Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board

Chapter 2 - Accounts of ‘Not for Profit’ Concerns [Latest edition]

State whether the following statement is True or False with reasons

Not for Profit Concerns do not have profit motive. - True.

Explanation:

'Not for profit concerns’, main aim is to give services to its members or to the society at large. They do not carry any Trading activity or Manufacturing activity so there is no question of having profit motive for ‘Not for Profit’ concerns.

Charitable Institutions prepare Profit and Loss Accounts at the end of every financial year. - False.

Explanation:

Charitable Institutions, Not for Profit concerns, do not undertake any trading activities and hence instead of Profit and Loss Account prepare Income-Expenditure Account to record all revenue expenses/losses and revenue incomes/gains of current year.

There is no difference between Receipts and Payments Account and Income and Expenditure Account. - False.

Explanation:

In the Receipts and Payments Account, all receipts and payments transactions in cash or through bank are recorded irrespective of the current year, previous year or next year while in Income-Expenditure Account, only current year’s incomes and expenses (revenue) are recorded.

Income and Expenditure Account represents either surplus or deficit. - True.

Explanation:

In Income and Expenditure Account, all revenue incomes and expenses are recorded and at the end of the specified period, the difference is found out which is known as ‘Surplus’ (revenue incomes are more than revenue expenses) or ‘Deficit’ (revenue expenses are more than revenue incomes).

Receipts and Payments Accounts do not have any opening balance. - False.

Explanation:

Receipts and Payments Account is just like a cash book of trading concern and opening balance (Cash or Bank or Cash and Bank) must be there to start a recording of transactions.

Not for Profit concerns do not prepare Balance Sheet. - False.

Explanation:

To know the financial position of the organisation, at the end of the particular period, Not for Profit concerns prepare Balance Sheet.

Purchases of Sports Equipments is a Capital Expenditure. - True.

Explanation:

Generally, life span of sports equipments is more than one year, so purchase of sports equipment is considered as capital expenditure.

Income and Expenditure Account is Real Account. - False.

Explanation:

In Income and Expenditure Account, all the revenue incomes and revenue expenses are recorded and therefore it is a Nominal Account and not a real Account.

Receipts and Payments Account contains only the transactions relating to the current year. - False.

Explanation:

In Receipts and Payments Account, transactions of not only the current year but of the previous year or of next year are also recorded.

Excess of Assets over liabilities is called Capital Fund. - True.

Explanation:

For ‘Not for Profit’ concerns in the Balance Sheet, when total of Assets is more than the total of Liabilities, the difference of amount is considered as ‘Capital Fund’.

Difficult Words and Their Meanings:

Not for Profit Concerns: Organizations that are set up for purposes other than making money for owners, such as providing services, charity, or promoting art and culture.
Motive: A reason for doing something.
Charitable Institutions: Organizations established to help those in need or for public benefit, often without aiming to make a profit.
Financial Year: A period of twelve months for which a company or organization prepares its accounts.
Profit and Loss Account: A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, usually a fiscal quarter or year. Used by profit-making businesses.
Income-Expenditure Account: A financial statement prepared by 'Not for Profit' concerns to show all revenue incomes and revenue expenses of a particular period, similar to a Profit and Loss Account but for non-profit entities.
Revenue Expenses/Losses: Costs incurred in the normal course of an organization's activities that relate to the current period and do not result in the creation of an asset.
Revenue Incomes/Gains: Income earned by an organization from its normal activities during the current period.
Receipts and Payments Account: A summary of all cash and bank transactions (receipts and payments) that occurred during an accounting period, irrespective of whether they relate to the current, past, or future periods.
Irrespective: Regardless of; without taking into account.
Surplus: An amount by which income exceeds expenditure; essentially the 'profit' for a 'Not for Profit' concern.
Deficit: An amount by which expenditure exceeds income; essentially the 'loss' for a 'Not for Profit' concern.
Opening Balance: The amount of funds (cash or bank) an organization has at the beginning of an accounting period.
Trading Concern: A business primarily involved in buying and selling goods for profit.
Balance Sheet: A financial statement that shows an organization's assets, liabilities, and capital (or capital fund for non-profits) at a specific point in time.
Financial Position: The status of an organization's assets, liabilities, and owner's equity (or capital fund) as shown in its balance sheet.
Capital Expenditure: Money spent by an organization to buy, maintain, or improve its long-term assets, such as buildings, vehicles, or equipment, which will be used for more than one year.
Life Span: The length of time for which a person, animal, or thing (like equipment) lives or functions.
Real Account: In accounting, accounts relating to assets or properties. They are not closed at the end of the accounting year but are carried forward.
Nominal Account: In accounting, accounts relating to incomes, expenses, gains, and losses. They are closed at the end of the accounting year by transferring their balances to the trading/profit & loss account or income & expenditure account.
Assets: Resources owned by an organization that have economic value and are expected to provide future benefits (e.g., cash, buildings, equipment).
Liabilities: An organization's financial debts or obligations that arise during its operations (e.g., loans, amounts owed to suppliers).
Capital Fund: The equivalent of owner's equity or capital in a 'Not for Profit' concern, representing the excess of its assets over its liabilities.