Chapter 22

NON-BUSINESS
ORGANIZATIONS
 Introduction

• Organizations existing to provide a service to its members

(owners) or the community and not for the purposes of making a
profit.
• E.g. public schools, churches, football clubs, social clubs, charity
organizations
• Make money through contributions from members, donations and
other fundraising events
• Admin work done by members on a voluntary and unpaid basis
• Will therefor have a very simple accounting system since
members may not be trained for a proper and efficient accounting
system to comply with accounting procedures and rules e.g
Double entry
• Accounting system maintained by treasurer who records the
activities using simpler terms
 Introduction…cont’

• Activities of treasurer may include:

 Maintaining a list of all members
 Sending statements of account to members for
unpaid fees
 Receiving monies and issuing receipt
 Paying suppliers and all other expenses
 Banking cash on a daily basis
 Receiving statements and invoices from suppliers
 Reconciling accounts involving third parties with
organization’s records..e.g??
 TERMINOLOGY
TRADING ORGANIZATION NON-BUSINESS ORG.
Profit Surplus

Loss Deficit

CRJ/CPJ Cashbook → Statement of Receipts &

Payments

Statement of Comprehensive Income Statement of Income and Expenditure

Capital Accumulated Fund

 Financial Reporting
• NBOs use the following financial reporting
statements:
1. Statement of Receipts and Payments
2. Statement of Income and Expenditure
3. Statement of Financial Position
 1. The Statement of Receipts and
Payments
• For very small organizations not keeping sophisticated information
(e.g no assets & liabilities)
• The business will have a cashbook recording all receipts and
payments
• From this a simple account may be prepared showing a summary
of all receipts and payments to report to members on the AGM
• It has disadvantages though:
 May include receipts of capital nature
 May include receipts and payments for NCAs (e.g sale of assets)
 Does not take account of accruals, prepayments (outstanding AR
or AP)
• This statement is prepared on a single entry cash basis
SEE EXAMPLE 22.1
 2. Statement of Income & Expenditure
• Similar to the SOCI for businesses trading for
profit
• Presents accounting information prepared on the
double entry accrual basis and in accordance
with the principles of the accrual basis for
preparing FS
• Just like the trading business will have CRJ &
CPJ and GJ for non cash items
• Entries from journals are posted to GL to
complete double entry
• From GL TB is extracted
 2. Statement of Income & Expenditure…cont’

• Just like in trading businesses necessary adjustments are

made and nominal accounts closed off to the income &
expenditure a/c and real accounts are displayed in the
SOFP
• The statement of Income & expenditure will show the
organization’s surplus of income over expenditure or
excess of expenditure over income for the period
(otherwise known as net profit/net loss)
• The statement of Income & Expenditure is prepared
together with the SOFP
 2. Statement of Income & Expenditure…cont’

• The normal way used by NBOs is known as the single entry cash
basis, however some NBOs will grow and convert from the single
entry cash basis to the double entry accual basis
• In that case the following books, statements and documents would
be available:
 SOFP for previous year
 Cash book completed with bank entries for the year
 Bank statements, cheques, deposit slips and receipts
 Suppliers invoices & statements of account
 Membership lists, entrance fees
 Invoices charged to members
 2. Statement of Income & Expenditure…
cont’
• A procedure to be adopted:
 Prepare SOFP at beginning of the year and determine accumulated
funds figure (balancing figure) and enter all suitable balances in
GL
 Complete double entry for cash transactions by posting from the
CB (journals) to ledger a/cs
 Record double entries for outstanding items (routine adjustments)
at year end i.e ??
 Record double entries for the non-routine adjustments e.g.??
 Extract a TB
 Prepare SOIE and SOFP
 Close off and balance the ledger accounts
SEE EXAMPLE 22.4
 SPECIAL ITEMS
• Items that are not frequently recurring
1. Entrance fees: monies paid by every member on joining the
NBO. Accounting treatment: capital contributions (Dr Bank,
Cr Accumulated funds)
2. Fundraising activities: undertaken to suplement income e.g
provision of refreshments to members on a profit making basis.
Accounting treatment: open a separate trading account for the
activity (bar trading where refershments are provided) and
transfer only the surplus or deficit to the income & expenditure
a/c
3. Membership subscription fees: monthly, semi-annual or
annual payments payments received from members.
Accounting treatment: income for the NBO with necessary
year end adjustments made (accruals, prepayments)
 SPECIAL ITEMS…cont’
4. Legacies & Donations: these are gifts in money
received by the NBO. Accounting treatment:
legacies are treated as capital item Dr Bank, Cr
accumulated fund with Legacies. With donations,
small donations treated as income while large
amounts are capitalised
NB: Legacies and donations are capitalised so as to
avoid false impression of surplus/deficit for the year

SEE EXAMPLE 22.5

 SPECIAL FUNDS
• Monies set aside for special project or to acquire certain asets
• A separate investment a/c need to be opened for such funds
• Such investment a/c may be removed from the current a/c to , to an interest
barring investment a/c
• Donations and contributions can be made directly to that account, expenses for
the fund are also paid from resources of the fund
• Accounting principles for special funds:
 All dealings with the fund should be kept separate from the income &
expenditure a/c and the accumulated fund
 Cash representing the fund should appear in a fund investment account (asset)
and the fund account will have a Cr balance equal to fund investment a/c
NB: funds aimed at acquiring an asset will be used to acquire the asset when
they are enough to acquire the asset and as such the resources in the fund
investment account will be applied and replaced by the asset acquire (e.g
Land)……the special fund a/c will be closed off by transferring it to the
accumulated fund a/c
EXAMPLE 22.5 , 22.6 and 22.7
 COUPONS
• Most NBOs sell their goods and services by means of
special coupons sold from a central office (bar or
restaurant trading)
• This is a way of implementing controls over the collection
of cash
• E.g. refreshments, drinks coupons
• To promote the use of coupons by customers, they are sold
at discounts
• Maximum periods are stipulated by NBOs for coupons to
be validly redeemed
• Provision for exchange of unused coupons are made for
customers to get cash refunds
 COUPONS…cont’
• Controls should be placed over the coupon
accounting system:
 The printing, receipt, storage and issue of
coupons
 Cash when coupons are sold ( a record of value
of coupons sold)
 The recording of value of coupons exchanged
for goods and services (redeemed) by customers
 Recording of liabilities for coupons sold but not
yet redeemed for goods and services
 COUPONS…cont’
• It is important to note that:
 A sale transaction takes place only when the
coupons are redeemed for goods and services
 The face/exchange value of any unredeemed
yet valid coupon held by customers should be
disclosed as a current liability on the SOFP
INCOMPLETE RECORDS
 Introduction
• Because NBOs’s admin and financial tasks are performed by
members on a voluntary & unpaid basis, they have a simple acounting
system which does not need one to be an accounting expert to do
• Accounting system is on a single cash basis and sometimes
incomplete.
• Reasons for incomplete records:
 stolen records
 accidentally destroyed records e.g by fire
 Intentionally stolen or destroyed records by employees responsible
for fraud
 Insufficient knowledge by owners of small NBOs
• Due to incomplete records, complete FS cannot be prepared yet they
may be needed for tax purpose, loan providers
• With minimum information, only an estimate of surplus/deficit can be
made…..with more info.a complete set of FS can be prepared
 Estimating Surplus/Deficit from basic
information
• Where minimum information is available, only
profit estimates can be made
• Example 22.8, 22.9
 Preparing complete FS from incomplete
records
• Information not supplied can be found from the
available information
 Sales and purchases can be calculated from
information in the SOFP
 Expenses and income information can also be
reconstructed from the available information
NB: FS prepared from incomplete records are
titled ‘Abridged’ SOCI/SOFP
SEE EXAMPLE 22.10
 EXERCISES
• Qst 22.5
• Qst 22.7
• Qst 22.9
• Qst 22.12
• Qst 22.17