Non-Profit Organizations Overview

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Questions and Answers

What is the formula to calculate 'Credit purchase' when inventory is purchased on credit?

  • Credit purchase = Payment to suppliers - opening payables + closing payables (correct)
  • Credit purchase = Payment to suppliers - opening payables - closing payables
  • Credit purchase = Payment to suppliers + opening payables - closing payables
  • Credit purchase = Payment to suppliers + opening payables + closing payables

In the Shop Trading Account, what does the 'Gross profit' represent?

  • The difference between shop sales and the cost of goods sold (correct)
  • The profit made after deducting all shop expenses
  • The difference between opening inventory and closing inventory
  • The total amount of revenue generated by the shop

Why is the 'Closing shop inventory' subtracted in the calculation of the 'Cost of sales' in the Shop Trading Account?

  • To reflect the value of inventory sold during the period (correct)
  • To determine the amount of inventory that was damaged or lost during the period
  • To adjust for any changes in the market value of the inventory
  • To calculate the total value of the inventory purchased during the period

What is the primary purpose of the 'Receipts and Payments Account'?

<p>To track the flow of cash in and out of the business for a specific period (C)</p> Signup and view all the answers

How does the 'Income and Expenditure Account' contribute to the preparation of financial statements?

<p>It calculates the net income or loss for the period from non-trading activities (C)</p> Signup and view all the answers

Which of the following items would be classified as an expense in the 'Income and Expenditure Account'?

<p>Depreciation (C)</p> Signup and view all the answers

How does the 'Shop related expenses' impact the calculation of 'Shop profit' in the Shop Trading Account?

<p>They are deducted from the gross profit to calculate the shop profit. (D)</p> Signup and view all the answers

What is the purpose of providing opening and closing balances for suppliers in the Shop Trading Account?

<p>To determine the total value of the inventory purchased on credit during the period. (D)</p> Signup and view all the answers

What does the surplus indicate in financial statements?

<p>Total revenue exceeds total expenses. (B)</p> Signup and view all the answers

In the Statement of Financial Position, where are trade payables listed?

<p>Current liabilities (C)</p> Signup and view all the answers

Which of the following describes an opening balance in the accumulated fund?

<p>The balance carried forward from the prior accounting period. (A)</p> Signup and view all the answers

What is classified as a non-current asset?

<p>Machinery (B)</p> Signup and view all the answers

What does the life membership fee contribute to in the Statement of Financial Position?

<p>Accumulated fund (D)</p> Signup and view all the answers

What is the primary purpose of a non-profit organization?

<p>To provide facilities for its members (C)</p> Signup and view all the answers

What term is used to describe the equivalent of profit for a non-profit organization?

<p>Surplus (B)</p> Signup and view all the answers

Which account reflects the cash holdings and transactions of a non-profit organization?

<p>Receipts and Payments Account (A)</p> Signup and view all the answers

What happens when a non-profit organization's expenditure exceeds its income?

<p>Deficit (B)</p> Signup and view all the answers

How are the amounts owed by members for subscriptions categorized in non-profit accounts?

<p>Subscriptions in arrears (B)</p> Signup and view all the answers

Which term is used in non-profit accounting that is equivalent to capital in a trading business?

<p>Accumulated fund (A)</p> Signup and view all the answers

What is the equivalent of an income statement in a non-profit organization?

<p>Income and Expenditure Account (C)</p> Signup and view all the answers

What description fits a non-profit organization's surplus of income over expenditure?

<p>A profit for the year (B)</p> Signup and view all the answers

How should entrance fees be treated if there are no specific instructions?

<p>They can be treated as income with justification. (A)</p> Signup and view all the answers

What is the primary recording account for subscriptions paid by members?

<p>Receipt and Payment Account (C)</p> Signup and view all the answers

Which adjustment is necessary before posting subscriptions to the Income and Expenditure Account?

<p>Adjust for advance and outstanding subscriptions. (B)</p> Signup and view all the answers

What does the term 'closing subscription in advance' indicate in calculations?

<p>Future subscriptions that have been received. (A)</p> Signup and view all the answers

What information is included in the ledger for the Subscription account under 'Balance b/d (outstanding/arrears)'?

<p>Unpaid dues from members. (A)</p> Signup and view all the answers

Which of the following represents a correct method to calculate subscription for the year?

<p>Total received plus opening advance, minus closing advance. (C)</p> Signup and view all the answers

What does 'Balance c/d (prepaid)' signify in the Subscription account?

<p>Subscriptions that have been collected in advance for future periods. (C)</p> Signup and view all the answers

Which of the following statements about subscription management is correct?

<p>Both advance and outstanding subscriptions need regular adjustments. (C)</p> Signup and view all the answers

What amount should be shown in the Income and Expenditure Account for membership subscriptions?

<p>$80,200 (A)</p> Signup and view all the answers

What is the total cash received during the year for subscriptions?

<p>$81,000 (D)</p> Signup and view all the answers

How should the sale of old assets be treated in the Income and Expenditure account?

<p>Deducted from the asset value (B)</p> Signup and view all the answers

Which statement about honorarium is correct?

<p>It is considered expenditure in the account (D)</p> Signup and view all the answers

What was the net subscription income for the club for the year?

<p>$3,695 (D)</p> Signup and view all the answers

What contributes to the opening subscription in advance for the year?

<p>Subscriptions paid in advance for the previous year (C)</p> Signup and view all the answers

If the net book value of an asset is nil, how should the proceeds from its sale be treated?

<p>Treated as profit or income (D)</p> Signup and view all the answers

How can closing subscriptions in arrears affect the calculation of subscription income?

<p>It increases the income by the arrears amount (B)</p> Signup and view all the answers

What are donations classified as for non-profit organizations?

<p>Revenue Receipts (B), Capital Receipts (D)</p> Signup and view all the answers

How should specific donations be treated in financial records?

<p>As capital and in a separate bank account (C)</p> Signup and view all the answers

Which of the following describes a legacy in the context of non-profit organizations?

<p>An amount received as per the will of a donor (A)</p> Signup and view all the answers

What is a life membership fee considered in financial accounting?

<p>A capital receipt and a proportion treated as income over years (B)</p> Signup and view all the answers

How should entrance fees paid by members be classified?

<p>Capital receipts as they are non-recurring (D)</p> Signup and view all the answers

Which statement about general donations is correct?

<p>They help fulfill the organization's missions (B)</p> Signup and view all the answers

If there are no instructions regarding the treatment of life membership fees, how should they be classified?

<p>Entirely as capital (C)</p> Signup and view all the answers

In what way are specific donations different from general donations?

<p>Specific donations are intended for particular purposes (D)</p> Signup and view all the answers

Flashcards

Non-profit organization

An organization that does not earn profits for owners and serves public purposes.

Surplus

Excess of income over expenditure in a non-profit organization.

Deficit

Excess of expenditure over income in a non-profit organization.

Income and Expenditure Account

Account to determine surplus or deficit for a non-profit organization.

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Accumulated Fund

Equivalent to capital in a non-profit organization, representing total funds.

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Receipts and Payments Account

Records money received and spent by the non-profit organization.

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Subscriptions

Payments made by members to join and participate in the club or society.

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Activity Trading

The equivalent of a trading account for non-profits, reflecting activities conducted.

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Donation

Money given freely to support a non-profit's mission.

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Specific Donation

Fund provided for a specific purpose, treated as capital.

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General Donation

Fund given without a specific purpose, treated as revenue.

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Legacy

Amount received from a donor's will, treated as a capital receipt.

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Life Membership

One-time payment for lifetime club membership, credited gradually.

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Entrance Fees

One-time fee paid by members; considered a non-recurring capital receipt.

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Capital Receipt

Funds received for long-term benefits, not treated as income.

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Revenue Receipt

Funds received for regular activities, treated as income.

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Adjustments in Subscription

Corrections made to subscriptions for accurate yearly reporting.

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Outstanding Subscription

Membership fees owed by members at the end of the period.

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Prepaid Subscription

Subscription fees paid in advance for future periods.

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Calculation of Subscription

The process of determining total subscriptions for the year based on various factors.

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Balance at Start

The initial amount of money available at the beginning of a financial period.

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Total Assets

The sum of all non-current and current assets owned by the organization.

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Current Liabilities

Obligations the organization must pay within one year.

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Non-current Liabilities

Obligations that are due beyond one year.

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Surplus Calculation

The process of determining if income exceeds expenditures over a period.

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Shop Profit

The amount remaining after deducting shop related expenses from gross profit.

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Gross Profit

Sales revenue minus the cost of sales, showing profit before expenses.

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Cost of Sales

Total costs directly assigned to the production of goods sold by the shop.

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Balance b/d

The balance brought down from the previous period in financial accounts.

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Credit Purchase Calculation

Formula: Credit purchase = payment to suppliers - opening payables + closing payables.

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Income and Expenditure Calculation

Determines the net income from all activities including subscriptions and fees.

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Depreciation Calculation

The systematic reduction of an asset's value over time on financial statements.

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Subscription Income Calculation

Total membership subscriptions calculated for a specific period.

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Opening Subscription in Advance

Amount received for subscriptions before the year starts, not yet earned.

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Closing Subscription in Arrears

Amount owed by members for subscriptions at year-end.

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Opening Subscription in Arrears

Amount owed by members from the previous year.

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Closing Subscription in Advance

Amount received in advance for the next year by year-end.

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Sale of Old Assets

Non-recurring event where an asset is sold, impacting financials.

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Honorarium

Payment for guest speakers or performers, classified as expenditure.

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Non-Recurring Events

Transactions that do not happen regularly, like asset sales.

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Study Notes

Non-profit Organizations

  • Non-profit organizations are those that don't aim for profit for owners
  • They typically include charities and public service organizations
  • Examples include sports clubs, social clubs, drama societies, and music clubs
  • These organizations may raise funds to improve facilities for members
  • Ownership is distributed among all members, not a single person or partnership
  • Records of income and expenditure are often managed by a member, not a trained bookkeeper

Non-profit vs. Trading Business

  • Trading Business: Uses accounts like capital, cash book, trading account (gross profit), income statement, statement of financial position, profit for the year, loss for the year, trade receivables, and trade payables
  • Non-Trading Business: Uses accounts like accumulated funds, receipts and payments, activity trading, income statement, statement of financial position, surplus (income > expenditure), deficit (expenditure > income), subscriptions in arrears, and subscriptions in advance

Income and Expenditure Account

  • An account used to determine if a non-profit organization has a surplus or deficit (equivalent of SOPL in trading businesses)
  • Surplus of Income over Expenditure: When income is higher than expenditure, similar to profit in trading businesses
  • Deficit of Expenditure over Income: When expenditure is higher than income, similar to loss in trading businesses
  • Accumulated Fund: Equivalent to capital in a non-trading business
  • Receipts and Payments Account: The bank account for the non-profit organization

Important Terms

  • Donations: Crucial to non-profit organizations; they're received in two ways:
    • Specific Donation: Donated for a particular purpose (capital receipt)
    • General Donation: Unrestricted donation (revenue receipt)
  • Legacy: Monies received from a donor's will; treated as a capital receipt, not income
  • Life Membership: One-time payment for lifetime membership; usually spread over multiple years into the income statement
  • Subscriptions: Money members pay to join a club or society; a primary source of income for non-profits.
  • Entrance Fees: One-time payment, often viewed as a capital receipt because it's not recurring

Receipts and Payments Account

  • Tracks all cash transactions for a specific period.
  • Includes opening and closing bank balances

Income and Expenditure Account

  • Calculates subscriptions earned
  • Calculates entrance fees and life membership fees
  • Calculates income from other activities (e.g., events)
  • Calculates expenses.

Differences Between Receipts and Payments and Income and Expenditure Accounts

  • Receipts and Payments: Like a cash book; includes both capital and revenue items, but ignores outstanding items.
  • Income and Expenditure: Like an income statement; ignores credit sales and purchases, but includes prepaid items.

Accumulated Fund

  • The difference between assets and liabilities of a non-profit organization
  • A measure of the organization's net assets
  • Accumulated funds arise from accumulated surpluses in previous years

Statement of Financial Position (Balance Sheet)

  • Details a non-profit organization's assets, liabilities, and capital
  • Assets include land, buildings, machinery, vehicles, inventory, and cash
  • Liabilities include subscriptions received in advance, trade payables, and other payables.
  • Capital/accumulated fund is the difference between total assets and total liabilities

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