prepare it.
Preparation of this account is mandatory.
f)
The final balance is carried forward as the opening balance of the next accounting period’s Receipt & Payment Account.
The final balance is transferred to the general fund or capital fund of the organization.
Q. 13. Write the difference between Receipt and Income.
Answer: The differences between Receipt and Income are:
a)
Receipt always increases the cash fund.
Income may or may not increase the cash fund.
b)
It is determined on a cash basis.
It is determined on an accrual basis (receivable-payable basis).
c)
It can be either revenue or capital in nature.
It is always revenue in nature.
d)
Receipt can create a liability.
Income can never create a liability.
Q. 14. Write the differences between payment and expenditure.
Answer: The differences between payment and expenditure are:
a)
It is cash-based.
It is on an accrual (receivable-payable) basis.
b)
It can be both revenue and capital in nature.
It is always revenue in nature.
c)
Payment is not considered for the final account.
Expenditure is always considered for the final account.
d)
Payment does not directly affect profit.
Expenditure directly affects profit.
Q. 15. Which basis is followed in preparing the Income & Expenditure account?
Answer: The accrual (receivable-payable) basis is followed in preparing the Income & Expenditure account.
Q. 16. What are the sources of income of a non-profit organization?
Answer: The sources of income of a non-profit organization are:
Subscriptions; life membership fees; admission or entry fees; special subscriptions; donations; property received through wills; government grants or subsidies, etc.
-Q. 17. How is a donation shown while preparing the final account of a non-profit organization?
Answer: When a certain part of a donation is considered capital according to the organization’s rules, it is transferred to the
Capital Fund. Donations collected without any specific purpose are generally treated as revenue income and credited to the Income & Expenditure account.
Q. 18. How is "admission fee" shown while preparing the final account of a “not-for-profit” organization?
Answer: When the admission fee is treated as capital according to the organization’s rules, it is transferred to the Capital Fund. If it is treated as revenue income, it is credited to the Income & Expenditure account.
Q. 19. The Exchange/Receipts and Payments account is a summary of what?
Answer: It is a summary of cash receipts and cash payments, i.e., of the cash book.
Q. 20. Where is the surplus or deficit of a non-profit organization deposited?
Answer: The surplus or deficit of a non-profit organization is deposited in the Capital Fund account.
Q. 21. What is the Capital Fund?
Answer: The difference between the total assets and total liabilities of a non-profit organization at the end of the accounting period is called the Capital Fund.
Q. 22. Fill in the blanks:
a) Advance subscription for the next year is ______.
b) The method used to prepare the exchange account is ______.
c) The credit balance of the Income & Expenditure account is ______.
d) Current year’s advance subscription is ______.
Answer:
a) A liability.
b) Cash basis.
c) Surplus.
d) An asset.
Q. 23. A club has 50 members, each paying an annual subscription of ₹200. If 10 members’ subscriptions are due in a year, how much subscription income will be recorded in the Income & Expenditure account on an accrual basis?
Answer: ₹10,000.
Q. 24. A club has 1,100 members, each paying an annual subscription of ₹100. The opening and closing balances of subscription due are ₹1,00,000 and ₹2,00,000 respectively. How much will be credited as subscription income in that year’s Income & Expenditure account?
Answer: ₹11,00,000.
Q. 25. During the current year, ₹25,000 was received as subscription, of which ₹1,000 relates to the next year. The outstanding subscription for the current year is ₹2,000. How much should be credited as subscription income in the Income & Expenditure account for the current year?
Answer: ₹26,000.
Q. 26. On 01/04/2019, a club had an advance subscription of ₹5,000 and on 31/03/2020 it was ₹7,000. If ₹48,000 was received as subscription in 2019-20, how much subscription will be recorded in the Income & Expenditure account for that year?
Answer: ₹46,000.
Q. 27. On 01/04/2019, an organization had rent receivable of ₹10,000. On 31/03/2020, advance rent paid was ₹5,000. During 2019-20, ₹30,000 was paid in cash for rent. On an accrual basis, how much rent expense will be recorded in the Income & Expenditure account of this non-profit organization for 2019-20?
Answer: ₹15,000.
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