ACCOUNTING FOR NON-TRADING CONCERN
Concerns such as clubs, associations, hospitals, educational
institutions, trade unions, charitable institutions are not established with the object of earning
profit but to serve for their members.
Hence, they would not prepare the normal trading
and profit and loss account. But to avoid misappropriation and
embezzlement of members’ funds, it is necessary to prepare or keep proper books
of accounts. The non-trading concerns have to maintain the following books of
accounts.
1] Receipts and payments
account
2] Income and
expenditure account and
3] Balance sheet.
Receipts and payments
account:
It is just like a cash book and based on real
account. This receipt and payment account will have opening and closing
balances. All receipt (both capital and revenue) are recorded on the
receipt side (debit side) and payments (both capital and revenue) are recorded
on the payment side (credit side). No adjustment such as prepaid expenses,
outstanding expenses, Income received in advance, outstanding income,
etc. are required to be done. This account is prepared for particular
period and receipt whether relates to this year or previous or future
years should be recorded.
Receipts
|
$
|
Payments
|
$
|
To
Balance b/d
To Annual subscription To Life membership fees ToEntrancefees To interest on securities To sundry receipts |
1,240
1,630 250 240 180 50 |
By
general expenses
By salariesand wages By furniture By rent, rates & taxes By printing & stationary By Repairs By Balance c/d |
550
550 800 500 125 150 915 |
3,590
|
3,590
|
Income and expenditure account:
It is just like a profit and loss account and
based on nominal account. There will be no opening and closing balances
in this account. All revenue receipts and incomes are recorded on the
credit side and all revenue payments and expenses are recorded on the debit
side and the difference will be either excess of income over expenditure or
excess of expenditure over income. This account is based on mercantile
system and all adjustments should be incorporated in this account.
How to Convert a Receipt
and Payment Account into Income and Expenditure Account:
The following steps will
be necessary to convert a receipt and payment
account into an income
and expenditure account:
1.
Opening and closing
balances of receipt and payment
account should be
excluded.
2.
All items of capital
receipts and payments should be excluded.
3.
All incomes of previous
years or for years to come should be excluded.
4.
All expenditures of
previous years and years to come should be excluded.
5.
All accrued income and
outstanding expenditures relating to the period should be included.
6.
Item such as bad debts,
depreciation, etc. will have to be provided.
Balance Sheet:
Balance sheet for
non-trading concerns are prepared just like a balance sheet of trading
concern is prepared. This statement is prepared on a particular date and
showing various assets and liabilities owned by the concern.
Important terms used in
Non-trading concern
The following are the
various terms and conditions used in case of preparation of accounts for
non-trading concerns.
- Legacy: If any money received by any non-trading concerns
because of the will of the deceased persons such amount is called legacy
and should be capitalized by recording on the receipt side of
the receipts and payment account as it is one time receipt and non-recurring
in nature.
- Donations: It is the amount contributed by the members to the
concern without any obligations. It is given just like a gift. It
may be general donations or specific donations. If the amount
donated by the members without any conditions, it is general donation and
will be treated as capital or revenue based on the magnitude of the
donations.If the amount donated by the members with any specific
conditions, such for construction of rooms, or development of grounds,
etc. then such amount will be capitalised and shown on the liability side
of the balance sheet.
- Sale of any assets: On sale of assets, the amount realised should be
compared with the cost, if there is any profit or loss, then such amount
will be transferred to income and expenditure account and the amount
realised on the sale will appear on the receipt side of the receipts and
payments accounts.
- Entrance fees:
when any member enrolled into the non-trading concern, they have to pay
entrance fees. Sometime this amount may be recorded as capital receipt as
it is received only once from the members. Some other time, this
amount may be recorded as revenue receipt as it is received every year
from different members. No clear instructions for this and hence,
the way in which it is treated should be given as foot note.
- Specific fund: If there is any specific funds, such as building
funds, tournament funds, etc. then any income and expenditure concerned
with that particular event should be adjusted in the specific funds and
not to be shown in the income and expenditure account.
- Sale of sports materials: Sport materials such as bat, balls, etc. are
consumable asset. Hence, any amount realised from the sale of sports
materials will be treated as income and credited in the income and
expenditure account.
- Subscriptions:
This is the major recurring income received from the members.
Subscription received during the year will be shown as receipts in
the receipts and payment account and subscription relating to the current
year will be shown in the income and expenditure account.
- Life membership fees: If any members pay the membership fees for the entire
life instead of periodical payments, then such amount should be treated as
capital receipts and entered in the receipt and payments account and shown
in the liability side of the balance sheet.
- Honorarium: It is the payment made to any person for giving lectures or to reimburse any expenses, such amount will be entered in the receipt and payments account and in the income and expenditure account.
Receipts
& Payment Account
|
Income
& Expenditure Account
|
||
1
|
It
is a summary of the cash book
|
1
|
It
takes the place of profit and loss account in non-trading concerns.
|
2
|
It
begins with an opening balance and ends with a closing
balance.
|
2
|
Does
not commence with any balance
|
3
|
It records all sums received and
paid whether they relate to revenue or capital items
|
3
|
It
includes revenue items only
|
4
|
It includes all
sums actually received during the year whether they relate to the past,
current or next year.
|
4
|
It includes the
items relating to year for which it is prepared. Provision is made for all
outstanding expenses and accrued income.
|
5
|
The
receipts are shown on the debit side and the payments on the credit
side.
|
5
|
Income
is shown on the credit side and expenses on the debit side.
|
6
|
It simply ends with
a closing balance of cash and does not show the
result for the period.
|
6
|
It definitely shows
whether there has been an excess of income over expenditures or vice versa.
|
7
|
It
is not accompanied by a balance sheet.
|
7
|
It
is always accompanied by a balance sheet.
|
chapter
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NON – TRADING CONCERN
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Q.1:
|
Define non – trading organization?
A legal and accounting entity that
is operated for the benefit of the society as a whole rather than for the
benefit of a sole proprietor or group of partners or share holders. In other
words, it’s main purpose is to serve its members rather than earning profit.
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Q.2:
|
Give any three characteristics of
on – trading concerns?
i)
Non – profit making
ii)
They provide services to their members.
iii)
Their source of income is subscription, donations etc.
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Q.3:
|
Differentiate between trading and
non – trading concerns?
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Q.4:
|
What is Receipts & payments
account?
A summary of the cash book is
called receipts and payments account. This is the primary report prepared by
treasures of non – trading concerns to present the result of year’s cash
position.
|
Q.5:
|
Give any three characteristics of
receipts and payments account?
i) No
distinction is made between capital and revenue items.
ii)
It usually stars with the opening balance of cash.
iii)
It is a duplicate of cash book is concise form.
|
Q.6:
|
Define Incomes and Expenditure
account?
The account through which surplus
or deficit of a particular period is determined of non – trading concerns is called
incomes and expenditures account.
|
Q.7:
|
Give any three characteristics of
incomes & expenditures account?
i)
It is revenue account prepared at the end of financing
period.
ii) Both cash and non cash items are recorded in it.
iii)
All capital expenditures are excluded.
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Q.8:
|
Name major statements which are
prepared by non – trading concerns?
i)
Receipts and payments account.
ii)
Incomes and expenditures account.
iii)
Balance sheet.
|
Q.9:
|
Name major statements which are
prepared by non – trading concerns?
i)
Receipts & payments account
ii)
Incomes & expenditures account.
iii)
Balance sheet
|
Q.10:
|
What is mean by Legacy?
The amount or property received as
per the will of deceased person by non – trading concerns is called legacy.
|
Q.11:
|
What is the accounting treatment
of legacy?
Normally, legacy is treated as
capital item, however, its some part maybe considered as income according to
instructions.
|
Q.12:
|
What do you know about honorarium?
The amount paid to the person who
is not the employee of non – trading organization and such payment is made as
gift against some services rendered by him to such institution is called honorarium.
|
Q.13:
|
What is accounting treatment of
honorarium?
Honorarium is expenditure so it is
written on the debit side of incomes and expenditures account.
|
Q.14:
|
Define capital fund?
The difference between the assets
and liabilities of non – trading concerns represents capital fund.
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Q.15:
|
Differentiate between receipts and
payments A/c and incomes and expenditures A/c?
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Q.16:
|
Define Subscription?
The contribution made by the
members annually to non – trading concerns is called subscription.
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Q.17:
|
What do you know about donation?
Amount received in the shape of
gifts to non – trading concerns is called donation.
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Q.18:
|
What do you mean by Special
Subscription?
A subscription collected by non –
trading concerns from the members who participate in a particular activity is
called Special subscription.
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Q.19:
|
What is the accounting treatment
of sale of newspapers, periodicals, magazines?
It is written on the income side
of incomes and expenditures account.
|
Q.20:
|
What is the treatment
of Sale of sports material?
It is written on the income side
of incomes & expenditures account.
|
Q.21:
|
Define life membership fee?
A subscription paid in lump sum by
any member of non – trading concern for all period of membership is known as
life membership fee.
|
Q.22:
|
Define Entrance fee?
A fee received by Non – trading
concerns from new member as a result of his / her admission is called
entrance fee or admission fee.
|
Q.23:
|
What is the accounting treatment
of admission fee or Entrance fee?
It amount is large, so it is
treated as liability, if amount is small, it is treated as income.
|
Q.24:
|
What is the accounting treatment
of General fund / Capital fund / Accumulate fund?
It is treated as liability in the
balance sheet.
|
Q.25:
|
What is the accounting treatment
of deficit in the non – trading concerns accounts?
It is treated as liability in the
balance sheet.
|
Q.26:
|
What do you mean by deficit in Non
– trading concerns?
If the expenditures of non –
trading concerns exceeds the incomes of these institutions, such difference
is called deficit.
|
Q.27:
|
What do you mean by surplus in Non
– trading concerns?
If the Incomes of non – trading
concerns exceeds the expenditure of these institutions, such difference is
called surplus.
|
Q.28:
|
What is the accounting treatment
of surplus in non – trading concerns accounts?
It is directly added to capital
fund in the balance sheet.
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