Hey Everyone Though we had learnt about the “Separate legal” entity concept let's understand for NPO
We need to know about the accounting calculation & treatment of
1. Sole Proprietorship Business
2. Partnership Business
3. Company Business
4. Analysis of Companies
One more important organization i.e. NON PROFIT ORGANIZATION
Non - Profit Organization are the Institutions/Organizations that are set-up with general or specific objectives for rendering services and providing other social activities to enhance the welfare of general or a particular group of people.
Not-for-profit organizations are types of organizations that do not earn profits for its owners. All the money earned by or donated to a Not-For-Profit Organization is used for pursuing the organization's objectives & for operating the activities.
The aim of such institutions is not to earn profit, however, the Organizations are capable of earning (SURPLUS/DEFICIT).
That's why once NON PROFIT ORGANIZATION received money or paid the money for the organisational purpose the accounting treatment for posting items in Receipt and Payment Account that will be followed by using Real Account rule i.e.
Dr :- What Comes in
Cr :- What Goes out
Though NON Profit Organization received some money or money equivalent that will be classified in two categories
1. Revenue Receipt
2. Capital Receipt
Similarly Payments are also classified in two terms
1. Revenue Payment
2. Capital Payment
Revenue Receipt are those receipts that neither create any liability nor reduce the value of Assets these receipts are generally recurring in nature that’s why we will identify this as the income for the Organization
Where’s Capital Receipts are those receipts that create liability and reduce the value of Assets and that's why all those specific receipts will be the liability for the organisation as those receipts will be used only for that special purpose and creates obligation say liability for the Organization
While Payment made from organization are also divided in two categories
Revenue Payment are those payments that neither create any assets for the organisation nor reduce the value of liability for the organization
Revenue Payments are those that occurred in regular basis or we can say that that Payments are occurred to run the organisation that's why we considered those expenses as Expenditure for the organisation
While Payment made for long terms or for the special purpose that creates assets for the business and reduce the liability will be considered as Capital Payment
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