Non-Profit Organization Accounts

Non-profit organizations are organizations formed with the intention of the welfare of society and the general public. The main objectives of such organization are the welfare of society, promotion of art and culture, advancement in education, relief to the poor, preservation of environment and monuments, or advancement of any object of general public utility. These are mainly set up as charitable institutions with a service motive. Major funding of such organizations is either from their members or as donations or grants received from the general public. 

Features of Non-Profit Organizations (NPO)

1. Service Motive: These organizations are set up with the motive of providing service to their members or a specific group or the general public. These services are mainly free or for a minimum charge. Majorly these organizations work on the welfare of society, promotion of art and culture, advancement in education, relief to the poor, preservation of environment and monuments, or advancement of any object of general public utility.
2. Members: These organizations are formed as charitable trusts, societies, or Section 8 Companies. The initial persons involved in the setting up of such organizations and subscribers to such organizations become their members.
3. Income: The major sources of income of such organizations are subscriptions, donations, government grants, income from investments, etc.
4. Profit: The profit generated in the due course of the business is used to achieve the main objectives of the Company and cannot be distributed among its members.
   

Non-profit organizations do not exchange goods or provide services for profit. But during the course of their business, they earn income and incur expenses that need to be recorded accurately. These organizations need to keep adequate and proper books of accounts so that the government can keep proper control over the grants and also reduces the risk of fraud and misappropriation of funds. 

In addition, a complete record of all fixed assets and consumables is kept in an inventory register. In accounting for non-profit organizations, Capital Fund or General Fund A/c is maintained instead of a Capital account.

The Final Accounts of Non-profit Organizations Consist of:

1. Receipts and Payments Account: The receipt and payment account is the summary of payments and receipts of an organization during an accounting period. It gives a picture of the cash position of the organization. It records all cash and bank transactions of both capital and revenue nature and does not include any non-cash transactions It is prepared at the end of an accounting period.
2. Income and Expenditure Account: This account records all the incomes and expenses of the non-profit organization.  All income-related expenses and losses are recorded as debits and all income-related income and profits are recorded as credits. The closing balance of these accounts represents the organization’s surplus or deficit.
3. Balance Sheet: The Balance Sheet is the statement that reflects the financial position of the non-profit organization which contains all the items of capital nature that is, assets, liabilities, equity capital, total debt, etc. at a point in time. It provides a full picture of companies net worth. The golden rule of the balance sheet is that the total assets shall match the total liabilities of the Company that is, Assets = Liabilities + Equity. A capital fund is also known as a General Fund or corpus fund, it is the excess of assets over liabilities.