As we know that the not-for-profit organisations do not trade in goods or provide services with a profit motive.
But, they also require to keep proper records of incomes, expenses, assets and liabilities. Their major source of income is donations, subscriptions, grants etc.
Therefore, most of their transactions are in cash or through the bank account.
They need to keep proper books because they are accountable to the members and the contributors and also because the law requires them to maintain proper books so that the government can keep proper control over its functionality.Proper accounting reduces the risk of frauds and embezzlement.
In addition to the ledgers, bank book, journals and cash book, they are also required to maintain a stock register. In a Stock register, a complete record of all fixed assets and consumables is maintained.
In accounting for non profit organizations, instead of maintaining a Capital A/c, these organisations maintain Capital Fund or General Fund A/c. They credit this account with the surplus, life membership fees, donations, legacies, etc.
The not-for-profit organisations also require to prepare the final accounts or the financial statements at the end of the accounting year as per the accounting principles. They need to submit it to the Registrar of Societies, Charity commissioner wherever applicable and to the department of Income Tax along with the return of income.
The final accounts of these organisations consist of:
- Receipts and Payments A/c: It is the summary of the cash and bank transactions.
- Income and Expenditure A/c: It is similar to the Profit and Loss A/c and ascertains the surplus or deficit if any.
- Balance Sheet: It is prepared in the same manner as the Balance Sheet of concerns with a profit motive.