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Home Accounts of Non-profit Making Organizations Some Peculiar Items of Non-profit Seeking Concerns

Some Peculiar Items of Non-profit Seeking Concerns:

Learning Objectives:

  1. Treatment of various peculiar items in non-profit organizations.

1. Depreciation:

Depreciation means loss on account of use of an asset or decrease in its value on account of passage of time. Suppose, an almirah is bought for $1,000. Its value must diminish gradually on account of use - the more it is used, the more will it diminish in value. After sometime it will become unfit for use. Then a new almirah is to be bought. Suppose, the almirah can be used for 10 years. In that case the annual loss on account of depreciation will be $100 (1,000 / 10). It must be debited to Income and Expenditure Account; otherwise the true result cannot be obtained. Similarly, depreciation must be taken into account in respect of all other assets like building, typewriter, furniture etc.


In examination problems depreciation is usually mentioned at certain percent per annum (% p.a.) on the cost of asset. If an asset is purchased in the current year, depreciation is to be charged for the period from the date of purchase up to the end of the year. If the almirah is purchased on 1.10.05, depreciation is to be charged for 3 months (Oct. to Dec.) on 31.12.2005. So the amount of depreciation will be $25 (1000 x 10/100 x 3/12). If the date of purchase is not mentioned, depreciation should be charged for 6 months, on the assumption that the asset has been purchased in the middle of the year. A note to that effect must be added.

2. Sale of Assets:

Sale proceeds of assets will not be included in Income and Expenditure Account, since it is not a revenue item. But in the event of profit or loss on sale, loss will be debited to Income and Expenditure Account, but profit will not be taken to the credit of Income and Expenditure Account - it being capital income, will be credited to Capital Fund Account. If, however, the amount of profit is small, it may be credited to Income and Expenditure Account, since it will not affect the annual result in any significant manner.

3. Purchase and Sale of Newspaper:

Purchase of newspaper does not result in acquisition of any asset - so it is revenue expenditure. When purchased, it is debited to Income and Expenditure Account. When old newspapers are sold, the treatment is just the reverse.

4. Purchase and Sale of Newspaper:

Sports materials, viz. bat, ball etc. are spoiled in a very short time - so they are treated as revenue expenditure. Their sale or purchase will be dealt with in the same manner as "Purchase and Sale of Newspaper". However if depreciation of sports material is given in the question then amount of depreciation will be written on debit side of income and expenditure account and remaining amount after deducing depreciation on asset side of balance sheet.

5. Subscription:

The monthly or annual subscription paid by members is revenue income and hence credited to Income & Expenditure Account. The amount of subscription received in current year may include subscription for last year or next year, which are to be excluded. Again, current year's subscription may be accrued or it might have been received last year in advance. Since these two items of subscription relate to current year, they are to be included. Thus we see that the following four adjustments are necessary for subscription:

  With the amount of subscription received
Last year's subscription received this year Deduct
Next year's subscription received this year Deduct
Current year's subscription received last year Add
Current year's subscription not yet received Add


If the item relates to current year, add to subscription received this year; if the item does not relate to current year, deduct.

6. Special Subscription:

Sometimes additional subscription is collected from members over and above the regular subscription for some special purposes such as construction of club's own building, charities to the poor, awarding of prizes etc. Such subscription will not be included in Income & Expenditure Account, since it is not a regular or recurring income. Such subscription is credited to Special Fund Account, viz., Building Fund Account, Charity Fund Account, Prize Fund Account etc. The amount of such fund is kept deposited with a bank or invested in Government Papers or in gilt-edged securities. Income derived from such investment is credited to concerned Fund Account and all relative expenses are debited to the Fund Account, Such incomes and expenses will not be taken to Income & Expenditure Account. Fund is a liability - it will be shown on Liabilities side of Balance Sheet. But investment of fund money is an asset and hence it is shown on Assets side of Balance Sheet.

7. Admission Fee:

At the time of admission every new member is to pay admission fee in addition to subscription. It is just like the admission fee that you pay in addition to monthly tuition fee at the time of your admission into a school or college. There is a difference of opinion among the accountants as to whether the income on account of admission fee is to be treated as capital income or revenue income. Generally, admission fee is regarded as revenue income and credited to Income & Expenditure Account. If, however, there is any stipulation in the bye-laws of the institution, it must be observed, if it is stipulated that admission fee will be regarded as capital income, it cannot be included in Income & Expenditure Account - it will be credited to Capital Fund Account and shown on Liabilities side of Balance Sheet as an addition to that fund. Again, it may be so stipulated that admission fee is to be regarded partly as capital and partly revenue.

8. Legacy:

Legacy refers to property received by virtue of a will of a person after his death. Acquisition of such property by an institution is regarded as capital receipt. Hence it will not appear in Income & Expenditure Account. Properties or cash received on account of Legacy is shown on asset side on-the balance sheet on one hand and on the other hand it is added to the capital fund account on the liabilities side of the balance sheet.

9. Life Membership Fee:

In some institutions one may become a life member by paying a lump sum at a time - he is not required to pay monthly or annual subscription. So life membership fee is in effect regular subscription paid in advance. The subscriptions collected from the members are utilized for rendering services to them, so it is revenue income. But only a portion of subscription collected from life members is spent in the current year for rendering services to them. The portion which is spent in the current year, is revenue income and the unspent portion is regarded as capital income. The revenue portion is credited to Income & Expenditure Account, while the capital portion is shown in Balance Sheet on "Liabilities" side under the head "Life Membership Fee".

Suppose, life membership fee collected is $1,000, 10 % of which is to be treated as revenue. In examination problem if no direction is given, a portion of life membership fee (say 10%) should be treated as revenue adding a suitable note to that effect.

10. Donation:

Sometimes institution like Club, Hospital etc. collect donation from members and general public. Whether such donation is to be treated as capital or revenue depends upon the purpose for which the donation is collected. If the donation is collected for any special purpose, it must be treated as capital and credited to a special fund account and shown on Liabilities side of Balance Sheet, e.g., Building Fund, Charity Fund, Prize Fund etc. On the other hand, if the donation is collected not for any special purpose, it is treated as revenue and credited to Income & Expenditure Account.

11. Capital Fund:

Any concern - whether profit-seeking or non-profit-seeking - requires money for conducting day to day functions. In the case of profit-seeking concerns such money is called Capital, while in the case of non-profit-seeking concerns it is called Capital Fund. The excess of total assets over total external liabilities of a concern is called Capital Fund. Capital Fund is created with surplus revenue and capital receipts and incomes, such as surplus (excess of income over expenditure). Donation, Life Membership Fee, Admission Fee, Profit on Sale of Fixed Assets etc. It is also called General Fund or Accumulated Fund or surplus Account It is shown on Liabilities side of Balance Sheet as the first item. In practice, Capital Fund is the capital of a non profit-seeking concern.

Relevant Articles:

Definition and Explanation of No-profit Organizations
Receipts and Payments Account
Difference Between Cash Book and Receipt and Payment Account
Income and Expenditure Account
Peculiar Items of A Non-profit Seeking Concerns
Difference between Receipt and Payment Account and Income and Expenditure Account




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