Accounts of not-for-profit organisations
A club or charity does not exist to earn profit, but its members still want to know: did this year's income cover this year's spending, and what do we own?
What makes these accounts different
Clubs, societies, schools, hospitals, temples and charitable trusts exist to serve their members or the public, not to earn profit for owners. Their main income is subscriptions, donations and grants, not sales. They have no owners' capital; the excess of assets over liabilities is called the capital fund or general fund. They prepare three statements at the year end:
- Receipts and Payments Account: a summary of the cash book.
- Income and Expenditure Account: the equivalent of a Profit and Loss Account.
- Balance Sheet.
Receipts and Payments Account
It records all cash received and paid during the year, whether capital or revenue, and whether for this year, last year or next year. It begins with the opening cash and bank balance and ends with the closing balance. It is a real account. It does not show income earned or expenses incurred, and it ignores non-cash items such as depreciation.
Income and Expenditure Account
It records only revenue items and only those of the current year, on the accrual basis: expenses on the debit side, incomes on the credit side. The balance is a surplus (excess of income over expenditure) or a deficit, which is added to or deducted from the capital fund. It is a nominal account.
| Basis | Receipts and Payments Account | Income and Expenditure Account |
|---|---|---|
| Nature | Real account; summary of cash book | Nominal account; like a Profit and Loss Account |
| Items | Capital and revenue | Revenue only |
| Period | Any year, if cash moved this year | Current year only |
| Sides | Receipts on debit, payments on credit | Expenses on debit, incomes on credit |
| Opening balance | Opening cash and bank | None |
| Closing balance | Closing cash and bank | Surplus or deficit |
| Non-cash items | Ignored | Included (depreciation, outstanding items) |
Special items
| Item | Treatment |
|---|---|
| Subscriptions | Income. Adjusted so that only the current year's subscriptions are counted. |
| General donation | Revenue income, credited to Income and Expenditure Account. |
| Specific donation (for a building, a prize fund) | Capitalised: shown on the liabilities side as a separate fund. |
| Legacy | Money received under a will. Capital receipt, added to capital fund. |
| Life membership fees | Capital receipt, added to capital fund. |
| Entrance (admission) fees | Treated as revenue income, unless the question says to capitalise. |
| Sale of old newspapers and sports material | Revenue income. |
| Sale of an old asset | Capital receipt: only the profit or loss on sale goes to Income and Expenditure Account. |
| Government grant | Maintenance grants are revenue income; grants for a specific asset are capitalised. |
| Specific fund (prize fund, tournament fund) | Income on the fund's investments is added to the fund and its expenses deducted from it, on the liabilities side. Neither goes to Income and Expenditure Account unless the fund runs short. |
| Honorarium | Payment to a person who is not an employee, for services. Revenue expense. |
Subscriptions: the adjustment
Subscription income for the year = Subscriptions received during the year − received for the previous year − received in advance for next year + outstanding for the current year + received last year in advance for this year.
Solved example: Sunrise Sports Club
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| To Balance b/d (cash and bank) | 25,000 | By Salaries | 48,000 | ||
| To Subscriptions | 1,20,000 | By Rent | 24,000 | ||
| To Donations | 15,000 | By Sports equipment purchased | 30,000 | ||
| To Entrance fees | 10,000 | By Printing and stationery | 5,000 | ||
| To Life membership fees | 20,000 | By Tournament expenses | 18,000 | ||
| To Sale of old newspapers | 2,000 | By Investments purchased | 40,000 | ||
| To Interest on investments | 6,000 | By Balance c/d (cash and bank) | 33,000 | ||
| 1,98,000 | 1,98,000 |
Additional information:
- Subscriptions received include ₹5,000 for 2024-25 and ₹8,000 for 2026-27. Subscriptions outstanding for 2025-26 are ₹7,000.
- Salaries outstanding on 31 March 2026: ₹4,000.
- On 1 April 2025 the club had sports equipment ₹50,000, investments ₹60,000 and subscriptions outstanding ₹5,000. Depreciate sports equipment (including the new purchase) at 10%.
Working notes
- Subscription income = 1,20,000 − 5,000 − 8,000 + 7,000 = ₹1,14,000.
- Salaries = 48,000 + 4,000 outstanding = ₹52,000.
- Depreciation = 10% of (50,000 + 30,000) = ₹8,000.
- Opening capital fund = cash 25,000 + subscriptions outstanding 5,000 + sports equipment 50,000 + investments 60,000 = ₹1,40,000 (no liabilities).
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| To Salaries 48,000 + outstanding 4,000 | 52,000 | By Subscriptions | 1,14,000 | ||
| To Rent | 24,000 | By Donations | 15,000 | ||
| To Printing and stationery | 5,000 | By Entrance fees | 10,000 | ||
| To Tournament expenses | 18,000 | By Sale of old newspapers | 2,000 | ||
| To Depreciation on sports equipment | 8,000 | By Interest on investments | 6,000 | ||
| To Surplus (excess of income over expenditure) | 40,000 | ||||
| 1,47,000 | 1,47,000 |
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital fund 1,40,000 + surplus 40,000 + life membership fees 20,000 | 2,00,000 | Sports equipment 50,000 + 30,000 − depreciation 8,000 | 72,000 |
| Subscriptions received in advance | 8,000 | Investments 60,000 + 40,000 | 1,00,000 |
| Outstanding salaries | 4,000 | Subscriptions outstanding | 7,000 |
| Cash and bank | 33,000 | ||
| 2,12,000 | 2,12,000 |
What happened to each item
- Sports equipment and investments purchased are capital payments: they went to the balance sheet, not to Income and Expenditure.
- Life membership fees were capitalised and added to the capital fund.
- The ₹5,000 of last year's subscriptions received this year cancelled the opening asset; it is neither income of this year nor in the closing balance sheet.
- The surplus of ₹40,000 was added to the capital fund.
Stock of consumables: sports material, stationery, medicines
Amount consumed = Opening stock + Purchases − Closing stock, where purchases = cash paid to suppliers + closing creditors − opening creditors (adjusting for advances). Only the amount consumed is debited to Income and Expenditure Account.
Example: opening stock of stationery ₹3,000; paid for stationery ₹5,000; creditors for stationery rose from ₹1,000 to ₹1,500; closing stock ₹2,500. Purchases = 5,000 + 1,500 − 1,000 = ₹5,500. Consumed = 3,000 + 5,500 − 2,500 = ₹6,000.
Steps to convert Receipts and Payments into Income and Expenditure
- Leave out the opening and closing cash balances.
- Leave out capital receipts and capital payments; take them to the balance sheet.
- For each revenue item, adjust for last year's, next year's, outstanding and prepaid amounts.
- Add non-cash items: depreciation, profit or loss on sale of assets.
- Find the opening capital fund from an opening balance sheet.
- Balance the account: surplus or deficit goes to capital fund.
Questions students ask
What is the difference between Receipts and Payments Account and Income and Expenditure Account?
The first is a cash summary recording all receipts and payments of any nature and any period. The second records only the current year's revenue income and expenses on the accrual basis and shows surplus or deficit.
How are life membership fees treated?
As a capital receipt. They are added to the capital fund in the balance sheet and not credited to the Income and Expenditure Account.
What is the capital fund?
The excess of a not-for-profit organisation's assets over its liabilities. Each year's surplus is added to it and each deficit deducted.
More Class 12 topics
For study, and independent. These pages explain accountancy as it is generally taught in Class 11, Class 12 and B.Com courses in India, in our own words with our own examples, reviewed in November 2026. This site is not connected with NCERT, CBSE, ICAI or any board or university. Syllabuses change: follow your own board's or university's current syllabus and textbook. Nothing here is professional accounting, tax or legal advice.