Every business deals with economic pursuits with an intention to earn a profit. However, there are a few establishments which function with an intention to provide service to its members as well as to the public. Such organisations are known as Non-profit organisations or Not for profit organisations or NPO’s.
These organisations are setup with the objective of welfare of the society and with a service motive. Non-profit organisations raise funds from its members and the public for performing activities that are related to welfare of society.
The trustees or administrators of these establishments are completely accountable to the public and the members. Therefore, accounting for non-profit organisations (NPO’s) becomes essential. Examples of such establishments are educational institutions, religious organisations, charitable institutions, trade unions, clubs, etc.,
However, the NPOs do not manage any capital account. Instead, they manage capital fund which is also known as the general fund that is kept active by donation, life membership fee, government grants etc., received from one financial year to the next financial year.
A proper structure of accounting is prudent to minimise the possibilities of embezzlement of the funds contributed by other donors and members.
For this cause, one has to prepare their final accounts during the closure of the accounting period, and the general principles of accounting are completely pertinent in their preparation as mentioned earlier, the final accounts of an NPO incorporate the following :
- Income and Expenditure Account
- Receipt and Payment Account
- Balance Sheet
If an establishment has followed the double-entry system of accounting, they have to prepare a trial balance for scrutinising the perfection of the ledger accounts, and it will also enable the preparation of Income and Expenditure Account, Receipt and Payment Account and the Balance Sheet.
The above mentioned is the concept that is explained in detail about Accounting Records of Not-for-Profit Organisations for the Class 12 students. To know more, stay tuned to BYJU’S.