Class 12 Book Keeping and Accountancy Chapter 2: Accounts of Not for Profit Concerns

Key concepts: Accounts of Not for Profit Concerns

Not for Profit concern

An organisation set up to give service to members and society, not to earn profit. It is run by elected members and cannot pay dividend. Examples: clubs, schools, hospitals, libraries.

Receipts and Payments Account

A real account that summarises all cash and bank receipts (debit) and payments (credit) of the period, revenue or capital, whatever year they belong to. It starts and ends with cash and bank balances.

Income and Expenditure Account

A nominal account like the Profit and Loss Account. It shows only revenue incomes and expenses of the current year, including non-cash items, and gives a surplus or a deficit.

Capital Fund

Excess of assets over liabilities. It is built from capital receipts such as capitalised entrance fees and legacies, and surplus; it rises with a surplus and falls with a deficit.

Capital and revenue items

Capital receipts and payments (sale of assets, specific donations, life membership fees, purchase of furniture) go to the Balance Sheet. Revenue items go to the Income and Expenditure Account.

Adjustments for accrual

Outstanding expenses and income received in advance are liabilities; prepaid expenses and outstanding income are assets. The current year's amount is worked out and shown in the Income and Expenditure Account.

Subscription, donations and legacy

Subscription is regular revenue income. General donations and general legacies are revenue income. Specific donations and special-purpose legacies are capital and appear on the liabilities side.

Stationery, depreciation and asset sales

Stationery consumed = opening stock + purchases + outstanding bill - closing stock. Depreciation is charged for the months an asset was held. Profit or loss on sale of an asset goes to Income and Expenditure.

Quick revision: important points

• R&P Account is real and has opening and closing balances; I&E Account is nominal and has none.
• Surplus is added to Capital Fund; deficit is deducted from Capital Fund.
• Subscription income = received + closing outstanding - opening outstanding - closing advance + opening advance.
• Life membership fees, specific donations and sale proceeds of assets are capital receipts (Balance Sheet).
• Deferred revenue expenditure: charge one year's share to I&E and show the balance as an asset.
• Opening Capital Fund = opening assets - opening liabilities (a balancing figure).

Practice MCQs with answers

1. What is the primary objective of a Not for Profit concern?

   1. To earn maximum profit for its owners
   2. To provide service to its members and society
   3. To pay dividend to its members
   4. To carry on trading in goods for a margin
   Show answer

   Answer: B. To provide service to its members and society
   Such concerns are formed for service, for example to promote sports, education or health, so earning profit is not their aim.

2. Which of the following is a Not for Profit concern?

   1. A partnership firm
   2. A joint stock company
   3. A sole proprietorship
   4. A charitable hospital
   Show answer

   Answer: D. A charitable hospital
   A charitable hospital serves the public and is not run to earn profit, whereas the other three are formed to make profit.

3. What is the nature of the Receipts and Payments Account?

   1. Real account
   2. Nominal account
   3. Personal account
   4. Representative personal account
   Show answer

   Answer: A. Real account
   It is a summary of cash and bank transactions, like a cash book, and is therefore treated as a real account.

4. The Receipts and Payments Account begins with which item on the debit side?

   1. Opening stock of goods
   2. Surplus of the last year
   3. Opening cash and bank balances
   4. Capital Fund
   Show answer

   Answer: C. Opening cash and bank balances
   It opens with the cash in hand and cash at bank at the start of the year, and closes with the balances at the end.

5. What is meant by the Capital Fund of a Not for Profit concern?

   1. Total cash in hand and at bank
   2. Excess of assets over liabilities
   3. Total of all the liabilities
   4. Total income earned in the year
   Show answer

   Answer: B. Excess of assets over liabilities
   Capital Fund is the net worth of the concern, so it equals assets minus liabilities.

All Class 12 Book Keeping and Accountancy chapters

• Chapter 1: Introduction to Partnership and Partnership Final Accounts
• Chapter 2: Accounts of Not for Profit Concerns
• Chapter 3: Reconstitution of Partnership (Admission of Partner)
• Chapter 4: Reconstitution of Partnership (Retirement of Partner)
• Chapter 5: Reconstitution of Partnership (Death of Partner)
• Chapter 6: Dissolution of Partnership Firm
• Chapter 7: Bills of Exchange
• Chapter 8: Company Accounts - Issue of Shares
• Chapter 9: Analysis of Financial Statements
• Chapter 10: Computer in Accounting

Class 12 Book Keeping and Accountancy notes: all chapters