Accounting for Not-for-profit Organisations: ISC Class 11 Notes

What Accounting for Not-for-profit Organisations is about

Weightage: Accounting for Not-for-profit Organisations belongs to the unit Accounting for Not-for-profit-Organisation, which CISCE weights at 10 of the 80 marks in the ISC Class XI Accountancy Paper I (Theory). Class XI is examined by the school, so your school sets the paper within this weightage.Source: CISCE ISC Accountancy syllabus, examination year 2028, Class XI unit weightage

Key concepts

Meaning, objectives and features of not-for-profit organisations

A not-for-profit organisation (NPO) is set up to promote art, culture, education, health, sport, religion or social welfare, not to earn profit. Examples: clubs, libraries, charitable hospitals and schools, trusts, societies, professional associations.

Features:

• Service motive, not profit motive.
• Funded by subscriptions, donations, grants, legacies, fees from members and the public.
• Any surplus is used for the objectives, never distributed to members.
• Managed by an elected committee or trustees; registered under the Societies Registration Act, a Trusts Act or as a Section 8 company.
• The owners' equity is the Capital Fund (General Fund).

Why they keep accounts: accountability to members, donors and the government; control of funds; to keep specific funds for their purpose; legal requirements (registration, tax exemption, audit).

Worked example

Suppose a residents' sports club earns a surplus of ₹1,20,000 in a year. Can it distribute this among its members as a dividend? Explain. [1 mark]

Try it first, then show the solutionSolution

1. An NPO exists for service; its surplus must be used for its objectives (better facilities, events).

Answer: No. The surplus is added to the Capital Fund and used for the club's objectives, not distributed.

Receipts and Payments Account

The Receipts and Payments Account is a summary of cash and bank transactions for the year, classified under heads.

Features:

• Real account in nature: debit side 'Receipts', credit side 'Payments'.
• Starts with the opening cash and bank balance (or overdraft) and ends with the closing balance.
• Records all receipts and payments, whether capital or revenue, and whether they relate to the past, current or future year.
• Non-cash items (depreciation, outstanding expenses, accrued income) are not shown.

Difference from the cash book: the cash book records each transaction in date order; the Receipts and Payments Account is a classified summary of the cash book, prepared at the year-end, with one figure per head.

Worked example

Suppose a club's receipts for the year total ₹3,41,000 (including an opening cash balance of ₹18,000) and its payments total ₹2,57,000. Find the closing cash balance and say where it is shown. [1 mark]

Try it first, then show the solutionSolution

1. Closing balance = 3,41,000 − 2,57,000 = ₹84,000, shown on the payments (credit) side as 'By Balance c/d'.

Answer: ₹84,000, the last item on the credit side; it also appears as cash in the Balance Sheet.

Income and Expenditure Account

The Income and Expenditure Account is the NPO's equivalent of the Profit and Loss Account. It is a nominal account prepared on the accrual basis, showing only revenue incomes and revenue expenses of the current year.

• Expenditure on the debit side; income on the credit side.
• Excess of income over expenditure = surplus (added to Capital Fund); the reverse = deficit.
• Includes non-cash items (depreciation, outstanding and accrued amounts, loss on sale of assets).
• Excludes capital items and amounts relating to other years.

Basis	Receipts and Payments A/c	Income and Expenditure A/c
Nature	Real account (summary of cash)	Nominal account
Items	Capital and revenue	Revenue only
Period	Past, current and future years	Current year only
Basis	Cash	Accrual
Balance	Cash/bank balance	Surplus or deficit
Non-cash items	Not shown	Shown (depreciation, outstanding)

Difference from P&L Account: same accrual principles, but the result is called surplus/deficit and goes to the Capital Fund; NPOs have no trading motive (any trading activity is shown separately).

Worked example

Suppose a club's total revenue income for the year is ₹2,05,000 and total revenue expenditure (including depreciation of ₹18,850) is ₹1,53,850. Find the result. [1 mark]

Try it first, then show the solutionSolution

1. Surplus = 2,05,000 − 1,53,850 = ₹51,150 (excess of income over expenditure).

Answer: Surplus ₹51,150, added to the Capital Fund.

Capital receipts: what is capitalised

As per the ISC syllabus, these are capitalised (added to the Capital Fund or to a separate fund on the liabilities side), not shown as income:

• Entrance (admission) fees: paid once on joining.
• Life membership fees: paid once for life.
• Legacies: amounts received under a will.
• Special grants: grants for a specific purpose (e.g. a grant for a library building).
• Special donations: donations for a specific purpose (e.g. Building Fund, Prize Fund); shown as a separate fund on the liabilities side.

Specific funds: income from the fund's investments and expenses on the fund's purpose are shown in the fund, not in the Income and Expenditure Account. E.g. Prize Fund: add interest on prize fund investments, deduct prizes awarded.

Sale of fixed assets and investments are capital receipts too: the proceeds reduce the asset, and only a profit or loss on sale goes to the Income and Expenditure Account.

Worked example

Suppose a club receives: entrance fees ₹15,000; life membership fees ₹40,000; a donation of ₹60,000 for a building fund; a general donation of ₹22,000. Which are capitalised and how? [2 marks]

Try it first, then show the solutionSolution

1. Entrance fees and life membership fees are capitalised: added to the Capital Fund (₹55,000).
2. The building donation is a special donation: Building Fund ₹60,000 on the liabilities side.
3. The general donation is a revenue receipt: income ₹22,000.

Answer: Capital Fund +₹55,000; Building Fund ₹60,000; general donation ₹22,000 as income.

Revenue receipts and subscriptions

Revenue receipts: subscriptions (membership fees), general donations, general grants, interest and dividends, rent of the hall, and receipts from occasional events.

Subscriptions for the year (income) are found from the cash received:

Subscriptions income = Received during the year − Arrears of previous year received (outstanding at start) − Received in advance for next year + Outstanding for current year (at end) + Received last year in advance for current year.

In the Balance Sheet:

• Subscriptions outstanding at the end → assets.
• Subscriptions received in advance → liabilities.

The same logic applies to salaries, rent and other expenses: Amount paid − Outstanding at start + Outstanding at end (and the reverse for prepaid).

Worked example

Suppose subscriptions received in 2025-26 are ₹1,24,000, including ₹6,000 for 2024-25 and ₹8,000 for 2026-27. At the end, ₹12,000 is outstanding for 2025-26, and ₹5,000 had been received in 2024-25 in advance for 2025-26. Find subscriptions income for 2025-26. [3 marks]

Try it first, then show the solutionSolution

1. Start with 1,24,000; less last year's arrears 6,000; less next year's advance 8,000 = ₹1,10,000.
2. Add outstanding for this year 12,000 and last year's advance for this year 5,000.
3. Income = 1,10,000 + 12,000 + 5,000 = ₹1,27,000.

Answer: Subscriptions income ₹1,27,000.

Capital Fund and the Balance Sheet

Opening Capital Fund = Opening assets − Opening liabilities (often found from an opening Balance Sheet that you prepare from the information).

Closing Capital Fund = Opening Capital Fund + Surplus (or − Deficit) + Capitalised items (entrance fees, life membership fees, legacies, special grants if not in a separate fund).

Balance Sheet (horizontal): Liabilities: Capital Fund, specific funds (Building Fund, Prize Fund), subscriptions received in advance, outstanding expenses. Assets: fixed assets net of depreciation, investments, accrued income, subscriptions outstanding, cash and bank.

Steps for a full problem:

1. Opening Balance Sheet → opening Capital Fund.
2. Working notes for subscriptions, salaries, depreciation, accrued interest, profit or loss on sale of assets.
3. Income and Expenditure Account → surplus/deficit.
4. Closing Balance Sheet.

Worked example

Suppose on 1st April 2025 a club had cash ₹18,000, furniture ₹40,000, instruments ₹1,20,000, investments ₹1,00,000 and subscriptions outstanding ₹6,000; subscriptions received in advance were ₹5,000 and salaries outstanding ₹4,000. Find the opening Capital Fund. [2 marks]

Try it first, then show the solutionSolution

1. Assets = 18,000 + 40,000 + 1,20,000 + 1,00,000 + 6,000 = ₹2,84,000.
2. Liabilities = 5,000 + 4,000 = ₹9,000; Capital Fund = 2,84,000 − 9,000 = ₹2,75,000.

Answer: Opening Capital Fund ₹2,75,000.

Accounting for Not-for-profit Organisations in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Income and Expenditure Account, Subscriptions and Balance Sheet
• Not-for-profit Organisations: Features and Receipts and Payments Account

Accounting for Not-for-profit Organisations: key facts

Subscriptions income

Received − Arrears of last year received − Advance for next year + Outstanding this year + Last year's advance for this year

Expense for the year

Paid − Outstanding at start + Outstanding at end (− Prepaid at end + Prepaid at start)

Opening Capital Fund

Opening assets − Opening liabilities

Closing Capital Fund

Opening Capital Fund + Surplus (− Deficit) + Entrance fees + Life membership fees + Legacies (capitalised)

Specific fund

Closing fund = Opening fund + Donations + Income from fund investments − Expenses on the fund's purpose

Accounting for Not-for-profit Organisations: diagrams to practise

Practise each one on paper: draw it from the checklist, then tick off every label.

How the school exam asks Accounting for Not-for-profit Organisations

The question patterns to expect, and the method that works for each.

Tricks to remember Accounting for Not-for-profit Organisations

Short memory aids. Say each one aloud once, then use it on a question the same day.

• ELLS go to capital

  Entrance fees, Life membership, Legacies, Special grants/donations: capitalised.

  Use it when: Treatment of special items.

• R&P = Real and Plain cash; I&E = Income Earned

  R&P shows all cash in and out; I&E shows only what was earned and incurred this year.

  Use it when: Distinguishing the two accounts.

• Subscriptions: minus the past and future cash, plus this year's dues

  Cash received − arrears − advance + outstanding + last year's advance.

  Use it when: Subscriptions income.

Accounting for Not-for-profit Organisations: exam-level solved questions

Ordered from exam level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section A style)

Read the situation, then answer every part. In a school exam set on the board pattern this is a 6-mark question split into 2 + 2 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Accounting for Not-for-profit Organisations

The slips examiners see most often, and what to write instead.

• ✗Mistake: Showing entrance fees or life membership fees as income

  The ISC syllabus requires these to be capitalised; showing them as income overstates the surplus.

  ✓Do this: ELLS (entrance, life membership, legacies, special grants/donations) go to capital.

  Usually costs: 1-2 marks and the surplus.

• ✗Mistake: Taking the full subscription received as income

  Cash received includes arrears and advances; income is only what relates to the current year.

  ✓Do this: Use the formula or a T-account working note.

  Usually costs: 1-2 marks.

• ✗Mistake: Showing the sale proceeds of an asset as income

  The sale is a capital receipt; only the profit or loss on sale enters the I&E Account.

  ✓Do this: Compare proceeds with book value; take the difference only.

  Usually costs: 1 mark.

• ✗Mistake: Putting specific fund income and expenses in the I&E Account

  Income earned on and expenses met from a specific fund belong to that fund.

  ✓Do this: Add the income to and deduct the expense from the fund on the liabilities side.

  Usually costs: 1 mark.

• ✗Mistake: Forgetting the opening Capital Fund

  Without it the Balance Sheet cannot agree.

  ✓Do this: Prepare an opening Balance Sheet first: assets − liabilities.

  Usually costs: 1-2 marks.

Practice questions on Accounting for Not-for-profit Organisations

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQExam level

   The Receipts and Payments Account of an NPO is a:
   (a) nominal account
   (b) real account
   (c) personal account
   (d) statement of affairs

   Hint

   Cash summary.

   Answer

   (b) real account.

2. Q2 · 2 marks · Short answerExam level

   Distinguish between the Receipts and Payments Account and the cash book on two bases.

   Hint

   Detail vs summary.

   Answer

   The cash book records each transaction in date order throughout the year; the R&P Account is a classified summary under heads prepared at the year-end. The cash book is a book of original entry; the R&P Account is prepared from it and shows one total per head.

3. Q3 · 2 marks · Short answerExam level

   State the treatment of (i) legacy, (ii) general donation, (iii) special donation for a library building, (iv) subscriptions received in advance.

   Hint

   ELLS.

   Answer

   (i) Capitalised (Capital Fund). (ii) Revenue income (I&E credit). (iii) Library Building Fund (liabilities). (iv) Liability in the Balance Sheet; excluded from this year's income.

4. Q4 · 3 marks · Short answerHarder exam level

   Suppose stationery purchased during the year is ₹14,000; opening stock of stationery ₹2,500; closing stock ₹3,200; creditors for stationery: opening ₹1,800, closing ₹2,100. Find stationery consumed for the I&E Account (purchases figure is the cash paid).

   Hint

   Purchases first, then consumption.

   Answer

   Purchases = 14,000 − 1,800 + 2,100 = ₹14,300. Consumed = 2,500 + 14,300 − 3,200 = ₹13,600.

5. Q5 · 3 marks · Short answerHarder exam level

   Suppose a club received ₹1,80,000 subscriptions in 2025-26. Outstanding: 1.4.2025 ₹8,000; 31.3.2026 ₹11,000. In advance: 1.4.2025 ₹4,000; 31.3.2026 ₹6,000. Find subscriptions income.

   Hint

   Use the T-account.

   Answer

   1,80,000 − 8,000 + 11,000 + 4,000 − 6,000 = ₹1,81,000.

6. Q6 · 3 marks · Short answerHarder exam level

   Suppose sports equipment on 1.4.2025 was ₹90,000; equipment bought during the year ₹40,000; old equipment (book value ₹12,000) sold for ₹8,000; equipment on 31.3.2026 valued at ₹1,02,000. Find depreciation and the loss on sale.

   Hint

   Balancing figure.

   Answer

   Loss on sale = 12,000 − 8,000 = ₹4,000. Depreciation = 90,000 + 40,000 − 12,000 − 1,02,000 = ₹16,000. Both are debited to the I&E Account.

7. Q7 · 2 marks · Short answerHarder exam level

   Distinguish the Income and Expenditure Account from the Profit and Loss Account on two bases.

   Hint

   Motive and result.

   Answer

   I&E is prepared by an NPO with a service motive; P&L by a business with a profit motive. I&E shows a surplus/deficit added to the Capital Fund; P&L shows profit/loss transferred to capital and available to owners.

8. Q8 · 3 marks · Short answerHOTS / competency

   Suppose a club has a Tournament Fund of ₹60,000. During the year it received tournament donations of ₹25,000 and spent ₹92,000 on a tournament. Show the treatment.

   Hint

   Expense exceeds the fund.

   Answer

   Fund available = 60,000 + 25,000 = ₹85,000; expenses of ₹92,000 exhaust it. Fund closed (nil); the excess ₹7,000 is debited to the I&E Account as tournament expenses.

9. Q9 · 2 marks · Short answerHOTS / competency

   A club received ₹3,00,000 as life membership fees in one year. If wrongly treated as income, explain the effects on the surplus and the Capital Fund.

   Hint

   Does the closing fund change?

   Answer

   The surplus is overstated by ₹3,00,000, misleading members about the year's working. The closing Capital Fund is the same either way (via surplus instead of direct addition), but the I&E Account no longer shows the true result of the year.

10. Q10 · 2 marks · Short answerHarder exam level

    Suppose the opening Capital Fund cannot be found from a Balance Sheet. On 1.4.2025 the club had: building ₹5,00,000; furniture ₹60,000; cash ₹12,000; subscriptions outstanding ₹9,000; prepaid insurance ₹2,000; outstanding salaries ₹7,000; a Building Fund of ₹1,50,000. Find the opening Capital Fund.

    Hint

    The Building Fund is a liability.

    Answer

    Assets = 5,00,000 + 60,000 + 12,000 + 9,000 + 2,000 = ₹5,83,000; liabilities = 7,000 + 1,50,000 = ₹1,57,000; Capital Fund = ₹4,26,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.NPO profit is called?Show answer

   Surplus (excess of income over expenditure).

2. 2.Items capitalised as per ISC?Show answer

   Entrance fees, life membership fees, legacies, special grants and special donations.

3. 3.Is a general donation capitalised?Show answer

   No; it is revenue income.

4. 4.R&P Account: real or nominal?Show answer

   Real.

5. 5.Subscriptions received in advance: where?Show answer

   Liabilities side of the Balance Sheet.

6. 6.Are restaurant (incidental activity) accounts in the syllabus?Show answer

   No.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐R&P: cash summary, all receipts and payments, real account.
• ☐I&E: revenue items of this year on accrual basis, nominal account.
• ☐Capitalise: entrance, life membership, legacies, special grants and donations.
• ☐Revenue: subscriptions, general donations, general grants.
• ☐Subscriptions income = received − arrears − advance + outstanding + last year's advance.
• ☐Specific fund income and expenses stay in the fund.
• ☐Sale of asset: only profit or loss in I&E.
• ☐Closing Capital Fund = opening + surplus + capitalised items.

Accounting for Not-for-profit Organisations: frequently asked questions