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Class 12 Accountancy Chapter 1 Accounting for Not-for-Profit Organisations — Formulas & Key Points

Not-for-Profit Organisations such as clubs, trusts, hospitals and societies maintain specialised financial statements to track donations, subscriptions and grants. Unlike trading entities, they prepare a Receipts & Payments A/c (cash summary), an Income & Expenditure A/c (accrual-based surplus/deficit statement) and a Balance Sheet. This formula sheet equips CBSE Class 12 Accountancy students with every core formula, adjustment entry and mnemonic for Chapter 1, ensuring quick recall during board exams.

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Key takeaways

  • ✓Receipts & Payments A/c is a summarised cash book presented in T-form showing all cash and bank transactions for the year.
  • ✓Income & Expenditure A/c is a nominal account matching only revenue items to calculate surplus or deficit, equivalent to a profit-and-loss statement.
  • ✓Capital receipts (donations for building, life membership fees) and capital expenditure (purchase of fixed assets) never appear in Income & Expenditure A/c.
  • ✓Opening balance of Receipts & Payments A/c = Opening Cash + Opening Bank; closing balance appears on the receipts side (if credit bank balance or cash in hand).
  • ✓Surplus = Excess of income over expenditure; Deficit = Excess of expenditure over income; both are transferred to capital fund in the Balance Sheet.
  • ✓Balance Sheet of NPO shows capital fund, specific funds, liabilities on one side and assets on the other, prepared on the accrual basis at year-end.
  • ✓Subscription accrued = Opening outstanding + Current-year subscription received - Advance received; always adjust for previous-year and next-year subscriptions separately.

Receipts & Payments Account — Structure & Opening/Closing Balance Formula

The Receipts & Payments Account is a real account summarising all cash and bank transactions during an accounting period. It is prepared in T-account format: receipts (debit) on the left, payments (credit) on the right. The opening balance represents cash in hand plus bank balance at the start; the closing balance is derived by totalling receipts (including opening balance) and subtracting total payments. If the closing balance is positive, it appears on the receipts side to equalise the account; if the bank is overdrawn, it shows on the payments side. Unlike Income & Expenditure A/c, it records both capital and revenue transactions without distinguishing their nature.
  • Opening balance = Opening Cash in Hand + Opening Bank Balance (positive) or Opening Bank Overdraft (negative).
  • Closing balance appears as the balancing figure; a debit closing balance means cash/bank asset, a credit closing balance means bank overdraft liability.
  • All receipts — donations, subscriptions, legacies, sale of assets, entrance fees — appear on the debit side.
  • All payments — salaries, rent, purchase of assets, tournament expenses — appear on the credit side.
  • Non-cash items such as depreciation, outstanding expenses and provision for doubtful debts are never recorded in Receipts & Payments A/c.

Income & Expenditure Account — Core Formula & Structure

The Income & Expenditure Account is a nominal account prepared on an accrual basis to ascertain the surplus (excess income) or deficit (excess expenditure) for the year. It mirrors a profit-and-loss account but excludes capital items. Revenue incomes (subscriptions, donations for general purposes, hall hire income) are credited; revenue expenditures (salaries, rent, printing, depreciation) are debited. The balancing figure is either surplus or deficit, which is then added to or subtracted from the capital fund in the Balance Sheet. Always adjust income and expenses for outstanding, prepaid, accrued and advance amounts before posting to Income & Expenditure A/c.
  • Surplus = Total Income (credit side) > Total Expenditure (debit side); appears on the debit side to balance.
  • Deficit = Total Expenditure > Total Income; appears on the credit side to balance.
  • Only revenue items are included; capital receipts such as life membership fees, legacies for a specific building and sale of fixed assets are excluded.
  • Depreciation on fixed assets, bad debts written off and provision for doubtful debts are debited as expenses even though they are non-cash.
  • Income from investments (interest on securities) and sale of old newspapers (miscellaneous income) appear on the credit side.

Subscription Income Adjustment Formula

Subscription is the primary revenue source for most not-for-profit organisations. To calculate the correct subscription income for the Income & Expenditure A/c, start with the total subscriptions received during the year (from Receipts & Payments A/c), add subscriptions outstanding at year-end and subscriptions received in advance at the start, then subtract subscriptions received in advance at year-end and subscriptions outstanding at the start. This formula converts cash-basis subscription into accrual-basis subscription income. Separately account for subscriptions relating to the previous year and the next year; only the current year portion belongs in Income & Expenditure A/c.
  • Subscription income (I&E) = Subscription received ± Adjustments for outstanding and advance.
  • Add: Outstanding subscriptions at the end of the current year (an asset in the Balance Sheet).
  • Add: Advance subscriptions received last year (liability cleared this year, so income this year).
  • Less: Advance subscriptions received this year (liability, not yet earned).
  • Less: Outstanding subscriptions at the start (income of last year, received this year).
  • Subscriptions in arrears for more than a specified period may be written off as bad debts (debited to Income & Expenditure A/c).

Capital Fund Calculation & Balance Sheet Equation

Capital fund represents the accumulated surplus of a not-for-profit organisation and is analogous to proprietor's capital in a sole proprietorship. It appears on the liabilities side of the Balance Sheet. When an opening Balance Sheet is not provided, calculate opening capital fund using the accounting equation: Capital Fund (opening) = Total Assets (opening) − Total Liabilities (opening). During the year, add current-year surplus or subtract current-year deficit and incorporate any fresh capital receipts (legacies, life membership fees) and capital expenditure (purchase of fixed assets). The closing capital fund equals opening capital fund plus surplus (or minus deficit) plus fresh capital receipts minus withdrawals or capital expenses charged directly to capital fund.
  • Capital Fund (opening) = Assets (opening) − Liabilities (opening).
  • Capital Fund (closing) = Capital Fund (opening) + Surplus (or − Deficit) + Capital Receipts − Capital Payments.
  • Life membership fees, donations for a specific asset (e.g. building fund) and entrance fees (if treated as capital) are added directly to capital fund, not routed through Income & Expenditure A/c.
  • Legacies and endowment funds are capital receipts unless the donor specifies they are for revenue purposes.
  • If a question states 'prepare Balance Sheet without opening balances', derive capital fund as the balancing figure after listing all known assets and liabilities.

Treatment of Specific Donations & Entrance Fees

Specific donations are amounts received for a particular purpose — constructing a building, purchasing sports equipment or creating a prize fund. They are not treated as income in Income & Expenditure A/c; instead they are credited to a dedicated fund account (e.g. Building Fund, Sports Fund) and shown as a liability in the Balance Sheet until spent. Entrance fees may be treated as revenue (credited to Income & Expenditure A/c) or capital (added directly to capital fund), depending on the policy stated in the question or the organisation's constitution. General donations (no specific purpose) are always revenue income and appear in Income & Expenditure A/c. Legacies are usually capital receipts unless specified otherwise.
  • Specific Donation → Create a separate fund in Balance Sheet (liability side); do not show in Income & Expenditure A/c.
  • General Donation → Credit to Income & Expenditure A/c as revenue income.
  • Entrance Fees → If question is silent, treat as revenue (Income & Expenditure A/c); if constitution says 'capitalise', add to capital fund.
  • Legacy → Capital receipt added to capital fund unless donor specifies revenue use.
  • When expenditure for the specific purpose occurs (e.g. building construction), debit the fund and credit the asset account; do not route through Income & Expenditure A/c.

All Core Formulas in One Table

This table consolidates every formula and accounting identity required for CBSE Class 12 Accountancy Chapter 1. Memorise the structure and apply the correct formula based on the transaction type. Always distinguish between cash-basis records (Receipts & Payments A/c) and accrual-basis records (Income & Expenditure A/c and Balance Sheet). During exams, first identify whether the item is capital or revenue; then decide which statement it belongs to. Use these formulas as a checklist when solving numerical problems to ensure no adjustment is missed and every item is classified correctly under NCERT guidelines.

Key Terms & Definitions (NCERT Verbatim)

Understanding precise definitions is critical for objective questions and theory answers in board exams. Not-for-Profit Organisation means an entity formed to promote social welfare, sports, culture, religion or charity, not to earn profit. Receipts & Payments Account is a summary of the cash book showing all receipts and payments irrespective of capital or revenue nature. Income & Expenditure Account is prepared on an accrual basis to determine surplus or deficit, similar to a profit-and-loss account. Capital Fund is the excess of assets over liabilities at the start or end of the year. Specific Fund refers to donations earmarked for a particular purpose and shown separately in the Balance Sheet. Subscription is the periodic fee paid by members to support the organisation's activities. These definitions align with the NCERT Class 12 Accountancy text and must be reproduced accurately in exams for full marks.
  • Not-for-Profit Organisation (NPO): Entity established for social service, not profit maximisation.
  • Receipts & Payments A/c: Real account summarising cash and bank transactions; does not distinguish capital/revenue.
  • Income & Expenditure A/c: Nominal account showing only revenue items; balancing figure is surplus or deficit.
  • Capital Fund: Accumulated fund representing net worth of the NPO; analogous to owner's equity.
  • Specific Donation: Contribution for a designated purpose; shown as a separate fund liability.
  • Entrance Fee: One-time fee on admission; may be revenue or capital depending on the organisation's policy.
  • Legacy: Amount received under a will; generally a capital receipt unless specified as revenue.
  • Honorarium: Payment to volunteers for services; treated as revenue expenditure in Income & Expenditure A/c.

Common Mistakes & Memory Tricks

Students often confuse Receipts & Payments A/c with Income & Expenditure A/c. Remember: R&P is cash-based (includes everything), I&E is accrual-based (revenue items only). Mnemonic for Subscription adjustment: 'ROAR' — Received plus Outstanding At the end minus Outstanding At the start plus Advance received last year minus Advance received this year equals Income. For capital vs revenue: ask 'Does it benefit multiple years or create an asset?' If yes, capital; if no, revenue. Always check if entrance fees and donations are specified as capital in the question; if silent, entrance fee is revenue. Write 'By Balance c/d' on the credit side of Income & Expenditure A/c when there is surplus; write 'To Balance c/d' on the debit side when there is deficit. Double-check that depreciation appears only in Income & Expenditure A/c, never in Receipts & Payments A/c. These small checks prevent mark loss in board exams.
  • R&P vs I&E: R&P = cash diary; I&E = profit-loss for NPO (accrual).
  • Subscription mnemonic 'ROAR': Received + Outstanding (end) − Outstanding (start) + Advance (start) − Advance (end).
  • Capital receipt test: Does it create a lasting asset or benefit? Yes → Capital; No → Revenue.
  • Entrance fee default: Revenue (Income & Expenditure A/c) unless question says 'capitalise'.
  • Depreciation & provisions: Always in Income & Expenditure A/c, never in Receipts & Payments A/c.
  • Sale of asset: Proceeds in R&P; profit/loss on sale in I&E if revenue; direct capital fund adjustment if capital policy.

Three Solved Mini-Examples Applying the Formulas

These worked examples demonstrate step-by-step application of the formulas and adjustment techniques for Receipts & Payments A/c, Income & Expenditure A/c and Balance Sheet preparation. Each example mirrors typical CBSE board-exam numerical questions. Follow the logic carefully: identify the nature of each item (capital/revenue, cash/non-cash), apply the correct formula and place the item in the appropriate financial statement. Practising these formats builds exam confidence and ensures you do not mix up the three statements. Use CBSETUTOR.ai to upload similar problems from your textbook or sample papers; the AI tutor will provide instant photo-upload solutions and personalised hints at a flat ₹999 per month for all classes 6–12, with a 3-day free trial to test the platform.

One-Glance Last-Minute Revision Checklist

Use this rapid-fire checklist in the final hour before your board exam. Receipts & Payments A/c: real account, cash basis, opening + receipts = payments + closing. Income & Expenditure A/c: nominal account, accrual basis, only revenue items, balancing figure is surplus (debit) or deficit (credit). Balance Sheet: accrual basis, capital fund on liabilities side, fixed assets and current assets on assets side. Subscription: apply ROAR formula. Specific donations: separate fund liability, not income. Entrance fees and legacies: check question for capital/revenue treatment. Depreciation: always I&E, never R&P. Outstanding and prepaid: adjust every income and expense line. Capital fund: assets minus liabilities plus surplus minus deficit. Tick each point as you mentally rehearse; this structured recall reduces exam anxiety and ensures you do not omit key adjustments in 6-mark numerical questions.
  • R&P A/c: Cash book summary; includes all receipts and payments; balancing figure = closing cash/bank.
  • I&E A/c: Revenue income (credit) vs revenue expenditure (debit); balancing figure = surplus or deficit.
  • Subscription income: Received ± outstanding ± advance (use ROAR).
  • Capital Fund: Opening = Assets − Liabilities; Closing = Opening + Surplus + Capital Receipts.
  • Specific Donation: Liability (separate fund); not in I&E A/c.
  • Depreciation, bad debts, provision: Debit to I&E A/c only.
  • Entrance Fee: Revenue (I&E) unless specified as capital.
  • Balance Sheet: Capital fund + liabilities = Fixed assets + current assets (accrual basis).

Frequently asked questions

What is the difference between Receipts & Payments A/c and Income & Expenditure A/c?+
Receipts & Payments A/c is a real account summarising all cash and bank transactions (both capital and revenue) on a cash basis. Income & Expenditure A/c is a nominal account prepared on an accrual basis, recording only revenue items to calculate surplus or deficit. R&P starts and ends with cash/bank balance; I&E starts and ends with surplus/deficit.
How do I calculate subscription income for Income & Expenditure A/c?+
Start with total subscriptions received (from Receipts & Payments A/c). Add outstanding subscriptions at year-end and advance subscriptions received last year. Subtract outstanding subscriptions at year-start and advance subscriptions received this year. Formula: Received + Outstanding(end) − Outstanding(start) + Advance(start) − Advance(end). This converts cash-basis into accrual-basis income.
Is depreciation recorded in Receipts & Payments A/c?+
No. Depreciation is a non-cash expense and appears only in the Income & Expenditure A/c on the debit side. Receipts & Payments A/c records only actual cash and bank movements, so non-cash items such as depreciation, provisions and outstanding expenses are excluded from it.
How should I treat entrance fees and life membership fees?+
Entrance fees are typically treated as revenue income (credited to Income & Expenditure A/c) unless the question or the organisation's constitution explicitly states they should be capitalised. Life membership fees are always capital receipts and are added directly to the capital fund in the Balance Sheet, never routed through Income & Expenditure A/c.
What is capital fund and how is it calculated?+
Capital fund is the net worth of a not-for-profit organisation, equivalent to proprietor's capital. Opening capital fund = Total Assets − Total Liabilities at the start. Closing capital fund = Opening capital fund + Surplus (or − Deficit) + Capital receipts (legacies, life membership fees, specific donations) during the year. It appears on the liabilities side of the Balance Sheet.
Where do I show a donation received for constructing a sports pavilion?+
A donation for a specific purpose (sports pavilion) is a capital receipt. Create a separate fund called Sports Pavilion Fund and show it on the liabilities side of the Balance Sheet. Do not credit it to Income & Expenditure A/c. When the pavilion is actually built, debit the fund and credit the fixed asset account.
Can I prepare an Income & Expenditure A/c without a Receipts & Payments A/c?+
Yes. If the question provides a list of incomes and expenses along with opening and closing balances for outstanding, prepaid and advance items, you can directly prepare the Income & Expenditure A/c by adjusting each item for accruals. The Receipts & Payments A/c is needed only when you must first summarise cash transactions or derive certain figures.
Why does surplus appear on the debit side of Income & Expenditure A/c?+
Income & Expenditure A/c is a nominal account. When total income (credit side) exceeds total expenditure (debit side), the difference (surplus) is written on the debit side as 'To Surplus' to balance the account. Conversely, deficit appears on the credit side as 'By Deficit'. This follows the double-entry principle of equalising debits and credits.
How are outstanding salaries and prepaid insurance treated?+
Outstanding salaries at year-end increase the expense in Income & Expenditure A/c and appear as a current liability in the Balance Sheet. Prepaid insurance at year-end reduces the expense in Income & Expenditure A/c and appears as a current asset in the Balance Sheet. Always adjust the cash-paid figure by adding outstanding and subtracting prepaid to arrive at the accrual expense.
Will CBSETUTOR.ai help me solve photo-uploaded numericals from Chapter 1?+
Absolutely. CBSETUTOR.ai offers a 24×7 AI tutor that accepts photo uploads of any numerical problem from Accounting for Not-for-Profit Organisations. You receive step-by-step solutions, formula breakdowns and instant doubt resolution at a flat ₹999/month for Classes 6–12. Start with a 3-day free trial to experience personalised learning tailored to CBSE board patterns.

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