The balance sheet is one of the most significant financial statements of a business entity. It acknowledges details associated with assets and liabilities and depicts the exact nature of these assets and liabilities. Let us take a look at the contents of balance sheets and some peculiar items they contain.
The Form of a Balance Sheet
Balance Sheet consists of two sections. The first section shows assets, while the second section represents liabilities. The balance sheet of every company needs to be prepared as per the Revised Schedule VI of the Companies Act, 1956.
The Schedule VI also contains some more directives that need to be followed by the balance sheet and statement of profit and loss as a part of their disclosure.
Peculiar Items of Non Profit Organisation
The financial statements of a non profit organisation is prepared in similar lines as that of a company which is looking to earn profits. However, there are some items in the statements of non profit organisations that are peculiar and therefore they require special treatment.
As Non profit organisations are established with the service motive, they do not manufacture, buy or sell any kind of goods and services. The statements that are prepared by the non profit organisation are therefore Receipts and Payments A/c, Balance Sheet and Income and Expenditure A/c.
Let us look at some of the peculiar items of the non profit organisation that are present in the statements.
1. Subscriptions: Subscriptions are one of the primary sources of income for a non profit organisation. A major part of income is earned by a non profit organisation from subscriptions. Subscriptions is defined as the fees that is collected by the non profit organisation from its members for their membership.
In other words, it can be called as membership fees that members of the non profit organisation have to pay to the organisation for keeping their membership up and running.
The subscription amount is recorded on the receipt side of the Receipts and Payments A/c and on the Income side of the Income and Expenditure A/c.
The only difference in recording the subscription amount is that for the receipts side, it records the amount that is actually received during the year which is irrespective of the period for which it is due, while, in Income and Expenditure side, it is recorded for the current year irrespective of the amount being received or not.
2. Legacies: It is defined as the amount that is left by an individual in his/her will for the non profit organisation before his death. If the purpose for which the amount needs to be used in mentioned specifically in the will, then it is treated as a specific legacy and recorded as a liability in the Balance Sheet, and if the purpose is not mentioned, it is treated as general legacy and shown as income in Income and Expenditure A/c.
3. Donations: Donations are also great source of income for the non profit organisation. It can be in the form of cash or kind and can be received from any individual and organisation. Donations are recorded on the receipt side of the Receipt and Payment A/c.
Donations can be either general or specific. General donations are donated without any purpose and therefore are recorded on income side of Income and Expenditure A/c. While, the specific donations are recorded as liability in the Balance Sheet.
4. Government Grants: Government also provides support to non profit organisation in the form of grants. Grants can be specific or general in nature. Specific grant is transferred to the respective account and general grant is recorded as income in the Income and Expenditure A/c.
5. Life Membership Fees or Entrance Fees: Life membership fees is applicable when the members do not want to pay a monthly or yearly subscription fees and pay a lump sum amount. It is shown under Capital fund in the Balance Sheet.
This was all about the concept of Peculiar Items of Non Profit Organisation for the Class 12 students. To learn more about such interesting concepts, stay tuned to BYJU’S.