NPO - Theory

  • Not-for-profit organsiations (NPO) are those organsiations whose objective is not to earn profit but to render services to its members and to the society.
  • Various features of NPO are established for welfare and service of the society, collect donations and contributions from members and outsiders, surplus of profit not distributed among members and set up as charitable societies, trusts and clubs, etc.
  • Final accounts of NPO comprise Receipts and Payments account, Income and Expenditure accountand Balance Sheet.
  • Receipts and payment account is a summary of cash and bank transactions prepared at the end of the accounting period.It is based on cash system; hence, no adjustments are made.
  • Income and Expenditure account is the summary of income and expenditure of the year.
  • Surplus refers to the excess of income over expenditure of a NPO while excess of expenditure over income is termed as deficit.
  • Subscription is the amount paid by the members of the NPO periodically so that their membership remains alive.
  • Honorarium is the token payment made to a person who has voluntarily undertaken a service which would normally command a fee.
  • An entrance fee is the amount paid by a person at the time of joining an NPO as a member.
  • A life membership fee is paid by the members in lump-sum for their whole life.
  • Legacy is the amount received by an organisation from a deceased person.
  • Endowment fund is a fund, which provides the permanent means of support to any person or institution.  
  • Donation is the amount donated to the organisation in cash or kind. When the donor does not specify any condition for using the amount of donation is known as general donation while, if the donation is for a specific purpose is known as specific donation.
  • Fund based accounting refers, where donations, incomes relating to a particular fund are credited to it and expenses are debited.
  • NPO sometimes conducts trading activities, profit or loss on such activities is transferred to the Income and Expenditures account.
  • Other adjustments dealt are, cost of consumables, sale of old assets, grant from government, etc.

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