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NCERT Class 12 Accountancy Textbook Chapter 1 With Answer PDF Free Download
Chapter 1: Accounting For Not For Profit Organisation
There are certain organizations that are set up for providing service to their members and the public in general.
Such organizations include clubs, charitable institutions, schools, religious organizations, trade unions, welfare societies, and societies for the promotion of art and culture.
These organizations have served as the main objective and not the profit as is the case of organizations in the business.
Normally, these organizations do not undertake any business activity and are managed
by trustees who are fully accountable to their members and the society for the utilization of the
funds raised for meeting the objectives of the organization.
Hence, they also have to maintain proper accounts and prepare the financial statement which takes the form of Receipt and Payment Accounts; Income and Expenditure accounts; and Balance Sheets. at the end of every accounting period (normally a financial year).
This is also a legal requirement and helps them to keep track of their income and expenditure, the nature of which is different from those of the business organizations.
In this chapter, we shall learn about the accounting aspects relating to a not-for-profit organization.
1.1 Meaning and Characteristics of Not-forProfit Organisation
Not-for-Profit Organisations refer to the organizations that are used for the welfare of the
society and are set up as charitable institutions which function without any profit motive.
Their main aim is to provide service to a specific group or the public at large.
Normally, they do not manufacture, purchase or sell goods and may not have credit transactions.
Hence they need not maintain any books of account (as the trading concerns do) and Trading and Profit and Loss Account.
The funds raised by such organizations are credited to a capital fund or general fund. The major sources of their income usually are subscriptions from their member’s donations, grants-in-aid, income from investments, etc.
The main objective of keeping records in such organizations is to meet the statutory requirement and help them in exercising control over the utilization of their funds.
They also have to prepare the financial statements at the end of each accounting period (usually a financial year) and ascertain their income and expenditure and the financial position, and submit them to the statutory authority called the Registrar of Societies.
1.2 Accounting Records of Not-for-Profit Organisations
As stated earlier, normally such organizations are not engaged in any trading or business activities.
The main sources of their income are subscriptions from members, donations, financial assistance from the government, and income from investments. Most of their transactions are in cash or through the bank.
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NCERT Solutions Class 12 Accountancy Chapter 1 Accounting For Not For Profit Organisation
1. State the meaning of ‘Not-for-Profit’ Organisations.
Organizations that are established with the aim of providing services to society and not profit earning are called as Not-for-profit Organisations (NPO).
Some organisations that come under NPO are hospitals, religious organizations and trade unions. An NPO earns income from life membership fees, subscriptions, grants, donations etc.
2. State the meaning of Receipt and Payment Account.
A receipts and payments account (R & P Account) is a summary of actual cash receipts and payments that are extracted from the cash book over a certain time period.
All the cash received is recorded on the Receipts and all the cash payments get recorded on the Payments side of the R & P Account.
All the cash and bank transactions are recorded in Cash Book and this book is created on the basis of all these transactions. All cash and bank transactions that are of revenue and capital nature get recorded. It records all transactions i.e. bank receipts and cash receipts.
This account helps in determining the closing balance of bank and cash receipts and thereby assesses the cash position of a Not-for-profit organisation or NPO.
3. State the meaning of Income and Expenditure Account.
The income and Expenditure (I & E) account is the equivalent of the P & L account (Profit and Loss Account).
In an income and expenditure account, surplus and deficit are determined during the accounting period while in a P& L account the net profit or loss is determined at the running of the accounting period.
It is nominal account and records transactions that are of a revenue nature. The closing balance is called deficit or surplus based.
4. What are the features of the Receipt and Payment Account?
The receipts and payments account has the following features:
1. It is known as a cash book summary for NPO (Not-for-profit organizations) as it records all the cash and cash equivalents of the organization.
2. This account shows cash transactions that are of revenue and capital nature
3. It does not follow the double-entry bookkeeping system as it is a summary of transactions.
4. It does not include transactions that do not have cash or bank items.
5. It helps in revealing the cash position of the organisation
5. What steps are taken to prepare an Income and Expenditure Account from a Receipt and Payment Account?
The following steps should be followed:
1. Exclude opening cash and bank balances and also do the same for closing cash and balances
2. Exclude income of the previous period and any such income that is received in advance
3. Exclude all items involving capital receipts and payments
4. Exclude expenditures that are of the previous or coming period
5. Include all incomes of the current period which are yet to be received
6. Include expenditures of the current period which are yet to be paid.
7. Provision for bad debts and fixed assets depreciation should be taken into account and charged to the account (income and expenditure account)
Accounting For Not For Profit Organisation NCERT Textbook With Solutions PDF Free Download