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ACCOUNTING FOR , NOTFOR PROFIT MAKINGORGANIZATIONS.G.C.E.Advanced levelCHATHURA LIYANAGEB.Com.sp.(University of Kalaniya)P.G.D.E. (NIE Maharagama)1

ACCOUNTING FOR NOT FOR PROFIT MAKING ORGANIZATIONS.There is a trend of increasing the Not for profit making organizations in the world as well as inSri Lanka. Specially the role of the Non Government Organizations (NGO s) and other socialWelfare Associations has become very important in the world economy.There are such organizations nationally and internationally as follows.* Charities such as YMBA* Sports clubs and associations* Social welfare associations* Women’s associations* Children’s associations* International organizations such as UNO, UNESCO, WHOThough such organizations have no profit objective, they maintains an Accounting system as;1.Subscription money collected from members should be maintained withtransparency2.Assets are being maintained3.Entrance fees should be managed properly4.There are the different businesses carried by non profit motive organizations(Cafeteria, Canteens, mlk bar, restaurants)5.Different events organized to raise the funds of the non profit motive organization(Dramas, car wash, flag days, Musical shows)Accounts and Statements prepared by Not For Profit Making Organizations.Account/StatementObjectiveIncome Statement.Ascertaining the Surplus/Deficit for acertain period.Receipts andPayments Account.Getting the cash balance and knowingthe receipts and payments of cash fora certain period.Knowing subs:received,subs:relevantfor the period,receivables,subs: adva:SubscriptionAccount.Prepared ;For acertainperiod.For acertainperiod.-Do-Similar account/statement prepared byprofit motive business organizations.Statement of profit or Loss/IncomeStatement.Cash Control Account.-In addition to this the following accounts and statements are also prepared in such org:2

Accumulated FundAccount.Knowing the accumulated fund as on aCertain date.As on aCertainDate.Equity account/Capital account.* Statement of Affaires. (To find the Opening Accumulated Fund/Equity)* Life membership fees Account.(For accounting the life membership fees of lifemembers)* Financial Statements for a specific, small businesses carried by the organizations(Cafeteria/canteen/restaurants/liquor shop)* Account for a specific fund (Building fund/Swimming pool fund)* Account for a specific project/event (Drama/Musical show/car wash/flag day)* Statement of Financial Position.(To know the financial position as on a certain date)DOUBLE ENTRIES OF ACCOUNTING IN NOT FOR PROFIT ORGANIZATIONS.1.Receipt of Subscription money;Receipts and payments accountSubscription accountDr:Cr:2.Subscription money relevant for the period;Subscription accountIncome and Expenditure accountDr:Cr:3.a.Receipt of Income in cash;(Adjustment)Receipts and payments accountRelevant income accountDr:Cr:b. Relevant income for the period;(Closing entry)Relevant income accountDr:Income and Expenditure account Cr:4.a.Payment of expenditure by cash;(Adjustment)Relevant expenditure accountReceipts and Payments A/CDr:Cr:3

b. Relevant expenditure for the period;(Closing entry)Income and Expenditure A/CRelevant expenditure A/CDr:Cr:5.a.Depreciation of Property, Plant and Equipment.(Adjustment)Depreciation A/CProvision for depreciation A/CDr:Cr:b. Depreciation expenditure.(Closing entry)Income and Expenditure A/CDepreciation A/CDr:Cr:6. Surplus for the period;Income and Expenditure A/CAccumulated fund A/CDr:Cr:7. Deficit for the period;Accumulated fund A/CIncome and Expenditure A/CDr:Cr:8. Entrance fees. (Recognition of the total income as an income of the received year)-AdjustmentReceipts and Payments A/CDr:Entrance fees A/CCr:-Closing entryEntrance fees A/CIncome and Expenditure A/CDr:Cr:9. Entrance fees. (Recognition of the entrance fees throughout several years, equally)-Receipt of the Entrance feesReceipts and Payments A/CEntrance fees A/CDr:Cr:4

-Recognition of entrance fees throughout several years as an equal income.Entrance fees accountIncome and expenditure A/CDr:Cr:10.Recognition of a monitory donation, fully as an income of the year received.-Receipt of the donation;Cash A/CMonitory donation A/CDr:Cr:-Recognition as an income of the year received;Monitory donation A/CIncome and Expenditure A/CDr:Cr:11.Recognition of the monitory donation ,as an equal income of each year, distributing itthroughout several years.- Receipt of the donation;Cash A/CMonitory donation A/CDr:Cr:- Recognition as an equal income of each year throughout several years;Monitory donation A/CIncome and Expenditure A/CDr:Cr:12. Recognition of a non monitory donation, fully as an income of the year received.-Receipt of the donation;Relevant asset A/CMonitory donation A/CDr:Cr:-Recognition as an income of the year received;Non monitory donation A/CIncome and Expenditure A/CDr:Cr:5

13. Recognition of the non monitory donation ,as an equal income of each year, distributing itthroughout several years.- Receipt of the donation;Relevant asset A/CNon monitory donation A/CDr:Cr:- Recognition as an equal income of each year throughout several years;Non monitory donation A/CIncome and Expenditure A/CDr:Cr:14.Writing off subscription (Arrears) and termination of membership .Income and Expenditure A/CSubscription A/CDr:Cr:15.Specific funds for constructions/purchases.( Ex: Laboratory, swimming pool, Building)-Receipt of cash for funds;Cash A/CSpecific fund A/CDr:Cr:-Obtaining cash from the fund for construction;Specific fund A/CCash A/CDr:Cr:-Capitalizing the asset;Asset A/CAccumulated fund A/CDr:Cr:16.Life membership fees and life members:The members who pay their subscription money for the whole life, for several futureyears, are known as the Life members. The life membership fees is paid, in once andit is recognized as an equal income of each year throughout the period for which thelife membership fees have been paid by the members.6

-Receipt of life membership fees;Cash A/CLife membership fees A/CDr:Cr:-Recognition as an equal income of each year;Life membership fees A/CIncome and Expenditure A/CDr:Cr:ANALYSIS OF THE SUBSCRIPTION ACCOUNT.Subscription account is a very important account in the not for profit making organizations,as Subscription is the main income in such organizations.Subscription Account511.4 B/B/Fxxx1.4 B/B/Fxxx3Income and Exp:xxxxCash A/Cxxxxx31.3 .B/C/D1.4 .B/B/Fxx31.3 .B/C/Dxxxxxxx1.4 .B/B/F2xxxxxxx46xx1.Subscription money in arrears for the last period/periods, as at the beginning of thecurrent period. (Opening Current Asset)2.Subscription money received in advanced for the current period, as at the beginning ofthe current period.(Opening Current Liability)3.Subscription money relevant for the current period.(No.of members x Subscription of a member)4. Subscription received within the current period.5. Subscription money received, for the next period, by the end of the current period.(Current liability as at the end of the period)7

6. Subscription money receivable for the current period and the last periods, by the endof the current period. (Current asset as at the end of the current period)Q1. Following balances were extracted from “Suwa sahana” association as on 01.04 Rs.000-Lands and buildings (Cost) 800-Furniture(Cost) .200-Motor Vehicles (Cost) .700-Subscription in arrears .10-Electricity payable 5-Payments outstanding for “Top Taste”caters .5-Cash balance .100Following cash transactions have incurred in the year ending 31.03 Receipts(Rs.)-Subscription money 190000-NGO donation .500000-Building rent income .90000-Income from selling religious books .50000Payments (Rs.)-Furniture repairing .10000-Organizing expenses of religiousactivities 20000-Payment to “Top Taste”caters .15000(Including the opening arrears)-Payments of Electricity.(Including the opening arrears) 20000-Purchases of spectacles of freeDistribution .100000Following information also should be considered.i.Buildings, Motor Vehicles and Furniture should be depreciated under straight line methodat 10% per annum.ii. Building rent income receivable is Rs.5000 as at 31.03 .iii. Government has donated a broad TV screen and a sound system to the associationat the end of the year. The cost of these equipment is Rs.300000.iv. Spectacles worth of Rs.90000 have been distributed among the people suffering fromeye deceases , in different areas in the country.8

v. There are 1000 members in the association ,and each pays Rs.200 as the annualsubscription .Required:1. Income statement for the year ended 31.03.20 2. Cash account for the year ended 31.03.20 3. Accumulated Fund as at 31.03.20 Q2. The total number of members of a certain Reading society is 200 and each pays Rs.500as their annual membership fee.* Following balances were extracted as at 01.04 Rs.000-Cash balance 80-Reading hall building (Cost) 300-Books and Magazines (Cost) .200-Equipment (Cost) .100* Income and expenditure relevant for the year ended 31.03.20 .were as follows.Income (Rs)-Delay charges of returningBooks 2000-NGO donations .100000-Entrance fees .3000-Government monitory donation.115000Expenditure (Rs)-Electricity .10000-Rates 3000-Salaries 50000-Telephone charges . 8000* All the members excepting 20 , have duly paid their subscription for the currentyear.* Electricity of Rs.3000 and rates of Rs.1000 are accrued as at 31.03.20 .* Value of the books and magazines has decreased by Rs.50000 and a stock ofBooks worth of Rs.75000 has been donated at the end of the year.* Buildings and equipment are depreciated under straight line method, at 10%9

Per annum.* New members have been enrolled on the 31.03.20 .* There were no liabilities as at 01.04.20 .Required:1.Income statement for the year ended 31.03.20 .2.Cash account for the year ended 31.03.20 .3.Accumulated Fund account as at 31.03.20 .Q3. Following balances were extracted from a death donation society as on 01.04 .Rs.-Cash balance .200000-Canopies(Each costing Rs.20000) . 80000-Plastic chairs(Cost) .90000-Flags(Cost) 50000-Accumulated depreciation* Canopies .8000* Plastic chairs 18000* Flags .5000-Subscription in arrears .5000-Subscription received in advanced .2000-Payments outstanding to cooks .3000-Accumulated fund ?Following information also should be considered.i. There were 200 members at the beginning of the year and each pays Rs.500 per annum asMembership fee. 16 members have got the life membership since 01.04 . paying theirannual subscription for future 10 years. This should be recognized as an equal incomethroughout that 10 years, distributing it equally from the current year.Six members have paid for the next year, as at 31.03 .and two more members have failedto pay their subscription money for the current year. Opening arrears members have dulypaid their subscription in the current year.ii.The society has donated four funerals, as for each Rs.15000, within the year. The canopies,chairs and flags are freely supplied to the members.iii.Following receipts and payments also incurred within the current year.10