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Q.1. What is a Not-For-Profit Organisation?
Ans. A Not-For-profit organisation is a voluntary association of persons, set up and operated not for the purposes of earning profit but, for the welfare of the society or promotion of art, culture, sports and general public utility. Examples of these are schools, hospitals and sports association.
Q.2. What financial statements are prepared in the
final accounts of Not-For-Profit Organisations?
Ans. The final accounts of Not-For-Profit
Organisations have the following financial statements:
i.
Receipts and Payments Account,
ii.
Income and Expenditure Account, and
iii.
Balance Sheet.
Q.3. What is a Receipts and Payments Account?
Ans. A Receipts and Payments Account is a summary of
bank and cash transaction. Receipts are shown on the left hand side while
payments are shown on the right hand side. It starts with opening cash and bank
balances and ends with their closing balances.
Q.4. What basis of accounting is followed in
preparing Receipts and Payments Account?
Ans. The cash basis of accounting is followed in
preparing the Receipt and Payments Account.
Q.5. What is Income and Expenditure Account?
Ans. Income and Expenditure Account is a Nominal
Account which is prepared at the end of the accounting period by a
Not-For-Profit Organisation to ascertain the surplus, i.e., excess of income
over expenditure, or the deficit, i.e.
Excess of expenditure over income.
Q.6. What basis of
accounting is followed in preparing the Income and Expenditure Account?
Ans. The accrual basis of accounting is followed in
preparing the Income and Expenditure Account.
Q.7. When does the
‘Income and Expenditure Account’ reflect surplus and when does it reflect
deficit?
Ans. Surplus means excess of income over
expenditure. Thus, if the credit side, i.e., the income side total of the
Income and Expenditure Account, is more than the debit side, i.e., the
expenditure side, the balance is surplus.
Deficit means excess of expenditure over income. Thus, if
the debit side, I.e., the expenditure side total, is more than the credit side,
i.e., the income side total, the balance is deficit.
Q.8. Can a Receipts
and Payments Account be prepared even without preparing a cash book? Why.
Ans. Receipts and Payments Account cannot be
prepared without preparing a cash book because Receipts and Payments Account is
a summary of cash and bank transactions.
Q. 9. Can we regard
the balance of Receipts and Payments Account as income for that period?
Ans. We cannot consider the balance of Receipts and
Payments Account as income for that period because the balance indicates the
closing cash or bank balance.
Q.10. What is the
alternative name of ‘Accumulated Fund’?
Ans. Capital Fund or General Fund is the alternative
name of Accumulated Fund in Not-For-Profit Organisations.
Q.11. What are the
main sources of income of a Not-For-Profit Organisation?
Ans. Main sources incomes of a Not-For-Profit
Organisations are:
i. Membership subscription, ii. Donations; iii. Life
membership fees;
iv.Government grants, and
v. ‘Surplus’ from social events.
Q.12. Is the payment
for purchase of fixed assets is reflected in the Receipts and Payments Account?
Give reason.
Ans. The payment for purchase of fixed assets is
reflected in the Receipts and Payments Account. It is so because the account
records payments and receipts of every nature.
Q. 13. Is the
payment for purchase of fixed assets reflected in the Receipts and Payments
Account? Give reason.
Ans. The amount received on sale of fixed assets is
reflected in the Receipts and payments Account. It is so because the account
records payments and receipts of every nature.
Q.14. Why is
depreciation on fixed assets not recorded in the Receipts and Payments Account?
Ans. Receipts and Payments Account is based on cash
basis of accounting. Therefore, depreciation, being non-cash expenditure is not
recorded in the Receipts and Payment Account.
Q. 15. What does
Fund-based Accounting mean?
Ans. Fund-based Accounting means accounting the
incomes and expenses that relates to the activities for which fund is
established in that fund account.
Q. 16. What do you
mean by Life Membership Fees?
Ans. Life Membership Fee refers to one-time payment
made by the members of the Not-For-Profit Organisation to enjoy services of
that organisation.
Q.17. What do you mean
by Legacy?
Ans. The property or amount received under WILL of a
person after his death is called a Legacy.
Q.18. How is Legacy
dealt with in the final accounts of a Not-For –Profit Organisation?
Ans. Legacy amount is shown on the debit side of the
receipts and payments Account. Legacy received as a general Donation is
reflected on the credit side of the Income and Expenditure Account. Legacy received with a condition, i.e., to be
used for a specific purpose, is reflected on the liabilities side of the
balance sheet.
Q.19. All types of
incomes and expenditures-revenue and capital-are recorded in the Income and
Expenditure Account. Do you agree? Give reason.
Ans. The statement is not true. Only revenue incomes
and expenses for the accounting period are recorded in the Income and
Expenditure Account.
Q.20. What do you
understand by a Restaurant Trading Account?
Ans. Restaurant Trading Account is prepared by a club with a purpose to reflect the incomes and expenses related to the restaurant activity. The net income is transferred to the Income and Expenditure Account.