Note on Balance Sheet for Non Profit Organization

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INTRODUCTION TO BALANCE SHEET

Balance sheet is a financial statement that summarizes all the assets, liabilities and capital of a particular company at a specific period of time. It shows all the amount that the company invested on certain project, the amount of money it owns and it owes. It is prepared by all the profitable and non-profitable organizations.

The organizations prepares its balance sheet so that they can know the financial position of their organization. It is prepared by taking assets and liabilities and also fund based items. The following two balance sheets are prepared by the non-profit organization:

  1. Opening balance sheet
  2. Closing balance sheet

Opening Balance sheet

This balance sheet is prepared to know the amount of capital fund. In this balance sheet, all the assets, and liabilities related to the previous year is only taken. The amount of capital is obtained by deducting the total liabilities from total assets. (i.e. Capital = Assets – Liabilities)

Closing Balance sheet

In this balance sheet, all the assets and liabilities related to the current year is only taken.

For assets:

  1. Fixed assets of previous year should be shown in closing balance sheet after adjustments if any i.e. purchase of assets should be added whereas the sale of assets and depreciation should be deducted from the concerned assets.
  2. Prepaid expenses, accrued income and investment should be shown on the assets side.
  3. Closing balance of cash and bank should be shown on the assets side.

For liabilities:

  1. All fund based items such as donation, prize fund, tournament fund, etc. are shown in liabilities side.
  2. If an organization has taken a loan in previous year then that should be shown in closing balance sheet unless they are repaid in the current year.
  3. Outstanding expenses, advance income for the next year are shown in liabilities side.
Source: MacsFinance Fig: Balance Sheet format sample
Source: MacsFinance

Treatment of Revenue Items

Subscription:

Income & Expenditure a/c

Expenditure

Amount

Income

Amount

By subscription XX
(-) Outstanding previous year XX
(+) Outstanding current year XX
(+) Advance received in previous year for current year XX
(-) Advance received in current year for next yearXX







XXX

Opening Balance Sheet

Liabilities

Amount

Assets

Amount

Adv. Subscription (previous year)

XX

Out. Subscription (previous year)

XX

Closing Balance Sheet

Liabilities

Amount

Assets

Amount

Adv. Subscription

XX

Out. Subscription (current year)
Out. Subscription previous year (if any)

XX
XX

Rent:

Income & Expenditure a/c

Expenditure

Amount

Income

Amount

To Rent XX
(-) Outstanding (previous year) XX
(+) Outstanding (current year) XX
(+) Advance paid in previous for current year XX
(-) Advance paid in current year for next yearXX



XX





Opening Balance Sheet

Liabilities

Amount

Assets

Amount

Outstanding rent

XX

Advance rent

XX

Closing Balance Sheet

Liabilities

Amount

Assets

Amount

Outstanding rent (current year)

XX

Advance rent (Next year)

XX

ILLUSTRATION 1:

How will you show the amount of subscription and rent in the final account of a non-profit organization from the following Receipt and Payment account and additional information?

Receipt and Payment a/c

Receipt

Amount

Payment

Amount

To subscription

25000

By rent

12000

Additional information:

  1. Outstanding subscription for previous year Rs.1000
  2. Outstanding subscription for current year Rs.1500
  • Subscription received in advance at the end of previous year Rs. 1000
  1. Subscription received in advance at the end of current year Rs. 1200
  2. Rent outstanding at the end of previous year Rs. 1000
  3. Rent outstanding at the end of current year Rs. 1300
  • Rent paid in advance at end of previous year Rs. 500
  • Rent paid in advance at end of current year Rs. 1000

Solution:

Income & Expenditure a/c

Expenditure

Amount

Income

Amount

To Rent 12000
(-) Outstanding (previous year) 1000
(+) Outstanding (current year) 1300
(+) Advance paid in previous for current year 500
(-) Advance paid in current year for the next year1000





11800

By subscription 25000
(-)outstandingprevious year1000
(+)outstandingcurrent year1500
(+) advance received inpreviousyear forcurrent year1000
(-) Advance received in current year for the next year1200






25300

Opening Balance Sheet

Liabilities

Amount

Assets

Amount

Advance subscription (previous year)
Outstanding rent (previous year)

1000
1000

Out. Subscription (previous year)
Advance rent (previous year)

1000
500

2000

1500

Closing Balance Sheet

Liabilities

Amount

Assets

Amount

Adv. Subscription (Next year)
Outstanding rent (current year)
Outstanding rent (previous year)

1200
1300
1000

Out. Subscription (current year)
Out. Subscription (previous year)
Advance rent (Next year)

1500
1000
1000

3500

3500

Treatment of Consumable Items

Consumable items are the items for which opening and closing stock and payment made during the year is given in the question. For e.g. stationery, sports, materials, postage, stamps etc.)

The cost of materials can be calculated by applying the following formulae:

Cost of materials = Opening stock + purchase/payment – closing stock – opening creditors + closing creditors + adv. paid in previous year – adv. paid in current year

Opening Balance Sheet

Liabilities

Amount

Assets

Amount

Creditors for stationery last year

XX

Stock of stationery
Advance paid

XX
XX

Closing Balance Sheet

Liabilities

Amount

Assets

Amount

Creditors for current year

XX

Stock of stationery (current year)
Advance paid

XX
XX

Treatment of Fund based Items

Fund based items are the specific items which are created to meet the specific purpose of the organization. For e.g. Tournament fund is created to meet the expenses of a tournament and Prize fund for giving prizes, building a fund for constructing building etc. These items should be treated in the balance sheet.

Balance Sheet

Liabilities

Amount

Assets

Amount

Tournament fund XX
Add: Income from tournament fund investment XX
Add: Donation for tournament fund XX
Less: Tournament expensesXX





XX

Tournament fund investment

XX



References:

Sharma, Narendra et.al., Principles of Accounting-XI, Bundipuran Prakashan, Kathmandu

Koirala, Yadav Raj et.al., Principles of Accounting-XI, Asmita Books Publication, Kathmandu

Shrestha, Dasharaha et.al., Accountancy-XI, M.K. Prakashan Kathmandu

  1. The amount of capital is obtained by deducting the total liabilities from total assets. (i.e. Capital = Assets – Liabilities)
  2. Fixed assets of previous year should be shown in closing balance sheet after adjustments if any i.e. purchase of assets should be added whereas the sale of assets and depreciation should be deducted from the concerned assets.
  3. Prepaid expenses, accrued income and investment should be shown on the assets side.
  4. Closing balance of cash and bank should be shown on the assets side.
  5. All fund based items such as donation, prize fund, tournament fund etc. are shown in liabilities side.
  6. If an organization has taken a loan in previous year then that should be shown in closing balance sheet unless they are repaid in the current year.
  7. Outstanding expenses, advance income for the next year are shown in liabilities side.
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