ACCOUNTANCY
H.S. 2nd Year
A
UNIT -1
NON TRADING
ORGANISATION / NOT FOR PROFIT ORGANISATION
1. What
is Non-trading Organization?
Ans: Non-trading
organizations are those organizations which are established not for the purpose
of earning profit but for the purpose of providing social services to the
people of the society. Such organizations are known as non-trading
organizations. In other words there are certain organizations which are
established with the main objective of rendering services to their members or
society at large. For example: Club,
Public School, Government Hospital, Charitable Institution, etc.
2. What
are the features of Non–Trading Organization?
Ans: Followings are the features
of non-trading organization:-
(a) These
organizations carry their activities without any profit motive.
(b)These
organizations are generally managed by an elected body of members or nominated committee.
(c) The
main source of fund of such organizations is subscriptions from members,
donation, government grant etc.
(d) These
organizations are voluntary associations of some persons.
(e) These
organizations are established to provide services to general public of the
society.
3. What
is Receipts and Payments account? What are its features?
Ans: Receipts and payments account is a real account, which is
usually prepared by a non-trading organization in lieu of cash book. It is a
summary of cash transactions. It records cash receipts on the debit side and
cash payments on the credit side. The balancing figure of this account
represents closing cash and bank balances.
Following are the features of Receipts and Payments account:-
(a)
It
is a real account.
(b)
It
is a summary of cash book, like a cash book receipts are shown on the debit
side and payments are shown on the credit side.
(c)
It
is prepared on cash basis of accounting i.e. it does not include any non-cash
items.
(d)
It
includes both capital and revenue nature item.
(e) It records all the items which are related to
current year, previous year and next year.
4.
What is income and expenditure account? What are its features?
Ans: Income and Expenditure
account is a nominal account which is usually prepared by a non-trading-
organization in lieu of profit and loss account. It records revenue expenditure
on debit side and revenue income on the credit side. The balancing figure of
this account represents either surplus or deficit.
Following are the features of income and
expenditure account:-
(a)
It
is a nominal account.
(b)
It
is prepared on accrual basis of accounting.
(c)
It
is a substitute of profit and loss account prepared by a non-trading
organization at the end of an accounting period to find out surplus or
deficits.
(d)
It
includes only revenue nature items i.e., capital nature items are ignored.
(e)
It
records revenue expenditure on the debit side and revenue income on the credit
side.
5.
State the procedure of preparing an income and expenditure account from a given
receipts and payment account?
Ans: Following are the procedure
of preparing an income and expenditure account from a given receipts and
payments account:-
(a) Leave the opening and closing balances of cash and bank balances
given in the receipts and payments account.
(b) Take only revenue nature items of income and expenditure and ignore
all capital nature items.
(c) Make all adjustments for outstanding and prepaid expenses, provision
for depreciation etc.
(d) Take only the items related to current year .i.e. items relating to
the previous year and next year are to be ignored.
6. What
is Fund based Accounting?
Ans: The term fund means
cash or cash equivalent. Fund based accounting is a system followed by a non-trading
organization to manage their money. In fund based accounting specific fund is
exist for specific purposes. Fund based accounting essentially involves
preparation of financial statements and consolidation of those statements to
represent the financial position of the organization as a whole.
7. What are the difference between Receipts
& Payments account and Incomes & Expenditure account?
Ans: Following are the difference
between Receipts & Payments account and Incomes & Expenditure account
are:-
8. What are the objectives of Receipts and
Payments Account?
Ans: Following are the objectives of Receipts and
Payments Account:
a) It
is prepared by a non-trading organization to find out the closing cash and bank
balances at the end of an accounting period.
b) It
is prepared to show the cash receipts and the cash payments under different
heads during an accounting period.
c) It
serves as a basis of preparing financial statements i.e., income and
expenditure account and balance sheet for the organization.
9. What
are the difference between receipt and payment A/c and cash book?
Ans: Following are the
difference between Receipts and Payments A/c and Cash book:-
10. What
are the difference between Income and Expenditure a/c and Profit and Loss A/C?
Ans: Following are the
differences between Income and Expenditure A/C and Profit and loss A/C:-
11. Difference
between Fund based accounting and Non fund based accounting.
12. Difference
between trading organization and non-trading organization
Short
Notes
a) Trading Organization: Trading organizations
are those organizations which are established with the main objective of
earning profit through manufacturing, buying and selling of goods and services.
For example sole proprietorship, partnership and company form of business etc.
b) Subscription: The amount paid by the
members of the organization to retain their membership alive is known as
subscription. Such amount may be payable periodically i.e. monthly or yearly.
Subscription is the major source of revenue for the organization.
c) Entrance fees: The amount paid by
new members at the time of joining the organization is called as entrance fees.
It is treated as a revenue receipts and recorded on the credit side of income
and expenditure account.
d) Donation: The amount contributed
by any person, members of the organization or government agencies to the
organization is called donation. Donation may be paid for a general or specific
purpose. The donations which are received not for a specific purpose is called
general donation and the donations which are received for a specific purpose is
called specific donation.
e) Legacy: Legacy is the amount
received by a non-trading organization on account of will of a deceased person.
It is a capital nature item and added with capital fund on the liabilities side
of balance sheet.
f) Honorarium: The amount paid to a
person who is not the employee of the organization is called honorarium. For
example the amount paid to guest lecturer, payments to coach etc. This type of
payment is made to a person for a specific services rendered by him to the
organization. It is recurring in nature
and debited to income and expenditure account.
g) Life Membership Fees: life membership fee
is the amount paid by the members of the organization for life time in lump-sum,
at the time of admission or during subsequent years. Members pay the life
membership fees only once in their life time. It is treated as a capital
receipts and shown on the liabilities side of balance sheet.
h) Endowment fund: The amount received
for the permanent means of support is known as endowment fund. It is a special donation or a gift of
a large amount. It is treated as a capital receipts and shown on the
liabilities side of balance sheet.
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