CBSE Class 12 Accountancy Chapter 1 Accounting for Not-for-Profit Organisations — 20 MCQs with Answers

Not-for-Profit Organisations (NPOs) are formed to promote social, cultural, religious, or charitable objectives. They prepare financial statements to show accountability to members and donors, not to compute profit. The primary financial statements are the Receipts & Payments Account (a cash summary) and the Income & Expenditure Account (an accrual-based summary of revenue transactions). Understanding these fundamentals is essential because CBSE MCQs often test definitions, objectives, and the nature of accounts maintained by NPOs. Expect one or two MCQs directly on terminology and the purpose of each statement.

The Receipts & Payments Account is a real account that summarises all cash and bank transactions for a period. It records both capital and revenue receipts on the debit side (e.g. subscriptions, donations, sale of assets, entrance fees) and both capital and revenue payments on the credit side (e.g. salaries, purchase of furniture, rent paid). The closing balance represents cash/bank in hand at the end. CBSE MCQs test your ability to classify transactions and identify what does or does not appear in this account. Remember: it is prepared on a cash basis, so outstanding or prepaid items do not appear here directly.

The Income & Expenditure Account is a nominal account prepared on an accrual basis to ascertain the surplus or deficit for a period. Only revenue items appear here: subscriptions (adjusted for outstanding/advance), donations for revenue purposes, interest, grants for revenue expenditure, salaries, rent, depreciation, and repairs. Capital receipts (life membership fees, legacies, sale of assets) and capital expenditure (purchase of fixed assets) are excluded. The balance — surplus or deficit — is transferred to the Capital Fund in the Balance Sheet. CBSE MCQs frequently test adjustments for outstanding, prepaid, and income accrued, as well as the treatment of specific items like honorarium, tournament fund, and specific donations.

Distinguishing capital receipts from revenue receipts is crucial. Capital receipts (legacies, endowment funds, life membership fees, sale of fixed assets, specific donations for capital purposes) go to the Balance Sheet. Revenue receipts (subscriptions, entrance fees treated as revenue, general donations, income from investments) go to the Income & Expenditure Account. CBSE often includes assertion-reason MCQs or scenario-based questions where you must classify a given item. For instance, entrance fees may be treated as capital or revenue depending on the organisation's policy — if the policy is to capitalise, it goes to Capital Fund; otherwise, to I&E A/c.

NPO accounts require adjustments for outstanding expenses, prepaid expenses, outstanding income, and income received in advance — just like profit-oriented entities. For example, if rent paid during the year is ₹24,000 but ₹2,000 is outstanding, the I&E A/c is debited with ₹26,000 and ₹2,000 appears as a liability in the Balance Sheet. Similarly, if subscription received is ₹1,00,000 but includes ₹5,000 for next year, only ₹95,000 is credited to I&E A/c and ₹5,000 is shown as 'Subscription received in advance' (liability). CBSE MCQs test your ability to compute the correct figure to be shown in I&E A/c after adjustments.

The Balance Sheet of an NPO shows assets and liabilities as at the year-end. On the liability side: Capital Fund (opening + surplus or − deficit), specific funds (Tournament Fund, Prize Fund), loans, and current liabilities (outstanding expenses, advance income). On the asset side: fixed assets (less accumulated depreciation), investments, current assets (stock, debtors, prepaid expenses, cash/bank). The Capital Fund is the equivalent of owners' equity in a company. CBSE MCQs test the placement of items and the calculation of Capital Fund when opening balance is not given (using the accounting equation: Capital Fund = Assets − Liabilities at start).

Certain items require special treatment. Honorarium paid to an honorary secretary or treasurer is debited to I&E A/c (revenue expense). Specific funds (Prize Fund, Sports Fund, Tournament Fund) are liabilities; income and expenses related to these funds are usually matched in a separate account or adjusted in the main I&E A/c with corresponding fund movement. Donations: general donations go to I&E A/c; specific donations for capital purposes (building fund, endowment) go to the liability side of the Balance Sheet until utilised. CBSE MCQs often present a specific fund scenario and ask where the receipt or payment appears.

Depreciation on fixed assets is debited to I&E A/c and credited to the respective asset account or an Accumulated Depreciation account. When an asset is sold, the book value is removed from the Balance Sheet, sale proceeds are recorded in R&P A/c, and any profit or loss on sale is adjusted in I&E A/c (profit credited, loss debited). Consumables like sports materials, stationery: Opening stock + Purchases − Closing stock = Consumption (debited to I&E A/c). CBSE MCQs test these calculations and the placement of each item.

CBSE Class 12 Accountancy papers typically carry 10-12 marks for MCQs in Section A (20 questions of 1 mark each, covering all chapters). For Chapter 1, expect 2-3 MCQs. Read each question carefully — look for keywords like 'capital receipt', 'revenue expenditure', 'accrual basis', 'cash basis'. Eliminate obviously wrong options first. If the question involves a calculation (subscription adjustment, depreciation, consumption), jot down the formula in the margin. Watch out for assertion-reason questions: both statements may be true, but R may not explain A. Do not spend more than 30 seconds per MCQ; if stuck, mark your best guess and move on — you can revisit if time permits. Common traps: confusing Receipts & Payments Account (cash basis) with Income & Expenditure Account (accrual basis), and misclassifying entrance fees or life membership fees. Practice 50+ MCQs from NCERT exemplar, previous years' papers, and CBSETUTOR.ai's chapter-wise question bank to build speed and accuracy. At CBSETUTOR.ai, students get instant feedback on MCQ practice sets, step-by-step solutions for every wrong answer, and an AI tutor available 24×7 to clarify doubts by photo upload — all at a flat ₹999/month for any class from 6 to 12, with a 3-day free trial.