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Accounting for Not-for-Profit Organisations for Class 12: The Complete CBSE Guide (2026-27)

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Not-for-profit organisations — clubs, charitable trusts, hospitals, educational societies, and religious institutions — exist to serve a social cause, not to earn profit for owners. Yet they must maintain rigorous accounts to ensure transparency, comply with legal requirements (Income Tax Act Section 12A, Societies Registration Act), and report to members and donors. CBSE Class 12 Accountancy introduces this unique accounting framework in Chapter 1, where students learn that NPOs do not prepare a Trading and Profit & Loss Account. Instead, they prepare three distinct financial statements: a Receipts & Payments Account (a summarized cash book), an Income & Expenditure Account (the accrual equivalent of a P/L statement showing surplus or deficit), and a Balance Sheet. Understanding accounting for not-for-profit organisations class 12 is essential because it diverges sharply from commercial accounting in treatment of revenues, capitalization rules, and fund accounting. This chapter forms 12–16 marks of your CBSE board paper and is a scoring area if concepts are clear.

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Key takeaways

✓Not-for-profit organisations prepare Receipts & Payments Account (a summary of cash book), Income & Expenditure Account (equivalent to Profit & Loss A/c), and a Balance Sheet instead of a Trading & P/L Account.
✓The Income & Expenditure Account is prepared on an accrual basis and shows surplus or deficit, not profit or loss, reflecting the NPO's commitment to service over profit.
✓Subscription is the primary revenue source for most NPOs; adjustments for advance, arrears, and outstanding subscriptions are critical to accurate income recognition.
✓Capital receipts (donations for building funds, life membership fees, legacies, sale of fixed assets) appear only in the Balance Sheet, never in the Income & Expenditure Account.
✓Specific donations and special funds (tournament fund, prize fund) are capitalized; only the related expenditure or interest earned is routed through the Income & Expenditure Account.
✓The Receipts & Payments Account is a real account summarizing all cash and bank transactions during the year, with no distinction between capital and revenue items.
✓Accounting for not-for-profit organisations class 12 questions often test the ability to calculate missing figures (opening/closing subscription due, total subscription received) using the subscription account format.

What are Not-for-Profit Organisations and Why Their Accounting Differs

Not-for-profit organisations (NPOs) are entities formed to promote social, cultural, educational, religious, or charitable objectives. Examples include sports clubs (Cricket Club of India), professional bodies (Institute of Chartered Accountants of India), charitable trusts (CRY, Akshaya Patra), schools run by societies, and hospitals under trust management. The defining feature: any surplus generated is reinvested in the mission, not distributed as dividends. Members contribute through subscription fees, and the public may donate. Because NPOs do not have 'owners' seeking return on capital, their accounting departs from commercial practice. They do not prepare Trading and Profit & Loss Accounts. Revenue is called 'income,' and any excess of income over expenditure is termed 'surplus' (not profit). If expenditure exceeds income, the result is a 'deficit.' The accounting objective is accountability and transparency — showing donors, members, and regulators that funds were used appropriately. CBSE Class 12 students studying accounting for not-for-profit organisations learn these distinctions because the same principles apply to Section 8 companies (the modern legal form for many NPOs under the Companies Act 2013) and trusts governed by state-specific acts.

No profit motive; surplus is reinvested, not distributed to members
Governed by Societies Registration Act 1860, Indian Trusts Act 1882, or Section 8 of Companies Act 2013
Primary revenue sources: subscriptions (membership fees), donations, grants, income from investments
Financial statements focus on fund accountability rather than profitability
Maintain separate funds for specific purposes (building fund, sports fund, endowment fund)

Receipts & Payments Account: Definition, Format, and Features

The Receipts & Payments Account is a summarized statement of all cash and bank transactions during an accounting period. It is essentially a classified summary of the Cash Book. The debit side records all receipts (cash inflows), and the credit side records all payments (cash outflows). The opening balance (cash and bank balance at the start) appears on the debit side, and the closing balance (cash and bank at the end) appears on the credit side. Crucially, the Receipts & Payments Account makes no distinction between capital and revenue items, nor between cash and accrual. A donation received for constructing a building and subscription collected from members both appear as receipts. Similarly, purchase of furniture and payment of electricity bill both appear as payments. It follows a cash basis of accounting. For CBSE Class 12, students must recognize that this account is a real account (it deals with cash), and it does not show any surplus or deficit. The format resembles a T-account with 'Receipts' on the left and 'Payments' on the right, each classified by nature (subscriptions, donations, rent received on the receipts side; salaries, rent paid, purchase of assets on the payments side). The closing balance is a balancing figure and represents actual cash/bank in hand at year-end.

Cash basis: records only actual cash received and paid, ignoring outstanding or prepaid items
Includes both capital receipts (sale of assets, capital fund donations) and revenue receipts (subscriptions, entry fees)
Opening balance (previous year's closing cash/bank) appears on the debit side
Closing balance is the balancing figure on the credit side
Does not show surplus or deficit; it is purely a statement of liquidity

Income & Expenditure Account: The Accrual-Basis Equivalent of Profit & Loss

The Income & Expenditure Account is the NPO equivalent of a Profit and Loss Account. It is prepared on an accrual basis and includes only revenue items (items of recurring nature related to the current year). Capital receipts and capital expenditures are excluded. The credit side records all incomes (subscription, donation for general purposes, income from investments, profit on sale of old assets), while the debit side records all expenses (salaries, rent, depreciation, repairs, affiliation fees). If total income exceeds total expenditure, the balancing figure is 'Surplus,' which is added to the Capital Fund in the Balance Sheet. If expenditure exceeds income, the result is 'Deficit,' which reduces the Capital Fund. When preparing the Income & Expenditure Account from a Receipts & Payments Account, students must make several adjustments: add outstanding expenses and prepaid income, subtract prepaid expenses and outstanding income, account for depreciation on fixed assets, and exclude capital items. For accounting for not-for-profit organisations class 12, this conversion is a core skill tested through numerical problems worth 8–12 marks. Students also prepare the Income & Expenditure Account directly from a list of balances and additional information, mimicking the full accounts question in the CBSE board exam.

Accrual basis: records income earned and expenses incurred, not cash received/paid
Only revenue items appear; capital receipts (legacy, life membership, specific donations) excluded
Opening and closing balances do not appear (it is a nominal account)
Surplus = Excess of Income over Expenditure; Deficit = Excess of Expenditure over Income
Depreciation on fixed assets must be charged even if no cash payment occurs

Balance Sheet of a Not-for-Profit Organisation: Structure and Components

The Balance Sheet of an NPO shows the financial position as at the end of the accounting year. On the liabilities side, the primary item is the Capital Fund (also called General Fund or Accumulated Fund), which represents the excess of assets over liabilities at the beginning, adjusted for the current year's surplus or deficit. Other liabilities include specific funds (building fund, sports fund, prize fund), outstanding expenses, subscriptions received in advance, and any loans taken. On the assets side appear fixed assets (land, building, furniture, sports equipment) at book value (cost minus depreciation), investments, closing stock of stationery or sports materials, prepaid expenses, subscriptions outstanding (due from members), and cash/bank balances. Unlike a company balance sheet, there is no share capital or reserves and surplus shown separately; the Capital Fund absorbs all surpluses. If an NPO starts without any initial fund, the opening Capital Fund is calculated as: Assets at start minus Liabilities at start. In CBSE accounting for not-for-profit organisations class 12 problems, students are often required to first compute the opening Capital Fund using this formula, then prepare the Income & Expenditure Account to find surplus/deficit, and finally prepare the Balance Sheet showing the adjusted Capital Fund.

Capital Fund = Assets at start − Liabilities at start (if opening fund not given)
Capital Fund (closing) = Capital Fund (opening) + Surplus (or − Deficit)
Specific funds (donations earmarked for purposes like building, sports) shown separately under liabilities
Fixed assets shown at book value: original cost minus accumulated depreciation
Outstanding subscriptions appear on the assets side, subscriptions in advance on the liabilities side

Treatment of Subscriptions: The Most Tested Adjustment in CBSE Exams

Subscription is the recurring membership fee paid by members and is the main source of revenue for most NPOs. In CBSE Class 12, the treatment of subscriptions involves multiple adjustments and is the single most frequently examined area in accounting for not-for-profit organisations class 12. The cash received during the year (as shown in Receipts & Payments Account) includes: arrears from previous year(s), current year subscriptions, and advance subscriptions for next year. To find the correct subscription income for the Income & Expenditure Account (current year only), prepare a Subscription Account in ledger format. Credit all amounts due for the current year (opening outstanding + current year due), debit all receipts (cash received) and outstanding at year-end. The balancing figure is the income to be recognized. Alternatively, use the formula: Subscription Income = Cash received + Closing outstanding − Opening outstanding − Closing advance + Opening advance. Students must also handle scenarios where some subscriptions are written off as bad debts (shown as an expense in Income & Expenditure Account and deducted from subscription outstanding in the Balance Sheet). Life membership fees are treated as capital receipts and credited to a separate Life Membership Fund or Capital Fund, not to income.

Subscription Account (ledger form): Debit side has cash received and closing outstanding; Credit side has opening outstanding and current year subscription
Subscriptions received in advance are a liability; subscriptions outstanding (receivable) are an asset
If some outstanding subscriptions are deemed irrecoverable, write them off by debiting Income & Expenditure Account and crediting Subscription Account
Life membership fees and entrance fees: treated as capital receipts, added to Capital Fund or a separate fund
Always cross-check: total debits in subscription account = total credits, ensuring no missing figures

Capital Receipts vs. Revenue Receipts: The Golden Rule for NPO Accounting

Distinguishing capital receipts from revenue receipts is the foundation of correct NPO accounting. Capital receipts are non-recurring, often earmarked, and meant to enhance the asset base or create a permanent fund. They include: legacy (bequest received under a will), donation for a specific purpose (building fund, endowment fund), life membership fees, entrance fees (one-time fee when joining), sale proceeds of fixed assets, and capital grants. Capital receipts are shown directly in the Balance Sheet, either by increasing the Capital Fund or by creating a separate fund (e.g., Building Fund for a donation to construct a building). They never pass through the Income & Expenditure Account. Revenue receipts are recurring, meant for day-to-day operations, and include: subscriptions, general donations (not earmarked), government grants for running expenses, and income from investments. These are credited to the Income & Expenditure Account. The CBSE marking scheme awards full marks only when this distinction is correctly applied. In a typical 12-mark question on accounting for not-for-profit organisations class 12, misclassifying a ₹50,000 legacy as income can cost 2–3 marks.

Capital Receipts: Legacy, life membership fees, entrance fees, specific donations (building, endowment), sale of fixed assets
Revenue Receipts: Subscriptions, general donations, grants for operational expenses, interest/dividend on investments
Rule of thumb: if receipt is one-time or earmarked for asset creation, it is capital; if recurring or for running costs, it is revenue
Entrance fees treatment varies by NPO policy: if treated as revenue, credit to Income & Expenditure Account; if treated as capital, add to Capital Fund (CBSE accepts both if policy stated)
Specific donation used during the year: debit the fund, credit Income & Expenditure Account with expenditure matched

Treatment of Special Funds and Specific Donations (Building Fund, Sports Fund, Prize Fund)

Many NPOs receive donations earmarked for specific purposes: building construction, organizing tournaments, awarding prizes, or creating an endowment. These are termed specific donations or special purpose funds. The accounting treatment follows a matching principle: the donation is capitalized (shown as a separate fund on the liabilities side of the Balance Sheet), and only the related expenditure (or income earned on the fund's investment) flows through the Income & Expenditure Account. For example, if a club receives ₹5,00,000 as a Building Fund donation, it is credited to a 'Building Fund' account. If ₹2,00,000 is spent on construction during the year, that amount is debited to the Building Fund and credited to Income & Expenditure Account (to match the expense with the fund utilization), or alternatively, the expense is debited to Income & Expenditure Account and the fund is reduced by the same amount — both methods are acceptable. Similarly, if a Prize Fund of ₹1,00,000 is invested and earns ₹8,000 interest, the interest is credited to Prize Fund (increasing the fund), not to general income. If prizes worth ₹12,000 are distributed, Prize Fund is debited ₹12,000. Students preparing for accounting for not-for-profit organisations class 12 must practice journal entries and ledger accounts for special funds, as 3–4 mark theory or practical questions appear regularly.

Specific donation received: credit to the respective Fund account (a liability in Balance Sheet)
Expenditure from the fund: debit Fund account, credit Bank; or debit Income & Expenditure Account and reduce the fund
Income earned on fund investment (interest, dividend): credit to the Fund, increasing its balance
Unexpended balance of the fund: appears on liabilities side of Balance Sheet
If fund is exhausted and further expenditure occurs, it becomes a revenue expense in Income & Expenditure Account

Preparation of Income & Expenditure Account from Receipts & Payments Account: Step-by-Step Method

One of the most common CBSE board exam questions asks students to prepare an Income & Expenditure Account from a given Receipts & Payments Account and additional information. The method involves several systematic steps. First, identify and exclude all capital receipts from the receipts side (legacy, life membership fees, sale of assets, specific donations) — these go to the Balance Sheet. Second, convert each revenue receipt from cash basis to accrual basis using opening and closing balances (subscriptions, donations). Third, exclude all capital payments from the payments side (purchase of fixed assets, investment in securities) — these go to the Balance Sheet. Fourth, convert each revenue payment to accrual basis (salaries, rent, etc.) using outstanding and prepaid balances. Fifth, add non-cash expenses like depreciation, which do not appear in Receipts & Payments Account but must be charged in Income & Expenditure Account. Sixth, account for any income not received in cash (e.g., interest accrued on investment). Finally, balance the Income & Expenditure Account to determine surplus or deficit. CBSE marking scheme awards method marks at each step, so even if final figures are wrong, systematic working earns partial credit. For Class 12 students, practicing 10–12 such conversion problems is essential for scoring full marks in accounting for not-for-profit organisations class 12.

Step 1: List all receipts from Receipts & Payments Account; exclude capital receipts
Step 2: Adjust revenue receipts for opening and closing outstanding/advance balances
Step 3: List all payments; exclude capital payments (purchase of assets)
Step 4: Adjust revenue payments for outstanding, prepaid, and depreciation
Step 5: Include non-cash items (depreciation, provision for doubtful debts)
Step 6: Balance to find surplus (credit side excess) or deficit (debit side excess)

Common Adjustments: Depreciation, Outstanding Expenses, Prepaid Income, Closing Stock

Several adjustments recur in almost every NPO accounting problem. Depreciation on fixed assets must be charged in the Income & Expenditure Account even though no cash outflow occurs; it is debited to Income & Expenditure Account and credited to the respective asset account (or accumulated depreciation account). Outstanding expenses (salaries due, rent unpaid at year-end) increase the expense in Income & Expenditure Account and appear as a liability in the Balance Sheet. Prepaid expenses (insurance paid in advance, rent paid for next year) reduce the current year expense and appear as an asset. Income received in advance (hall rent collected for next year, locker rent in advance) reduces current year income and appears as a liability. Accrued income (interest on investment earned but not yet received) increases income and appears as an asset. Closing stock of consumables like stationery or sports materials is an adjustment: if ₹5,000 worth of stationery was purchased and ₹1,000 remains unused, only ₹4,000 is expensed in Income & Expenditure Account, and ₹1,000 appears as an asset. For CBSE Class 12 accounting for not-for-profit organisations, students should prepare a checklist of adjustments and apply them methodically to avoid missing any item, as each omission typically costs 1–2 marks.

Depreciation: Debit Income & Expenditure Account, Credit Asset/Accumulated Depreciation; shown in Balance Sheet as reduction in asset value
Outstanding expenses: Add to expense in Income & Expenditure Account, show under liabilities in Balance Sheet
Prepaid expenses: Deduct from expense in Income & Expenditure Account, show under assets
Income received in advance: Deduct from income, show under liabilities
Accrued income: Add to income, show under assets
Closing stock of consumables: Credit Income & Expenditure Account (reducing expense), show under assets

Entrance Fees and Life Membership Fees: Capital or Revenue?

Entrance fees are one-time payments made by new members when they join an NPO. Life membership fees are lump-sum payments granting lifetime membership without further annual subscriptions. The CBSE syllabus and NCERT examples typically treat both as capital receipts, meaning they are credited directly to the Capital Fund and do not pass through the Income & Expenditure Account. Rationale: these are non-recurring and not related to the current year's operations. However, some NPOs adopt a policy of treating entrance fees as revenue (to spread the benefit over years or because the amount is small). The CBSE marking scheme accepts either treatment, provided the policy is clearly stated in the answer or the question specifies it. In the absence of specific instructions, the standard and safer approach for Class 12 students is to treat entrance fees and life membership fees as capital receipts. This avoids inflating the surplus and aligns with the principle that one-time receipts do not constitute operating income. For accounting for not-for-profit organisations class 12, always read the question carefully: if it says 'entrance fees are to be capitalized,' credit them to Capital Fund; if it says 'to be treated as income,' credit to Income & Expenditure Account.

Default treatment (NCERT): Entrance fees and life membership fees are capital receipts → add to Capital Fund in Balance Sheet
Alternative treatment (if stated in question): Treat as revenue → credit to Income & Expenditure Account
Life membership fees: always capital, never recurring, so never part of annual income
Entrance fees policy varies: clubs, societies may treat as revenue if small; trusts, hospitals usually capitalize
Exam tip: If question is silent, treat as capital to be safe and justify briefly in working

Distinction Between Income & Expenditure Account and Receipts & Payments Account: Tabular Comparison

Understanding the difference between these two financial statements is fundamental to mastering accounting for not-for-profit organisations class 12. The Receipts & Payments Account is a real account, records actual cash flows, includes both capital and revenue items, and shows opening and closing cash/bank balances. It does not distinguish between the nature of receipts or payments and does not result in surplus or deficit. The Income & Expenditure Account is a nominal account, follows accrual accounting, includes only revenue items, and results in a surplus (income > expenditure) or deficit (expenditure > income). It does not show opening or closing balances of cash. NPOs prepare both: the Receipts & Payments Account serves as a summary of the cash book for the auditor and members, while the Income & Expenditure Account provides a true picture of operational performance. In CBSE exams, a 3–4 mark theory question often asks students to present this comparison in tabular form or explain the key differences. The table below is a model answer format.

Step-by-Step Solved Example: Full Question from Receipts & Payments to Final Accounts

Let's solve a complete problem to consolidate the concepts. Question: The Sports Club of Delhi provides the following Receipts & Payments Account for the year ending 31 March 2025. Opening balance: Cash ₹5,000, Bank ₹35,000. Receipts: Subscriptions ₹1,20,000, Entrance fees ₹15,000, Donation for building ₹50,000, Sale of old furniture (book value ₹8,000) ₹10,000. Payments: Salaries ₹40,000, Rent ₹18,000, Sports equipment purchased ₹30,000, Electricity ₹6,000, Repairs ₹4,000. Closing balance: Cash ₹7,000, Bank ₹1,02,000. Additional information: (i) Subscriptions outstanding at start ₹8,000, at end ₹10,000. (ii) Salaries outstanding at end ₹5,000. (iii) Depreciate sports equipment at 10%. (iv) Entrance fees to be capitalized. Prepare Income & Expenditure Account and Balance Sheet. Solution: First, calculate subscription income: Cash ₹1,20,000 + Closing outstanding ₹10,000 − Opening outstanding ₹8,000 = ₹1,22,000. Entrance fees ₹15,000 and building donation ₹50,000 are capital, excluded from Income & Expenditure Account. Profit on sale of furniture = ₹10,000 − ₹8,000 = ₹2,000 (credit to Income & Expenditure Account). Salaries: Cash ₹40,000 + Outstanding ₹5,000 = ₹45,000. Depreciation on equipment: 10% of ₹30,000 = ₹3,000. Income side: Subscriptions ₹1,22,000, Profit on sale of furniture ₹2,000. Total ₹1,24,000. Expenditure side: Salaries ₹45,000, Rent ₹18,000, Electricity ₹6,000, Repairs ₹4,000, Depreciation ₹3,000. Total ₹76,000. Surplus = ₹1,24,000 − ₹76,000 = ₹48,000. For Balance Sheet: calculate opening Capital Fund (not given, so assume or derive from assets/liabilities if provided). Add entrance fees ₹15,000, building donation ₹50,000, and surplus ₹48,000 to Capital Fund. Liabilities: Capital Fund (adjusted), Salaries outstanding ₹5,000. Assets: Sports equipment ₹30,000 − ₹3,000 = ₹27,000, Subscriptions outstanding ₹10,000, Cash ₹7,000, Bank ₹1,02,000. This method is the blueprint for solving any 12–14 mark NPO question in CBSE Class 12.

Important Formulas and Calculation Methods for Accounting for Not-for-Profit Organisations Class 12

Success in CBSE Class 12 Accountancy hinges on mastering a set of core formulas and methods for accounting for not-for-profit organisations. Subscription Income (accrual basis) = Cash received during the year + Closing outstanding subscription − Opening outstanding subscription − Closing advance subscription + Opening advance subscription. Opening Capital Fund (if not given) = Total Assets at start − Total Liabilities at start. Closing Capital Fund = Opening Capital Fund + Surplus (or − Deficit) + Capital Receipts during the year (entrance fees, legacies, etc.). Depreciation = (Cost of Asset × Rate of Depreciation) / 100; deduct from asset value each year. Profit/Loss on Sale of Asset = Sale Proceeds − Book Value at date of sale. Adjusted Expense = Cash paid + Closing outstanding − Opening outstanding − Closing prepaid + Opening prepaid. Adjusted Income = Cash received + Closing accrued − Opening accrued − Closing advance + Opening advance. For missing figures in Receipts & Payments Account, use the format: Total Receipts = Opening Balance + All individual receipts; Total Payments + Closing Balance = Total Receipts. These formulas form the calculation backbone for numerical problems and must be practiced until they become second nature.

Subscription (accrual) = Cash received + Closing outstanding − Opening outstanding − Closing advance + Opening advance
Opening Capital Fund = Opening Assets − Opening Liabilities
Closing Capital Fund = Opening Capital Fund + Surplus/− Deficit + Capital Receipts (entrance fees, donations, legacy)
Depreciation on Asset = (Asset Cost × Depreciation Rate%) ÷ 100; subtract from asset each year
Profit on Sale = Sale Price − Book Value; Loss on Sale = Book Value − Sale Price
Adjusted Expense = Paid + Closing outstanding − Opening outstanding − Closing prepaid + Opening prepaid
Cash/Bank (closing) in R&P = Opening Balance + Total Receipts − Total Payments

Exam Strategy for Accounting for Not-for-Profit Organisations Class 12: How to Score 12/12 Marks

The CBSE Class 12 Accountancy board paper typically includes one 12-mark question or one 8-mark and one 4-mark question on accounting for not-for-profit organisations. To score full marks, follow this strategy. First, read the question twice and underline key information: amounts given, adjustments mentioned, and what is required (Income & Expenditure Account, Balance Sheet, or both). Second, prepare working notes for every adjustment (subscription, depreciation, outstanding, prepaid) in the left margin — CBSE markers award method marks even if final answer is wrong. Third, format your answers exactly as shown in NCERT: use proper headings, draw lines, and label debit and credit sides clearly. Fourth, double-check that capital receipts (entrance fees, legacies, specific donations) do not appear in Income & Expenditure Account. Fifth, ensure your Balance Sheet balances — if it doesn't, recheck Capital Fund calculation and missing items. Sixth, manage time: allocate 20 minutes for a 12-mark question, including 3 minutes for review. Practice 15–20 past year CBSE questions and sample papers to build speed and accuracy. Students using CBSETUTOR.ai can upload their solved NPO problems via photo and receive instant feedback on errors, method marks, and faster techniques — a 24×7 AI tutor that has ingested every NCERT Accountancy example and can explain why your Balance Sheet didn't balance or where you missed an adjustment. Available at ₹999/month for all of Class 6–12, no hidden fees, 3-day free trial.

Underline and list all adjustments before starting calculations; prepare working notes separately
Use NCERT format strictly: headings, debit-credit labels, date (for year ending…), proper lines
Cross-verify: total debits = total credits in every account you prepare
Time allocation: 12-mark question = 18 min solving + 2 min review; 8-mark = 12 min + 1 min review
Common mistakes: forgetting depreciation, treating specific donation as income, omitting outstanding liabilities in Balance Sheet
Practice previous 5 years' CBSE board papers and CBSE sample papers for pattern familiarity

Frequently asked questions

Why do not-for-profit organisations not prepare a Profit and Loss Account?+

Not-for-profit organisations exist to serve social, educational, or charitable purposes, not to earn profit for owners. Any surplus generated is reinvested in the mission. Therefore, they prepare an Income & Expenditure Account (showing surplus or deficit) instead of a Profit & Loss Account. The term 'profit' implies distribution to owners, which does not apply to NPOs.

How do I calculate opening Capital Fund if it is not given in the question?+

Opening Capital Fund is calculated as: Total Assets at the start of the year minus Total Liabilities at the start. List all opening assets (cash, bank, furniture, building, investments, outstanding subscriptions, prepaid expenses) and subtract all opening liabilities (outstanding expenses, subscriptions received in advance, loans). The difference is the opening Capital Fund, representing the net worth of the NPO at the beginning.

Should entrance fees be treated as capital or revenue in CBSE exams?+

The standard NCERT treatment is to treat entrance fees as a capital receipt, meaning they are added to the Capital Fund in the Balance Sheet and not credited to the Income & Expenditure Account. However, if the question explicitly states 'entrance fees are to be treated as income' or if the NPO's policy is mentioned, follow that instruction. When in doubt, treat as capital and state your assumption in the working.

What is the difference between a legacy and a donation in NPO accounting?+

A legacy is a gift received under the will of a deceased person; it is always a capital receipt and credited to the Capital Fund. A donation can be either capital or revenue: if it is a general donation for operational expenses, it is revenue (credited to Income & Expenditure Account); if it is a specific donation for a capital purpose like constructing a building or creating an endowment, it is capital (shown as a separate fund in the Balance Sheet).

How do I handle subscriptions received in advance and subscriptions outstanding?+

Subscriptions received in advance (for next year) are a liability in the Balance Sheet and must be subtracted from cash received to find current year income. Subscriptions outstanding (due but not yet received) are an asset in the Balance Sheet and must be added to find current year income. Use the formula: Subscription Income = Cash received + Closing outstanding − Opening outstanding − Closing advance + Opening advance.

Is depreciation charged in the Income & Expenditure Account even if no cash is paid?+

Yes. The Income & Expenditure Account is prepared on an accrual basis, meaning it records expenses incurred, not just cash paid. Depreciation represents the wear and tear of fixed assets and must be charged every year by debiting Income & Expenditure Account and crediting the asset account (or accumulated depreciation account). This reduces the book value of the asset shown in the Balance Sheet.

How do I treat a specific donation for a building if part of it is spent during the year?+

When a specific donation for a building is received, credit it to a 'Building Fund' account (shown as a liability in the Balance Sheet). If part of the amount is spent on construction during the year, debit the Building Fund and credit Bank (or reduce the fund and show the expense in Income & Expenditure Account, depending on the method adopted). The unspent balance remains in the Building Fund on the liabilities side of the Balance Sheet.

What happens if an NPO incurs a deficit instead of a surplus?+

If total expenditure exceeds total income in the Income & Expenditure Account, the balancing figure is a Deficit. This deficit is subtracted from the opening Capital Fund to arrive at the closing Capital Fund in the Balance Sheet. Persistent deficits indicate financial stress and may require corrective action like increasing subscriptions or reducing expenses. Unlike a loss in a business, a deficit in an NPO does not imply failure but highlights the need for resource mobilization.

Can I prepare the Balance Sheet before preparing the Income & Expenditure Account?+

No. The closing Capital Fund shown in the Balance Sheet depends on the surplus or deficit from the Income & Expenditure Account. You must first prepare the Income & Expenditure Account to determine the surplus/deficit, then calculate the closing Capital Fund (opening Capital Fund ± surplus/deficit + capital receipts), and finally prepare the Balance Sheet. This sequence is mandatory in CBSE exam answers.

Why does the Receipts & Payments Account not show surplus or deficit?+

The Receipts & Payments Account is a summary of the Cash Book, recording all cash and bank transactions during the year. It is a real account, not a nominal account, and therefore does not calculate any profit, loss, surplus, or deficit. It simply shows the opening cash/bank balance, all receipts during the year, all payments during the year, and the closing cash/bank balance as a balancing figure.

How do I account for sale of old sports equipment in NPO accounts?+

If old sports equipment (a fixed asset) is sold, record the cash received in the Receipts & Payments Account under 'Sale of Sports Equipment.' In the Income & Expenditure Account, calculate the profit or loss on sale: Sale Proceeds minus Book Value (original cost minus accumulated depreciation). If sale proceeds exceed book value, credit the profit to Income & Expenditure Account; if less, debit the loss. Adjust the asset value in the Balance Sheet accordingly.

Will the Balance Sheet of an NPO always balance if I follow the correct method?+

Yes. If you correctly calculate the opening Capital Fund, adjust it for surplus/deficit and capital receipts to get closing Capital Fund, account for all assets and liabilities with proper adjustments (outstanding, prepaid, depreciation), and ensure every item is classified correctly, the Balance Sheet will balance. If it does not balance, recheck: Capital Fund calculation, omitted items (especially outstanding or prepaid), or misclassification of capital vs. revenue items.

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Class 12 Accountancy Chapter 10 Accounting Ratios — Formulas & Key Points

Class 12Accountancy

Class 12 Accountancy Chapter 9 Analysis of Financial Statements — Formulas & Key Points

Class 12Accountancy

Important Questions: CBSE Class 12 Accountancy Chapter 10 Accounting Ratios

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