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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 7
NON-PROFIT ORGANIZATIONS
Preparing financial statements with incomplete records
Most of the non-profit organizations operate in medium scale and do not prepare
proper books of accounts. The only accounting record that is maintained in such sized
organizations is cash book along with year end adjustments. The management also
keeps Statement of Affairs as on opening date to maintain during the year movements
in the balance sheet items.
o Cash Book (Receipt and Payment Account)
o Statement of Affairs (as on opening date)
o Year end Adjustments
Accrued incomes and expenses
Advance receipts and payments
Depreciation rate
Like business entities, these few accounting records are used to convert the
information into double entry system and to produce Income & Expenditure Account
and Balance Sheet.
The technique of preparing financial statements of a non-profit organization is similar
to that used for preparing financial statements of a business entity.
While preparing Income & Expenditure Account following shall be assumed to calculate
expenses and incomes
Calculation of incomes
For non-profit organizations the incomes are picked up from the cash books and
amended with the year end adjustment:
Cash based incomes
Cash based incomes are the revenue receipts that are picked up from its origin cash
book and are processed into the filter of accruals, like this:
Rs.
Cash received during the year
***
Less Opening balance of accrued income
***
Add Closing balance of accrued income
***
Add Opening balance of advance receipts
***
Less Closing balance of advance receipts
***
***
Fixed Assets based incomes
Profit/gain on disposal of Assets are calculated with the help of sales proceeds
appearing in receipts side of Cash Book and some relevant information appearing in
the year-end adjustments like cost and accumulated depreciation of the asset disposed
off.
Calculation of expenses
For non-profit organizations the expenses are picked up from the cash books and
amended with the year end adjustment:
Cash based expenses
Cash based expenses are the revenue payments that are picked up from its origin cash
book and are processed into the filter of accruals, like this:
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Advance Financial Accounting (FIN-611)
VU
Rs.
Expenses paid in cash during the year
***
Less Opening balance of accrued expenses
***
Add Closing balance of accrued expenses
***
Add Opening balance of prepaid expenses
***
Less Closing balance of prepaid expenses
***
Expense for the year to be shown in the Income Statement
***
Fixed Assets based expenses
1. Depreciation is calculated based on the depreciation rate mentioned in the
Year-end Adjustments
2. Loss on disposal of an asset are calculated with the help of sales proceeds
appearing in receipts side of Cash Book and some relevant information
appearing in the year-end adjustments like cost and accumulated depreciation
of the asset disposed off.
Balance Sheet of a non-profit organization is prepared in the usual way and contains
particulars of all assets and liabilities of the organization on the date on which it is
prepared. Net assets of non-profit organization are represented by Capital Fund in the
balance sheet. This Capital Fund replaces the owner's equity.
The opening balance of Capital Fund is calculated through the Statement of Affairs as
on the opening date. Such opening Capital Fund is then adjusted with the surplus or
deficit in the Balance Sheet.
Capital receipt like; specific donations, funds, grants etc. for purchase/acquisition or
construction of assets are also included in the Capital Fund of the organization.
Calculating Subscription Income
Although calculating subscription income is not a separate issue apart from the
calculation of incomes for the year originating from the cash book, but even then its
calculations are being shown over here just to give confidence through practice.
Subscription is cash based income and like other revenue receipts it appears in receipts
side of the cash book summary. It is picked up from there and then amended with the
opening and closing balances of subscriptions accrued and received in advance.
Solved Problem # 1
Rupees
Subscription received during the year 2007
7,000
Subscription outstanding at the beginning of 2007
1,400
Subscription outstanding at the closing of 2007
1,600
Calculate the amount of subscription income for the year 2007.
Working:
Subscription received during the year
7,000
Less Opening due
1,400
Add Closing due
1,600
Income for the year
7,200
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Advance Financial Accounting (FIN-611)
VU
Subscription Income Account
Date
Particulars
Amount Date
Particulars
Amount
Rs.
Rs.
1/1/07
Subscription
DTY
Cash
7,000
opening due
1,400 31/12/07 Subscription
7,200
31/12/07 Subscription
closing due
1,600
income
8,800
8,800
Solved Problem # 2
Rupees
Subscription received during the year 2007
12,000
Subscription received in advance for 2008
1,400
Subscription outstanding at the beginning of 2007
1,600
Subscription outstanding at the closing 2007
700
Calculate the amount of subscription at the closing of 2007.
Working:
Subscription Received during the year 2007
12,000
Less Opening due
2,000
Less Closing advance
1,600
Add Closing due
700
Income for the year
9,100
Subscription Income Account
Date
Particulars
Amount Date
Particulars
Amount
Rs.
Rs.
1/1/07
Opening due
2,000 DTY
Subscription
12,000
31/12/07 Closing
1,600 31/12/07 received
31/12/07 advance
9,100
Subscription
700
Income for the
closing due
year
12,700
12,700
Solved Problem # 3
Receipts and Payment Account
For the year ended December 31, 2008
Receipts
Rs.
Payments
Rs.
Subscription
2007
Rs.2,000
2008
6,000
2009
2,000
10,000
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Advance Financial Accounting (FIN-611)
VU
Additional information:
1. Subscription due on 31-12-2007
Rs. 2,000
2. Subscription due on 31-12-2008
Rs. 4,000
3. Subscription received in advance as on 31-12-2007
Rs. 3,000
4. Subscription received in advance as on 31-12-2008
Rs. 2,000
Working:
Rupees
Cash received during the year
10,000
Less Opening balance of accrued income
2,000
Add Closing balance of accrued income
4,000
Add Opening balance of advance receipts
3,000
Less Closing balance of advance receipts
2,000
Income for the year
13,000
Income and Expenditure Account
For the year ended December 31, 2008
(Extract)
Rupees
Incomes
Subscription income
13,000
Balance Sheet
As at December 31, 2008
(Extract)
Rupees
Assets
Subscription receivable
4,000
Liabilities
Subscription received in advance
2,000
Solved Problem # 4
Receipts
Rs.
Payments
Rs.
Subscription
2007
Rs. 1,800
2008
10,000
2009
4,000
15,800
Additional information:
1. Subscription due on 31-12-2007
Rs. 2,000
2. Subscription due on 31-12-2008
Rs. 3,000
3. Subscription received in advance as on 31-12-2007
Rs. 2,000
4. Subscription received in advance as on 31-12-2008
Rs. 4,000
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Advance Financial Accounting (FIN-611)
VU
Working:
Rupees
Cash received during the year
15,800
Less Opening balance of accrued income
2,000
Add Closing balance of accrued income
3,000
Add Opening balance of advance receipts
2,000
Less Closing balance of advance receipts
4,000
Income for the year
14,800
Income and Expenditure Account
For the year ended December 31, 2008
(Extract)
Rupees
Incomes
Subscription income
14,800
Balance Sheet
As at December 31, 2008
(Extract)
Rupees
Assets
Subscription receivable
3,000
Liabilities
Subscription received in advance
4,000
Solved Problem # 5
Following is the data relating to membership fee of HF Club for the accounting year
April 2007 to March 2008.
1. Cash/Cheque received during the year totaled Rs. 100,000.
2. As on April 1, 2007 Rs. 2,000 was in arrears for March 31, 2007 and Rs. 800 was
received in the previous year as advance membership fee.
3. Received Rs. 1,500 towards the next year's membership fee, but could not yet
recovered Rs. 1,700 from current year members.
Calculate "Membership Fee" for the year 2007-08
Working:
Membership fee received during the year
Rs. 100,000
Opening advance
Rs. 800
Closing advance
Rs. 1,500
Opening due
Rs. 2,000
Closing due
Rs. 1,700
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Advance Financial Accounting (FIN-611)
VU
Membership fee Account
Date
Particulars
Amount Date
Particulars
Amount
(Rs.)
(Rs.)
1/4/07
Opening due
2,000 1/4/07  Opening
800
1,500 DTY
31/3/07  Closing
advance
100,000
9,100 31/3/08 Cash
31/12/07 advance
700
Income for the
Closing due
year
12,700
12,700
36
Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet