Tag: accounting for not-for-profit organisation

Questions Related to accounting for not-for-profit organisation

Income and Expenditure Account records income and expenditure items of ______________.

  1. Both capital and revenue nature

  2. Only capital nature

  3. Only revenue nature

  4. Only revenue nature related to the current period


Correct Option: D
Explanation:

Income and expenditure account is a nominal account and is just like a profit and loss account. All the expenses are recorded on the debit and side and incomes on the credit side. It records all incomes and expenses on accrual basis which means as and when its realised or incurred. Hence items related with the current period are to be recorded only. 

Excess of income over expenditure is also known as ____________.

  1. Profit

  2. Surplus

  3. Lass

  4. Deficit


Correct Option: B
Explanation:

Surplus is the excess of income over expenditure. A credit balance in the Income and expenditure account shows surplus. It is the profit earned and should be added to the capital fund on the liabilities side of the balance sheet. 

How much amount as Rent A/c will be debited to income & Expenditure A/c ? 

  1. Rent Paid (-) Outstanding Rent Of current year (+) Outstanding Rent of last year

  2. Rent Paid (+) Outstanding Rent Of current year (+) Outstanding Rent of last year

  3. Rent Paid (-) Outstanding Rent Of current year (-) Outstanding Rent of last year

  4. Rent Paid (+) Outstanding Rent Of current year (-) Outstanding Rent of last year


Correct Option: D
Explanation:

Rent a/c records the various entries regarding rent like advance payment, outstanding rent. 

When rent a/c is to be prepared the outstanding rent for current year has to be added because it has to be paid next year and outstanding rent for previous year has to be in current year.
$Rent\quad paid (+) Outstanding\quad rent\quad for\quad current\quad year (-) Outstanding\quad rent\quad for\quad previous\quad year$.

Subscription A/c will be credited to Income & Expenditure A/c after making following adjustments:

  1. Subscription Received

    (+) Outstanding Subscription for current year

    (-) Outstanding Subscription for of last year

    (+) Subscription received in advance of last year

    (-) Subscription received in advance of next year

  2. Subscription Received

    (+) Outstanding Subscription for current year

    (+) Outstanding Subscription for of last year

    (-) Subscription received in advance of last year

    (-) Subscription received in advance of next year

  3. Subscription Received

    (-) Outstanding Subscription for current year

    (-) Outstanding Subscription for last year

    (+) Subscription received in advance of last year

    (+) Subscription received in advance of next year

  4. Subscription Received

    (-) Outstanding Subscription for current Year

    (+) Outstanding Subscription for of last year

    (-) Subscription received in advance of last year

    (+) Subscription received in advance of next year


Correct Option: A
Explanation:

Subscription amount that has to be credited in the income & expenditure account is calculated after adjusting the various subscription amounts.


The adjustments are outstanding subscriptions for the current and previous year and subscriptions received in advance for the current and previous year. The adjustments have to be treated in the following way :


$Subscription\quad amount=\quad Subscription\quad received\\ \quad (+)\quad Outstanding\quad subscription\quad for\quad current\quad year\\ \quad (-)\quad Outstanding\quad subscription\quad for\quad previous\quad year\\ \quad (+)\quad Subscription\quad advanced\quad for\quad previous\quad year\\ \quad (-)\quad Subscription\quad advanced\quad for\quad current\quad year$.

How much amount as Staff Salary A/c will be debited to Income & Expenditure A/c ?

  1. Staff Salary paid (+) Salary paid in advance for the next year (-) Salary paid in advance in last year for current year

  2. Staff Salary paid (-) Salary paid in advance for the next year (+) Salary paid in advance in last year for current year

  3. Staff Salary paid (+)Salary paid in advance for the next year (+)Salary paid In advance in last year for current year

  4. Staff Salary paid (-)Salary paid in advance for the next year (-) Salary paid in advance in last year for current year


Correct Option: B
Explanation:

Salary paid to staff is divided into two parts, salary paid in advance for current and the previous year.


When salary account is prepared the salary the actual salary is added to salary paid in advance for previous year and deducting salary paid for the current year.


Salary paid in advance for current year is deducted because it is which related to next year and has to written off from this year's accounts.

Salary paid in advance for previous year has to be added because this salary which was paid last year but actually was related to this year.
$Salary\quad paid(+)salary\quad paid\quad in\quad advance\quad for\quad previous\quad year(-)salary\quad paid\quad in\quad advance\quad for\quad current\quad year$.

Purchase of a fixed asset by a non-profit organization will be shown in _____________.

  1. Income and Expenditure account

  2. Receipts and Payments Account

  3. Both (A) and (B)

  4. Neither (A) nor (B)


Correct Option: B
Explanation:

Receipt and payment account records all cash receipts and cash payments during the year whether related to current year, previous year or future year. It records both capital and revenue nature receipts and payments. Purchase of fixed assets includes cash. It is recorded in Receipts and Payments Account. It is not a revenue nature item. It is not recorded in Income and Expenditure Account.

In accounting of non-profit organizations, the sale of old newspapers is generally considered as a/an ______________.

  1. Revenue expense

  2. Capital expenditure

  3. Revenue income

  4. Capital receipt


Correct Option: C
Explanation:

Sale of old newspapers is a type of revenue income or receipt. This is because it neither created any liability for firm nor reduces any asset of the firm. Thus, such incomes are revenue receipts.

Admission fee income should be ____________.

  1. Capitalized

  2. Treated as a Revenue

  3. Treated as revenue unless the amount is pretty large

  4. Treated as a Liability


Correct Option: C
Explanation:

Admission fees is a revenue receipt and should be recorded as revenue item. If its a large amount , the treatment may be different according to the policy of the organization.


Admission Fees :-

(a) The organization shall follow the rules or by-laws regarding this.

(b) In the absence of such rules, add the admission or entrance fees that the members pay only once for acquiring a membership to the Capital Fund.

(c) If such fees are of small amounts covering the expenses of admission only, we may credit the fees to Income & Expenditure Account.

Preliminary expenses are an example of ________.

  1. Deferred Revenue Expenditure

  2. Revenue Expenditure

  3. Capital Expenditure

  4. Common Expenditure


Correct Option: A
Explanation:
Where a certain revenue expenditure incurred is of such a nature that its benefit is likely to be spread over a certain number of years, or where it is of non-recurring and special nature and large in amount, in such circumstances, instead of debiting the entire amount to the profit and loss account of the year in which it has been incurred, it may be spread over a number of years, a proportionate amount being charged to each year's profit and loss account. 

The remaining portion of the expenditure is carried forward and is known as capital expenditure or or deferred revenue expenditure and is shown as an asset in the balance sheet. 

Item such as preliminary expenses, cost of issue of debentures are examples of deferred revenue expenditure.



Excess of expenses over income is a _____________ .

  1. Income

  2. Surplus

  3. Loss

  4. Expenses


Correct Option: C
Explanation:

Income and Expensiveness account is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations. It includes only revenue items and the balance at the end represents surplus or deficit. The Income and Expenditure account serves the same purpose as the profit and loss account of a business organisation. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or loss (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.