Account of Not-for-Profit Organization | Jamb(UTME) Principles of Accounts
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In this post, we have enumerated a good number of points from the topic Account of Not-for-Profit Organization which was extracted
from the Jamb syllabus. I would advice you pay attention to each of the point knowing and understanding them by heart.
Happy learning.
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Accounts of Not-For-Profit-Making Organizations
- Not-for-profit organizations maintain specific types of financial records.
- Financial statements demonstrate accountability, not profitability.
- Accounts focus on transparency to members and donors.
- Separate accounts are kept for special funds (e.g., building fund).
- Capital is referred to as "accumulated fund" instead of owner’s capital.
- Donations are treated as income or capital, depending on purpose.
- Accounts distinguish between recurring and non-recurring income.
- Grants and subscriptions are significant sources of income.
- Depreciation is charged on assets like buildings and equipment.
- Surplus or deficit is transferred to accumulated fund.
- Not-for-profit accounts include fund-specific reporting.
- Receipts and payments account is the primary cash flow statement.
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Objectives of Not-For-Profit Organizations
- Promote social welfare activities.
- Support education, health, or community development.
- Provide services to members without profit motive.
- Enhance community engagement and involvement.
- Ensure sustainability through responsible financial management.
- Maintain accountability to donors and members.
- Comply with legal and regulatory requirements.
- Ensure funds are used for their intended purpose.
- Generate surplus to reinvest in organizational objectives.
- Promote charitable goals and community enrichment.
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Receipts and Payments Account
- Summarizes all cash and bank transactions.
- Includes both capital and revenue items.
- Records receipts regardless of the period they relate to.
- Shows cash balance at the beginning and end of the period.
- Does not distinguish between current and prior period items.
- Easy to prepare and understand.
- Provides a summary of cash inflows and outflows.
- Excludes non-cash items like depreciation.
- Helps prepare the income and expenditure account.
- Includes subscriptions, donations, and grants received.
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Income and Expenditure Account
- Similar to a profit and loss account for businesses.
- Records income and expenses on an accrual basis.
- Includes only revenue items related to the period.
- Excludes capital receipts and payments.
- Adjusts for subscriptions in arrears and in advance.
- Calculates surplus or deficit for the period.
- Helps measure financial performance.
- Includes depreciation of fixed assets.
- Expenditure includes salaries, rent, and maintenance.
- Subscriptions received in advance are excluded from current income.
- Helps in assessing operational efficiency.
- Surplus increases the accumulated fund.
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Statement of Financial Position
- Shows assets, liabilities, and accumulated funds.
- Assets include cash, investments, and equipment.
- Liabilities include creditors and subscriptions received in advance.
- Accumulated fund is adjusted annually.
- Helps in assessing the organization’s financial health.
- Fixed assets are shown net of depreciation.
- Separate funds are disclosed individually.
- Cash and bank balances are included in current assets.
- Outstanding expenses appear under current liabilities.
- Investment income accrued is included as a current asset.
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Distinguishing Profit-Oriented and Not-For-Profit Organizations
- Profit-oriented organizations aim to maximize profits.
- Not-for-profit organizations aim to serve community goals.
- Profits in not-for-profits are called surplus.
- Capital in not-for-profits is known as accumulated fund.
- Profit-oriented businesses distribute profits to owners.
- Not-for-profits reinvest surplus into activities.
- Financial reporting focuses on accountability for not-for-profits.
- Businesses prioritize return on investment.
- Not-for-profits emphasize fund utilization.
- Both entities maintain proper financial records for accountability.
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Determining Annual Subscription
- Subscriptions are key recurring income for not-for-profits.
- Determine subscriptions based on number of members.
- Arrears are added to the income for the period.
- Subscriptions in advance are excluded from current income.
- Subscriptions should be confirmed with membership records.
- Adjustments are made for outstanding subscriptions.
- Receipts and payments account aids subscription reconciliation.
- Accurate subscription records improve financial reporting.
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Subscriptions in Arrears and in Advance
- Subscriptions in arrears are amounts due but unpaid.
- Subscriptions in advance are payments for future periods.
- Arrears are shown as current assets in the balance sheet.
- Advance subscriptions appear as liabilities.
- Adjustments ensure accurate income recognition.
- Receipts and payments accounts record cash receipts.
- Income and expenditure accounts reflect accrued income.
- Subscription schedules aid in managing member payments.
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Compute Cash Balances, Accumulated Funds, Surplus or Deficit
- Cash balance is derived from receipts and payments account.
- Accumulated fund starts with opening balance.
- Surplus increases accumulated fund.
- Deficit reduces accumulated fund.
- Add surplus to opening accumulated fund for closing balance.
- Calculate cash by balancing inflows and outflows.
- Surplus/deficit is derived from income and expenditure account.
- Adjust accumulated fund for capital receipts and expenses.
- Donations for capital purposes increase accumulated fund.
- Compute cash balance after adjusting for outstanding items.
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Additional Useful Points
- Donations can be restricted or unrestricted.
- Restricted donations must be used for specific purposes.
- Fundraising expenses are recorded as part of expenditure.
- Grants received are treated as income.
- Legacies are recorded when received or notified.
- Interest income is recorded on an accrual basis.
- Investment valuations impact statement of financial position.
- Separate funds require individual reporting.
- Depreciation reflects asset consumption over time.
- Effective bookkeeping ensures transparency in not-for-profit accounts.
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I recommend you check my article on the following:
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- Jamb Principles of Accounts - Key Points and Summaries on 'Departmental Accounts' for UTME Candidates
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