Tag: accounting for not-for-profit organisation

Income and expenditure account records income on the right hand side and expenditure on the left hand side. An Income and expenditure account is just like Profit and Loss account  where expenses and losses are debited and income and gains are credit. 

Receipt and Payment account is prepared on the last day of accounting year. This account records transaction related to cash in the accounting year.

Receipt and Payment account is a summary of cash book where receipts are recorded on debit side and payments are recorded on credit side.

A receipts and payment account is just like a cash account hence it begins with opening balance and ends with closing balance of cash. Hence the debit balance of receipts and payments account just like cash account reflects closing balance of cash at the end of the year after taking into account all the payments and receipts.

Sale of scraps is a routine activity which generates indirect income for any entity whose sole objective is not to deal in scraps. Hence, amount received from sale of scraps by a charitable hospital is treated as an income and booked in the income and expenditure account.

Option A is correct. Legacy is the amount which a not for profit organisation receive as per the will of a deceased person. As this is a receipt it is recorded on debit side of Receipts and Payments A/c. 

Excess of revenue income over revenue expenditure is not a loss rather it is net income. Net income is one of the key indicators of company profitability, along with gross margin and before tax income. For example - revenue of ₹ 10,00,000 and expenses of ₹900,000 yield net income of ₹100,000. In this example, if the amount of expenses had been higher than revenues, the result would have been termed a net loss rather than a net income. 

Interest on Investment is an income of business concern. Investment is purchasing of an asset with the goal of generating income. Likewise interest in investment will be recorded as an income. 

Rent paid is an expense for the business. Expense is a nominal account. Rule of nominal account says that all the expenses and losses should be debited. hence Rent paid is to be debited to Rent A/c.

Revenue receipts are those receipts that are received in the conduct of ordinary and day-to-day business activities. for e.g. receipts from sale of goods and services are the main source of revenue receipts.