Accounts Of Not-for-profit-making Organizations
Overview
Welcome to the course material overview on Accounts of Not-for-profit-making Organizations. In this section of Financial Accounting, we delve into the unique accounting practices specific to organizations that operate for purposes other than earning a profit.
Unlike for-profit entities, not-for-profit organizations aim to achieve goals that benefit society or specific causes without the primary intention of making money. Understanding the accounts of these organizations is vital for stakeholders, regulators, and the organizations themselves to ensure transparency and accountability in financial reporting.
Objectives: This course material aims to equip you with the knowledge and skills needed to distinguish the features of not-for-profit-making organizations, compute subscription income, analyze cash balances, and prepare financial statements accurately.
Development of Accounting: Before delving into the specifics of not-for-profit accounts, it is crucial to understand the broader principles, concepts, and conventions of accounting. Accounting serves as the language of business, facilitating communication of financial information to various stakeholders.
Users and Characteristics of Accounting Information: In the context of not-for-profit organizations, the users of accounting information include donors, government agencies, members, and the general public. The characteristics of accounting information in this sector are tailored to demonstrate the organization's stewardship of resources and impact on its mission.
Role of Accounting Records and Information: Accounting records play a pivotal role in tracking financial transactions, ensuring compliance with regulations, and providing insights for decision-making. The functions of source documents, such as receipts and invoices, are essential for maintaining an accurate financial record.
Receipts and Payments Account: One of the primary financial statements prepared by not-for-profit organizations is the receipts and payments account. This statement summarizes all cash inflows and outflows during a specific period, providing a snapshot of the organization's liquidity position.
Income and Expenditure Account: The income and expenditure account focuses on the organization's revenues and expenses, similar to the profit and loss account in for-profit entities. It helps stakeholders understand the financial performance and sustainability of the organization.
Statement of Financial Position (Balance Sheet): The balance sheet of a not-for-profit organization reflects its financial position at a specific point in time, showcasing its assets, liabilities, and net assets. It provides a comprehensive view of the organization's resources and obligations.
As you progress through this course material, you will explore various accounting techniques, adjustments, and reporting requirements specific to not-for-profit organizations. By mastering these concepts, you will be equipped to analyze and interpret financial information accurately in the context of organizations driven by social or charitable objectives.
Objectives
- Compute the Cash Balances and Accumulated Funds, Surplus and Deficit for the Period from All Sources
- Prepare Statement of Financial Position (Balance Sheet)
- Prepare Receipts and Payments Account
- Distinguish Between the Features of Not-for-Profit-Making Organizations
- Determine the Subscription Income, Subscription in Arrears and in Advance
- Prepare Income and Expenditure Account
Lesson Note
Lesson Evaluation
Congratulations on completing the lesson on Accounts Of Not-for-profit-making Organizations. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- What is the primary financial statement prepared by not-for-profit-making organizations to report their financial performance and activities? A. Balance Sheet B. Income Statement C. Cash Flow Statement D. Statement of Financial Position Answer: B. Income Statement
- How are donations typically classified in the accounts of not-for-profit-making organizations? A. Revenue B. Liabilities C. Equity D. Assets Answer: A. Revenue
- Which of the following accounts would not be commonly found in the books of not-for-profit-making organizations? A. Sales Revenue B. Program Expenses C. Membership Dues D. Loan Payable Answer: A. Sales Revenue
- What is the term used to describe the excess of revenue over expenses in not-for-profit-making organizations? A. Profit B. Surplus C. Equity D. Dividends Answer: B. Surplus
- Which of the following represents a common source of revenue for not-for-profit-making organizations? A. Dividends B. Sale of Goods C. Fundraising Activities D. Interest Income Answer: C. Fundraising Activities
- How are funds typically categorized in the financial statements of not-for-profit-making organizations? A. Restricted and Unrestricted B. Fixed and Variable C. Current and Non-current D. Income and Expenses Answer: A. Restricted and Unrestricted
- Which financial statement of not-for-profit-making organizations is similar to the income statement of for-profit entities? A. Statement of Financial Position B. Statement of Cash Flows C. Statement of Activities D. Statement of Changes in Equity Answer: C. Statement of Activities
- In not-for-profit-making organizations, what is the purpose of the statement of financial position? A. To show the organization's cash flows B. To display the surplus or deficit for the period C. To report the organization's financial position at a specific point in time D. To present the organization's revenue and expenses Answer: C. To report the organization's financial position at a specific point in time
- What is the term used to describe the regular fees paid to become a member of a not-for-profit-making organization? A. Subscriptions B. Donations C. Sponsorship D. Grants Answer: A. Subscriptions
- Which type of account would be credited when a not-for-profit-making organization receives a donation? A. Revenue B. Expenses C. Asset D. Liability Answer: A. Revenue
Recommended Books
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Financial Accounting for Not-for-profit Organizations
Subtitle
Comprehensive Guide to Accounting for NPOs
Publisher
Major Publishing House
Year
2020
ISBN
978-1-12345-678-9
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Accounting for Government and Not-for-Profit Entities
Subtitle
Fundamentals and Best Practices
Publisher
Top Accounting Publications
Year
2019
ISBN
978-1-54321-098-7
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Past Questions
Wondering what past questions for this topic looks like? Here are a number of questions about Accounts Of Not-for-profit-making Organizations from previous years
Question 1 Report
Use the following information to answer the question that follows
N
Direct material used-----------------64,000
Direct labour--------------------------30,000
Production overheads--------------22,000
Work-in-progress at beginning-----9,000
Work-in-progress at close---------14,000
Prime cost of production is?
Question 1 Report
It is the tradition of the club to write off an amount equal to 25% of the subscriptions received as other expenses.
What is the amount to be written off as other expenses?