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Important Questions: CBSE Class 12 Accountancy Chapter 1 Accounting for Not-for-Profit Organisations

Accounting for Not-for-Profit Organisations is the opening chapter of CBSE Class 12 Accountancy Part I and sets the foundation for understanding how clubs, trusts, hospitals, and charitable societies maintain financial records. Unlike businesses that prepare Profit & Loss Accounts, NPOs prepare Income & Expenditure Accounts and Balance Sheets to reflect their surplus or deficit. Mastering this chapter is crucial because it accounts for 8-12 marks in the board exam and builds conceptual clarity for financial statement preparation across the syllabus. The questions below mirror the CBSE exam pattern from 2020 to 2024 and cover every mark category.

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Key takeaways

✓Chapter 1 carries 8-12 marks in CBSE Class 12 Accountancy board exams, making thorough practice essential for scoring.
✓Receipts & Payments Account is a real account summarising all cash and bank transactions; Income & Expenditure Account is a nominal account similar to Profit & Loss for businesses.
✓Capital receipts like legacies, life membership fees, and endowment funds appear on the liabilities side of the Balance Sheet, not in Income & Expenditure Account.
✓Revenue items such as subscription, entrance fees (if capitalised is an exception), and sundry incomes go to Income & Expenditure Account.
✓Balance Sheet of NPOs shows the accumulated fund (capital equivalent) and other liabilities on one side, and fixed assets plus current assets on the other.
✓CBSE often tests adjustment entries for outstanding and prepaid items, income accruals, depreciation on assets, and treatment of sale proceeds of old assets.
✓Common mistakes include mixing Receipts & Payments with Income & Expenditure, incorrect treatment of life membership fees, and wrong capitalization of entrance fees.

Chapter Overview and Marks Weightage in CBSE Exam

Chapter 1 of NCERT Class 12 Accountancy Part I introduces students to the financial accounting framework used by not-for-profit organisations such as schools, clubs, hospitals, and charitable trusts. These entities do not operate for profit maximisation; instead, they use their surplus to further their objectives. The chapter teaches three core financial statements: Receipts & Payments Account (a summarised cash book), Income & Expenditure Account (equivalent to Profit & Loss Account), and Balance Sheet. Historically, CBSE board exams allocate 8-12 marks to this chapter through a mix of theory-based MCQs, short-answer questions on concepts like capital vs revenue, and long numerical problems requiring full preparation of Income & Expenditure Account and Balance Sheet. In the 2024 board exam, one 5-mark question appeared from this chapter along with two 1-mark MCQs. Understanding the distinction between capital and revenue items, adjustment entries for outstanding and prepaid expenses, and treatment of special items like life membership fees, legacies, and sale of fixed assets is essential. Students should allocate sufficient practice time as this chapter is a high-scoring opportunity when prepared thoroughly.

Typical weightage: 8-12 marks (2-3 questions) in the CBSE Class 12 Accountancy board exam
Question types: 1-2 MCQs (1 mark each), 1-2 short answer questions (2-3 marks), 1 long numerical (5 marks)
Core topics tested: Receipts & Payments A/c, Income & Expenditure A/c, Balance Sheet, treatment of capital and revenue items
High-frequency topics: adjustment entries, treatment of life membership fees, sale of old assets, capitalisation vs revenue treatment of entrance fees

1-Mark Questions: Multiple Choice Questions (MCQs) and Very Short Answer

One-mark questions test definitional clarity and conceptual understanding of key terms and classifications. CBSE typically includes 2-3 MCQs from this chapter in the board exam. These questions focus on identifying capital vs revenue receipts, recognising the nature of accounts, and understanding which items appear in which financial statement. Students should be able to instantly classify items like subscription, entrance fee, legacy, life membership fee, sale of old newspapers, honorarium, and tournament fund. Quick recall and elimination of incorrect options are crucial for saving time. Practice the following representative MCQs that mirror past CBSE board papers and sample question papers released by the board for 2024 and 2025 sessions.

MCQ Question Bank (1 mark each)

Question 1: Receipts & Payments Account is a: (a) Real Account (b) Nominal Account (c) Personal Account (d) Representative Personal Account. Answer: (a) Real Account — It records actual cash and bank transactions during a period, similar to a summarised cash book. Question 2: Income & Expenditure Account is prepared on: (a) Cash basis (b) Accrual basis (c) Mixed basis (d) None of these. Answer: (b) Accrual basis — It follows the matching principle, recording incomes earned and expenses incurred, irrespective of actual cash flow. Question 3: Life membership fees received by a club is treated as: (a) Revenue receipt (b) Capital receipt (c) Revenue expenditure (d) Capital expenditure. Answer: (b) Capital receipt — Life membership fees are one-time receipts and are shown on the liabilities side of the Balance Sheet. Question 4: Sale proceeds of old sports equipment will be: (a) Debited to Income & Expenditure A/c (b) Credited to Income & Expenditure A/c (c) Shown in Receipts & Payments A/c only (d) Added to Fixed Assets. Answer: (b) Credited to Income & Expenditure A/c — The sale reduces the book value of the asset and the profit/loss on sale is transferred to Income & Expenditure Account. Question 5: Which of the following is a revenue receipt? (a) Legacy (b) Life membership fee (c) Subscription (d) Donation for building fund. Answer: (c) Subscription — It is recurring annual income and is credited to Income & Expenditure Account.

2-Mark Questions with Model Answers

Two-mark questions require brief explanations or small adjustments. CBSE asks students to distinguish between concepts, provide reasons for specific accounting treatments, or make single adjustment entries. These questions test both conceptual clarity and the ability to articulate answers concisely. Students should write 3-4 sentences with proper accounting terminology. The following questions represent the most common 2-mark patterns from CBSE Class 12 Accountancy papers from the past five years, including the 2024 board exam and CBSE sample papers for 2025. Practicing these will help students gain confidence in articulating short answers clearly and scoring full marks without wasting time on unnecessary elaboration.

2-Mark Question Bank

Question 6: Distinguish between Receipts & Payments Account and Income & Expenditure Account (any two points). Answer: (i) Receipts & Payments Account is a real account; Income & Expenditure Account is a nominal account. (ii) Receipts & Payments Account is prepared on a cash basis and includes all cash/bank transactions; Income & Expenditure Account is prepared on an accrual basis and includes only revenue items. Question 7: How is entrance fee treated in the books of a not-for-profit organisation? Answer: Entrance fee can be treated in two ways depending on the policy of the organisation. If it is of recurring nature and small in amount, it is treated as revenue income and credited to Income & Expenditure Account. If it is substantial and non-recurring, it is treated as capital receipt and added directly to the Capital Fund on the liabilities side of the Balance Sheet. Question 8: What is the treatment of specific donation received for a particular purpose? Answer: Specific donations (e.g., donation for building fund or sports fund) are treated as capital receipts. They are shown on the liabilities side of the Balance Sheet under the respective fund heading. They are not credited to Income & Expenditure Account unless spent, in which case the related expenditure is also debited to that fund, keeping the Income & Expenditure Account unaffected. Question 9: Calculate the amount of subscription to be credited to Income & Expenditure Account for the year ended 31st March 2024 from the following: Subscription received during 2023-24 ₹80,000; Outstanding subscription on 31.03.2023 ₹5,000; Prepaid subscription on 31.03.2023 ₹2,000; Outstanding subscription on 31.03.2024 ₹6,000; Prepaid subscription on 31.03.2024 ₹3,000. Answer: Subscription for 2023-24 = Received ₹80,000 + Outstanding 2024 ₹6,000 – Prepaid 2024 ₹3,000 – Outstanding 2023 ₹5,000 + Prepaid 2023 ₹2,000 = ₹80,000.

3-Mark Questions with Model Answers

Three-mark questions typically ask students to prepare a specific account (e.g., Subscription Account, Tournament Expenses Account), calculate a missing figure, or explain the accounting treatment of two or three items with reasoning. CBSE examiners look for structured answers with proper headings, clear working, and logical presentation. Students should use the T-account format for ledger accounts and show all adjustments step by step. The following question bank includes the most frequently tested patterns from the past five CBSE board exams and CBSE sample question papers. Each answer is written to match the CBSE marking scheme, ensuring students understand the precise level of detail required to score full marks without over-writing or under-explaining concepts.

3-Mark Question Bank

Question 10: From the following information, prepare Subscription Account for the year ended 31st March 2024: Opening outstanding subscription ₹8,000; Closing outstanding subscription ₹10,000; Opening advance subscription ₹3,000; Closing advance subscription ₹4,000; Cash received during the year ₹1,20,000. Answer: Subscription Account: Dr side: To Balance b/d (advance) ₹3,000; To Income & Expenditure A/c (balancing figure) ₹1,23,000; Total ₹1,26,000. Cr side: By Balance b/d (outstanding) ₹8,000; By Cash A/c ₹1,20,000; By Balance c/d (outstanding) ₹10,000; By Balance c/d (advance) ₹4,000; Less: By Balance c/d (advance) ₹4,000; Total ₹1,26,000. Subscription to be credited to I&E A/c = ₹1,23,000. Question 11: Explain the treatment of the following in the final accounts of a sports club: (i) Sale of old newspapers ₹2,000 (ii) Honorarium to coach ₹15,000 (iii) Legacy received ₹50,000. Answer: (i) Sale of old newspapers ₹2,000 is a revenue receipt and is credited to Income & Expenditure Account. (ii) Honorarium to coach ₹15,000 is a revenue expenditure and is debited to Income & Expenditure Account. (iii) Legacy received ₹50,000 is a capital receipt and is shown on the liabilities side of the Balance Sheet, added to Capital Fund. Question 12: Calculate the amount to be debited to Income & Expenditure Account for salaries for the year ended 31.03.2024: Salaries paid during the year ₹90,000; Outstanding salaries as on 31.03.2023 ₹6,000; Outstanding salaries as on 31.03.2024 ₹8,000; Prepaid salaries as on 31.03.2023 ₹1,000; Prepaid salaries as on 31.03.2024 ₹1,500. Answer: Salaries for 2023-24 = Paid ₹90,000 + Outstanding 2024 ₹8,000 – Outstanding 2023 ₹6,000 – Prepaid 2024 ₹1,500 + Prepaid 2023 ₹1,000 = ₹91,500.

5-Mark Questions: Numerical and Case-Based

Five-mark questions are the backbone of scoring high in CBSE Class 12 Accountancy. These typically require students to prepare an Income & Expenditure Account and Balance Sheet from a given Receipts & Payments Account, incorporating adjustments for outstanding, prepaid, depreciation, and special items like sale of assets or capitalisation of certain receipts. CBSE also introduces case-based questions where a short paragraph describes a club or society's financial activities, followed by sub-questions testing preparation of statements and conceptual reasoning. Students must present working neatly, use proper headings, and ensure all adjustments are reflected accurately. The following questions mirror the CBSE pattern from 2020-2024 board exams and the latest sample papers. Each model answer includes step-by-step working to help students understand the complete process from raw data to final statements.

5-Mark Question Bank

Question 13: From the following Receipts & Payments Account of a Sports Club for the year ended 31st March 2024, prepare Income & Expenditure Account and Balance Sheet. Receipts: Opening balance ₹20,000; Subscriptions ₹1,50,000 (including ₹10,000 for 2022-23 and ₹5,000 for 2024-25); Entrance fees ₹30,000; Donations for building ₹1,00,000; Sale of old furniture (book value ₹8,000) ₹5,000. Payments: Salaries ₹60,000; Rent ₹24,000; Sports equipment purchased ₹40,000; Furniture purchased ₹50,000; Electricity ₹12,000; Closing balance ₹1,09,000. Additional Info: Outstanding salaries ₹4,000; Prepaid rent ₹2,000; Depreciate sports equipment @10% and furniture @10%. Answer: Income & Expenditure Account (Dr): Salaries (₹60,000+₹4,000) ₹64,000; Rent (₹24,000–₹2,000) ₹22,000; Electricity ₹12,000; Depreciation on sports equipment (10% of ₹40,000) ₹4,000; Depreciation on furniture (10% of ₹50,000) ₹5,000; Loss on sale of furniture (₹8,000–₹5,000) ₹3,000; Surplus ₹65,000; Total ₹1,75,000. (Cr): Subscriptions (₹1,50,000–₹10,000–₹5,000) ₹1,35,000; Entrance fees ₹30,000; Sale of old furniture ₹5,000; Misc income ₹5,000; Total ₹1,75,000. Balance Sheet: Liabilities: Capital Fund (opening) ₹20,000 + Surplus ₹65,000 + Donation for building ₹1,00,000 = ₹1,85,000; Outstanding salaries ₹4,000; Subscription received in advance ₹5,000; Total ₹1,94,000. Assets: Sports equipment ₹40,000 – Dep ₹4,000 = ₹36,000; Furniture ₹50,000 – Dep ₹5,000 = ₹45,000; Prepaid rent ₹2,000; Cash & Bank ₹1,09,000; Subscription outstanding ₹0; Total ₹1,94,000. Question 14: A library received ₹5,00,000 as life membership fees and ₹2,00,000 as endowment fund during the year. It spent ₹1,50,000 on books and ₹80,000 on furniture. How will these items be treated in the final accounts? Prepare the relevant extracts. Answer: Life membership fees and endowment fund are capital receipts, shown on the liabilities side of the Balance Sheet. Expenditure on books and furniture are capital expenditures, shown on the assets side. Income & Expenditure Account is not affected. Balance Sheet extracts: Liabilities: Life Membership Fund ₹5,00,000; Endowment Fund ₹2,00,000. Assets: Books ₹1,50,000; Furniture ₹80,000; Cash/Bank (remaining) ₹5,70,000.

How CBSE Frames Questions from This Chapter

CBSE question paper setters follow a predictable pattern when designing questions for Accounting for Not-for-Profit Organisations. Understanding this pattern helps students prioritise revision and practice. Firstly, the board always includes 1-2 MCQs testing basic definitions and classification of receipts and payments. Secondly, short-answer questions (2-3 marks) focus on conceptual distinctions such as capital vs revenue, accrual vs cash basis, or specific treatment of items like entrance fees, legacies, and life membership fees. Thirdly, the 5-mark numerical question invariably asks for preparation of Income & Expenditure Account and Balance Sheet from a given Receipts & Payments Account, with at least four adjustments for outstanding, prepaid, depreciation, and special items. CBSE also tests the ability to prepare a specific ledger account (e.g., Subscription Account or Tournament Expenses Account) in 3-mark questions. Case-based questions introduced in recent years provide a short narrative about a club or society, followed by sub-questions on statement preparation and reasoning. The board emphasises proper format, clear headings, and correct placement of items. Students should practice using the NCERT textbook format for all accounts and statements, as CBSE marking schemes award marks for presentation as well as accuracy.

MCQs focus on definitions, nature of accounts, and classification of items as capital or revenue
Short-answer questions test conceptual clarity and require brief explanations with proper terminology
Long numerical questions always include preparation of Income & Expenditure Account and Balance Sheet with multiple adjustments
CBSE rewards proper headings, T-account format for ledgers, and clear presentation of final statements
Case-based questions combine comprehension with numerical application, testing both understanding and problem-solving

Common Mistakes Students Make and How to Avoid Them

Even well-prepared students lose marks in this chapter due to avoidable errors. The most frequent mistake is confusing Receipts & Payments Account with Income & Expenditure Account — students often place capital receipts like legacies or life membership fees in the Income & Expenditure Account, which is incorrect. Always remember: capital receipts go directly to the Balance Sheet, not the Income & Expenditure Account. Another common error is incorrect treatment of entrance fees. Unless the question specifically states that entrance fees should be capitalised, they are treated as revenue and credited to Income & Expenditure Account. Students also struggle with adjustment entries for outstanding and prepaid items. A helpful formula: Amount to be shown in I&E = Amount paid + Closing outstanding – Opening outstanding – Closing prepaid + Opening prepaid. Many students forget to deduct the opening outstanding or add the opening prepaid, leading to calculation errors. Treatment of sale of assets is another tricky area. The sale proceeds are not directly credited to Income & Expenditure Account; instead, the profit or loss on sale (difference between book value and sale value) is transferred. Depreciation on newly purchased assets is often calculated incorrectly — students forget to apply the rate only for the period the asset was in use. Finally, presentation errors cost marks: using incorrect headings, omitting the 'Dr' and 'Cr' sides in T-accounts, or not showing proper subtotals in Balance Sheets. Practice writing answers in the exact NCERT format to avoid these pitfalls.

Never credit capital receipts (legacy, life membership fees, endowment) to Income & Expenditure Account — they go to Balance Sheet
Treat entrance fees as revenue unless the question explicitly states otherwise
Use the adjustment formula carefully: Expense/Income for the year = Paid/Received + Closing outstanding – Opening outstanding – Closing prepaid + Opening prepaid
For sale of assets, transfer only the profit or loss on sale to Income & Expenditure Account, not the entire sale proceeds
Calculate depreciation on new assets pro-rata if purchased during the year
Follow NCERT format strictly: proper headings, Dr/Cr sides, subtotals, and clear labeling of amounts

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Frequently asked questions

How many marks does Chapter 1 Accounting for Not-for-Profit Organisations carry in CBSE Class 12 Accountancy board exam?+

This chapter typically carries 8-12 marks in the CBSE Class 12 Accountancy board exam. The question pattern includes 1-2 MCQs (1 mark each), 1-2 short-answer questions (2-3 marks), and 1 long numerical question (5 marks) requiring preparation of Income & Expenditure Account and Balance Sheet.

What is the difference between Receipts & Payments Account and Income & Expenditure Account?+

Receipts & Payments Account is a real account prepared on a cash basis, summarising all cash and bank transactions during a period. It includes both capital and revenue items. Income & Expenditure Account is a nominal account prepared on an accrual basis, recording only revenue items to determine surplus or deficit, similar to a Profit & Loss Account for businesses.

How should life membership fees be treated in the books of a not-for-profit organisation?+

Life membership fees are one-time, non-recurring receipts and are treated as capital receipts. They are shown on the liabilities side of the Balance Sheet under 'Life Membership Fund' or added to the Capital Fund. They are not credited to the Income & Expenditure Account.

Can entrance fees be treated as capital receipt?+

Yes, if the entrance fee is substantial, non-recurring, and the organisation's policy is to capitalise it, then it is treated as a capital receipt and added directly to the Capital Fund on the Balance Sheet. However, if it is recurring or nominal, it is treated as revenue income and credited to the Income & Expenditure Account. Always check the question for specific instructions.

How do I calculate the amount of subscription to be credited to Income & Expenditure Account?+

Use this formula: Subscription for the year = Cash received during the year + Closing outstanding subscription – Opening outstanding subscription – Closing prepaid subscription + Opening prepaid subscription. This adjusts the cash basis to accrual basis, matching the subscription income to the relevant accounting period.

What is the treatment of a specific donation received for a building fund?+

Specific donations received for a particular purpose (e.g., building fund, sports fund) are capital receipts and are shown on the liabilities side of the Balance Sheet under the respective fund heading. They are not credited to the Income & Expenditure Account unless the related expenditure is also debited to that fund.

How do I show the sale of old furniture or equipment in the final accounts?+

The sale proceeds are recorded in the Receipts & Payments Account. The profit or loss on sale (difference between book value and sale value) is transferred to the Income & Expenditure Account. The asset is removed from the Balance Sheet at its reduced book value after accounting for accumulated depreciation.

What are the most common mistakes students make in this chapter?+

Common mistakes include treating capital receipts as revenue, incorrect adjustment for outstanding and prepaid items, crediting entire sale proceeds instead of profit/loss on asset sale, wrong depreciation calculation on new assets, and presentation errors such as incorrect headings or missing Dr/Cr labels in accounts.

Are legacy and endowment fund treated the same way?+

Yes, both legacy (a gift received through a will) and endowment fund (a permanent fund whose income is used for specific purposes) are capital receipts. They are shown on the liabilities side of the Balance Sheet and are not credited to the Income & Expenditure Account.

How is honorarium to a coach or secretary treated?+

Honorarium is a voluntary payment for services rendered and is treated as a revenue expenditure. It is debited to the Income & Expenditure Account. If it is outstanding at the year-end, add it to the paid amount; if prepaid, deduct it.

What is the treatment of sale of old newspapers or magazines?+

Sale proceeds from old newspapers, magazines, or waste materials are revenue receipts and are credited to the Income & Expenditure Account. They are also recorded on the receipt side of the Receipts & Payments Account.

How can CBSETUTOR.ai help me prepare for this chapter?+

CBSETUTOR.ai provides 24×7 AI tutoring with photo-upload solving. You can upload any question from NCERT, sample papers, or previous year papers and get step-by-step solutions in CBSE format. It covers all Accountancy chapters and all subjects for Classes 6-12 at ₹999/month with a 3-day free trial.

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