NIOS Senior Secondary • Module 3

Lesson 19: Not For Profit Organisation - An Introduction

Written Exam Syllabus Focus

Lesson 19: Not-For-Profit Organisation (NPO) Study Notes

Extracted strictly from NIOS Senior Secondary Accountancy Module 3. Covers NPO meaning, characteristics, Receipts and Payments Account format, specific income/expenditure items, and comparison with Cash Book.

1 Not-For-Profit Organisations (NPOs) – Meaning & Characteristics

Section 19.1

Core Concept

Not-for-Profit Organisations (NPOs) are institutions founded not to earn profits, but to provide services to their members or the public in general. Unlike commercial general stores or cinema halls, their primary motive is social, cultural, educational, or charitable service.

Salient Characteristics
  • Service Motive: Objective is service delivery, not earning business profit.
  • Sources of Revenue: Admission fees, subscriptions, donations, grant-in-aid, legacies, etc.
  • Elected Management: Managed by an elected group of members called the Managing Committee.
  • Standard Accounting Rules: Prepared using double-entry principles followed by profit-seeking entities.
3 Primary Financial Statements
  1. Receipts and Payments Account: Summary of cash and bank transactions.
  2. Income and Expenditure Account: Similar to Profit & Loss Account (Revenue items only).
  3. Balance Sheet: Shows financial position (Assets & Liabilities) at year end.
Real-World Examples & Application:

Schools, Hospitals, Charitable Trusts, Public Libraries, Resident Welfare Associations (RWAs), Sports Clubs, and Literary Societies operate as NPOs. Money received from members as annual subscriptions or government grant-in-aid is utilized strictly for community welfare and operational maintenance.

2 Receipts and Payments Account – Meaning, Features & Need

Section 19.2

Core Concept

A Receipts and Payments Account is a summary of cash and bank transactions of an accounting year prepared from the Cash Book. All cash receipts are debited and all cash payments are credited, irrespective of whether they relate to the current year, previous year, or next year, or whether they are of capital or revenue nature.

Year-End Summary Prepared at the end of the accounting period taking aggregated items from the daily Cash Book.
Ignores Period Limits Records cash inflows and outflows belonging to past, present, or future accounting periods.
Capital & Revenue Mixed Includes purchase of fixed assets (capital) as well as payment of stationery or rent (revenue).

Standard Format of Receipts and Payments Account

Dr. Receipts Amount (₹) Cr. Payments Amount (₹)
Balance b/d (Opening Cash/Bank) XXXX Purchase of Assets (Furniture/Books) XXXX
Subscriptions (Past, Current, Future) XXXX Printing, Stationery & Newspapers XXXX
Entrance Fees & Donations XXXX Rent, Taxes & Insurance Premium XXXX
Life Membership Fees & Legacies XXXX Honorarium & Postage/Conveyance XXXX
Lockers Rent & Sale of Old Periodicals XXXX Upkeep of Ground & Investments XXXX
Total Debit (Receipts) TOTAL Balance c/d (Closing Cash/Bank) TOTAL

3 10 Specific Accounting Items in NPO Financial Statements

Section 19.3

NPO transactions contain specific items with unique accounting treatments. Understanding whether an item is a Revenue Receipt, Capital Receipt, Revenue Expenditure, or Capital Expenditure is crucial for exam preparation.

1. Subscription

Regular annual contribution paid by members. Main source of recurring revenue.

Receipt Side (Revenue)
2. Entrance / Admission Fee

Charged once when a person is admitted as a member of the NPO.

Receipt Side (Revenue)
3. Life Membership Fees

Lump-sum fee charged once in a member's lifetime. Capital receipt.

Receipt Side (Capital)
4. Endowment Fund

Permanent fund providing long-term interest support for the institution.

Receipt Side (Capital)
5. Donations (Specific vs General)

Specific donations (building/library) = Capital. General small donations = Revenue.

Receipt Side
6. Legacy

Amount received as per the will of a deceased person. Capital receipt.

Receipt Side (Capital)
7. Sale of Old Newspapers

Money fetched from selling old periodicals or used sports material.

Receipt Side (Revenue)
8. Honorarium (High Exam Yield!)

Remuneration paid to non-employees (guest experts/secretaries) taking part in activities.

Payment Side (Revenue Exp)
9. Purchase of Fixed Assets

Long-term assets like books, sports equipment, land, or furniture.

Payment Side (Capital Exp)
10. Purchase of Consumable Items

Stationery, medicines, sports materials used up in daily activities. Paid regularly throughout the year.

Payment Side (Revenue Exp)

4 Receipts & Payments Account vs. Cash Book Comparison

Section 19.4
Basis of Difference Receipts and Payments Account Cash Book
1. Time of Preparation Prepared at the end of the accounting year. Maintained on a day-to-day basis.
2. Frequency of Items Each head/item appears only once in aggregated form. Items appear multiple times on different dates.
3. Purpose Served Serves as a Trial Balance for preparing final financial statements. Serves as a primary book to record daily cash movements.
4. Scope Reflects aggregated yearly activities under distinct heads. Provides chronological cash balance verification.
5. Preparing Entities Prepared ONLY by Not-for-Profit Organisations (NPOs). Prepared by both profit businesses and NPOs.