1. Define the Not for profit organization?

Ans:  Not for profit organization (NPO) can be defined as,  “an economic entity that provides services beneficial to the society without making profits”. These organizations work for the promotion of charity, religion, education, literature, sports, art and culture, without aiming at profit.

2. What are the objectives of accounting for NPO?

Ans: i) To assess financial performance of the organization.
    ii) To appraise the members about the financial affairs of the organization.
   iii)To evaluate the organization’s efficiency in spending money on some social cause.

3. Explain accounting treatment of ‘Sale of old newspaper and magazine by NPO?

Ans: Amount received from the sale of old newspapers and magazine are treated as revenue receipts because it is a regular feature of NPO. Hence sale of old newspaper etc. are shown on the credit side of income and expenditure account.

4. During the year 2007 a club received Rs.1,00,000 as entrance fees. Accounting to accounting policy for the club 40% of the entrance fees is to be capitalized. How will you deal with entrance fees received by NPO?

Ans: Entrance fees Rs.60,000 (i.e. 60% of Rs. 1,00,000) will be credited to ‘Income and Expenditure Account’ and Rs. 40,000 (i.e.40% of Rs. 1,00,000) will be added to capital fund in the balance sheet.

5. What is meant by fund Based Accounting?

Ans: In fund based accounting separate accounts are maintained for specific activities of the organization such as sports fund, price fund etc. All items related the specific fund are recorded fund wise and consolidation of these statements or accounts are presented in the financial results.

6. Mention any two categories of funds?

Ans: i) Fixed Assets fund: These are the funds specially for investment in fixed assets or already invested in fixed assets. Creating a separate fixed assets fund may imply to some extent that fixed assets are same how not related to the day-to day operation of the organization.
    ii) Annuity fund: These funds are use to account for resources that are given to Not for profit organization accept to make periodic payment to the designated recipient. In this situation the original amount will be credited to the equity fund.

7.    What is Endowment fund?

Ans: Endowment funds contains assets donated by the donors with the donation that only the income covered by these assets can be used to finance the specific activities and not the principle amount.

8.    How would you calculate the amount of consumable materials?

Ans: Opening stock of Material + purchase during the year – closing stock of material = consumable material.

9.    How would you account for the cost of prizes purchased for distribution, of a ‘Prize-flood’ is maintained?

Ans: The main sources of income of a not for profit organization are:
     i)    Membership subscription.
    ii)    Donations.
   iii)    Life membership fees.
    iv)    ‘Profit from the sale of food in the club, restaurant of cafeteria.
     v)    ‘Profit from bar sales.
    vi)    Profit from social events, such as dinner – dance
   vii)    Interest received on investment.

10.    Give two main sources of income of a Not for profit organization?

11.    Give any two points of difference between receipts and payment account and cash book?

12.    Difference between receipt and payment account and trial balance?

Ans: Legacy: It is the amount received as per the will of a deceased person. It appears on the receipts side of the Receipt and payment account and is directly added to capital fund/general fund in the balance sheet.

13. What do you mean by legacy?

Ans: Honorarium : A token payment made to a person who has voluntarily undertaken a service which will normally demand of fees. It is thus an expression of gratitude rather than a payment for the work done.

14. What is honorarium?

Ans: Silent features of Non-profit organization are:
     i) Such organization are formed for providing services to a specific group or public.
    ii)    The main sources of income of such organization are
          a) Subscription
          b) Donations
          c) Legacies
          d) Grant-in-aid
         e) Income from investments.
   iii)    The funds raised by such organization through various sources are credited to capital fund or general fund.
   iv)    Their affairs are usually managed by a managing executive committee elected by its members.

15.    Write any four features of receipt and payment account?

Ans: i)  It is prepared for an accounting period on accrual concept following the matching principle.
    ii) Only revenues items are considered, while capital item are executed.
   iii) All items both cash and non cash (depreciation) are recorded.
     v)    Expenditure are recorded on the debit side and incomes on the credit side.

16.     Write any four features of income and expenditure account?

Ans: 1. It is the account of revenue income and revenue expenditure of an accounting year.

        2. It is not confined to cash transactions only i.e non cash transactions are also included in it.

        3. All expenditure are recorded on debit side and all incomes on credit side.

        4. Its balance may be either debit or credit.

17.    Write any two limitation of receipts and payment account?

Ans: 1. It does not differentiate capital and revenue expenses and incomes.

        2. It fails to show expenses and incomes on accrual basis.

        3. It fails to show surplus and deficiency.

        4. It fails to show non cash transactions such as depreciation of fixed assets, pilferage etc.

18. Explain accounting treatment of ‘Life Membership fees in case of NOP?

Ans: It is a non recurring receipt, therefore, it is not credited to income and expenditure account but shown separately on the liabilities side of the Balance sheet. If membership is created it is transferred to capital fund.


19.    Define restricted fund and unrestricted fund?

Ans: i) Restricted fund: Restricted fund is that fund, the use of which is restricted to the activities for which this fund is created the donors. For example: the use of prize fund will be restricted to the awarding of prizes.
ii) Unrestricted fund: Unrestricted fund is also known as capital fund or general fund. The organization is free to use this fund in any manner it likes. The accounting basis of the unrestricted fund is the actual method as used by profit making organizations that primary sources of income for this fund is annual subscription or membership fees general government grants, gifts from individuals and income from investments.

20.    Define subscription, donation and grant?

Ans: Subscription: A periodic amount received by a not for profit organization from its members for keeping their membership alive is called subscription.
Donation: Donation is an amount received by way of gift. If donation is received for a specific purpose, it should be shown distinctly on the liabilities side of the Balance sheet and should be used for assigned purpose.
Government grant: A financial award given by the federal state or local governments to an eligible grantee.