📑 Topics on this page (Jump to Topic):
📌 1. Not-for-Profit Organisations
- Clubs, charities, schools, hospitals, libraries, sports bodies — the aim is service, not profit.
- Main income sources: subscriptions, donations, grants, legacies, entrance fees.
- Terms: surplus instead of profit, deficit instead of loss, capital fund / general fund instead of capital.
- Final accounts: (1) receipts and payments account, (2) income and expenditure account, (3) balance sheet.
📌 2. Receipts & Payments vs Income & Expenditure
| Basis | Receipts and payments account | Income and expenditure account |
|---|---|---|
| Nature | Summary of the cash book; a real account | Like a P&L account; a nominal account |
| Basis | Cash basis | Accrual basis |
| Items | Both capital and revenue; of any year | Only revenue items of the current year |
| Starts with | Opening cash/bank balance | No opening balance |
| Balance | Closing cash/bank balance (debit, except overdraft) | Surplus or deficit → capital fund |
| Sides | Debit = receipts; credit = payments | Debit = expenditure; credit = income |
📌 3. Treatment of Special Items
| Item | Treatment |
|---|---|
| Subscriptions | Revenue income; current year only — add outstanding, deduct advance |
| Legacy | Generally a capital receipt — added to capital fund |
| Specific donations (for building, prize fund) | Capital — shown as that fund on the liabilities side |
| General donations | Small amounts income; large amounts may be capitalised |
| Entrance fees | Generally revenue income (unless told otherwise) |
| Life membership fees | Capital receipt |
| Sale of old newspapers / sports material | Revenue income |
| Sale of fixed assets | Capital receipt; profit/loss to I&E A/c |
| Spending from a specific fund (prizes) | Deducted from the fund, not charged to I&E |
Subscription example: received ₹50,000 in the year (including ₹2,000 for next year and ₹3,000 for last year); current year outstanding ₹4,000. Income = 50,000 − 2,000 − 3,000 + 4,000 = ₹49,000.
📌 4. Capital Fund
- Opening capital fund = opening assets − opening liabilities (from the opening balance sheet / statement of affairs).
- Closing capital fund = opening fund + surplus (or − deficit) + capitalised items (legacies, life membership).
⚠️ Exam Traps:
- Depreciation and outstanding expenses (non-cash) do not appear in the R&P account; they appear in the I&E account.
- The R&P account is real; the I&E account is nominal — do not reverse them.
- If there is a trading activity (canteen/bar), prepare a separate trading account and take its profit to I&E.
💡 Memory Tip: R&P = "Real, raw cash" (cash summary); I&E = "Income Earned" (accrual).
📌 5. Worked Examples
Example: subscription working and Income & Expenditure account
Subscriptions received in 2025-26 ₹60,000, including ₹4,000 for 2024-25 and ₹3,000 for 2026-27; ₹5,000 for 2025-26 is outstanding. Income = 60,000 − 4,000 − 3,000 + 5,000 = ₹58,000. Sports material: opening ₹3,000 + purchases ₹9,000 − closing ₹4,000 = ₹8,000 consumed.
| Income & Expenditure Account (2025-26) | |||
|---|---|---|---|
| Dr. Particulars | ₹ | Cr. Particulars | ₹ |
| Salaries | 30,000 | Subscriptions | 58,000 |
| Rent | 12,000 | General donations | 10,000 |
| Sports material consumed | 8,000 | Interest | 2,000 |
| Depreciation | 5,000 | Total | 70,000 |
| Surplus (to capital fund) | 15,000 | ||
| Total | 70,000 | ||
In the balance sheet: outstanding subscription ₹5,000 is an asset and advance subscription ₹3,000 a liability. A donation for a specific fund would not be income; it would go to the liabilities side as a fund.
📌 6. Practice MCQs
📝 Practice MCQs (prepared by SF Prep — not PYQs)
Q1. The receipts and payments account is a: Practice
Correct answer: (C)
It summarises the cash book.
It summarises the cash book.
Q2. The income and expenditure account is similar to the: Practice
Correct answer: (D)
It shows surplus/deficit on accrual basis.
It shows surplus/deficit on accrual basis.
Q3. In an NPO, the excess of income over expenditure is called: Practice
Correct answer: (A)
NPOs do not earn profit, hence "surplus".
NPOs do not earn profit, hence "surplus".
Q4. The receipts and payments account begins with the: Practice
Correct answer: (D)
Like a cash book.
Like a cash book.
Q5. A legacy received is generally: Practice
Correct answer: (A)
It is a capital receipt.
It is a capital receipt.
Q6. Life membership fees are a: Practice
Correct answer: (B)
It is received once for many years' service.
It is received once for many years' service.
Q7. Money from selling old newspapers is: Practice
Correct answer: (C)
A small recurring income.
A small recurring income.
Q8. Subscriptions received ₹50,000 (incl. ₹2,000 for next year and ₹3,000 for last year); current year outstanding ₹4,000. Subscription income is: Practice
Correct answer: (C)
50,000 − 2,000 − 3,000 + 4,000.
50,000 − 2,000 − 3,000 + 4,000.
Q9. A specific donation for a building is shown: Practice
Correct answer: (D)
A capital receipt for a specific purpose.
A capital receipt for a specific purpose.
Q10. The income and expenditure account is prepared on the: Practice
Correct answer: (A)
Only the current year's revenue items.
Only the current year's revenue items.
Q11. Which item does NOT appear in the receipts and payments account? Practice
Correct answer: (B)
Depreciation is a non-cash item.
Depreciation is a non-cash item.
Q12. The opening capital fund is found as: Practice
Correct answer: (A)
From the opening statement of affairs.
From the opening statement of affairs.
Q13. Prizes paid out of a prize fund are: Practice
Correct answer: (C)
Spending from a specific fund comes from the fund itself.
Spending from a specific fund comes from the fund itself.
Q14. Entrance fees (unless told otherwise) are treated as: Practice
Correct answer: (D)
By general convention, revenue.
By general convention, revenue.
Q15. The balance of the income and expenditure account is transferred to the: Practice
Correct answer: (B)
Surplus is added; deficit deducted.
Surplus is added; deficit deducted.
Q16. The debit side of the receipts and payments account shows: Practice
Correct answer: (B)
As in a cash book, debit = receipts.
As in a cash book, debit = receipts.
Q17. In an NPO, the term used instead of "capital" is: Practice
Correct answer: (C)
With no owner, it is called a "fund".
With no owner, it is called a "fund".
Q18. Subscriptions of last year received this year are: Practice
Correct answer: (D)
They were last year's income.
They were last year's income.
Q19. Profit from a club canteen (trading activity) is: Practice
Correct answer: (A)
Trading results are worked out separately.
Trading results are worked out separately.
Q20. The receipts and payments account records: Practice
Correct answer: (D)
A summary of all cash transactions.
A summary of all cash transactions.