CMA Foundation · Fundamentals of Financial and Cost Accounting

Financial Statements of a Not-for-Profit Organisation: formula sheet

Full chapter guide

Key formulas

Surplus or deficit: Surplus = Total Income − Total Expenditure (if positive); Deficit = Total Expenditure − Total Income (if positive); Used in place of net profit or net loss. Surplus is added to the Capital Fund; deficit is deducted.
Capital Fund (opening): Capital Fund = Total Assets − Total Liabilities; Used when the opening Balance Sheet is not given. It replaces the proprietor's capital.
Closing Capital Fund: Closing Capital Fund = Opening Capital Fund + Surplus (or − Deficit) + Entrance fees and legacies treated as capital; Apply only the capital items that the question says are capitalised.
Debit side (Receipts): Opening cash + Opening bank + All cash and bank receipts; Bank overdraft at the start, if any, goes on the credit side.
Credit side (Payments): All cash and bank payments + Closing cash + Closing bank; Closing balance is the balancing figure that makes both sides equal. It goes on the credit side only when it is positive. A closing bank overdraft goes on the debit side.
Closing balance: Closing balance = Total receipts (with opening balance) − Total payments; Use it to find missing cash or bank balance. A negative result is a closing bank overdraft, shown on the debit side.
Nature of items: Receipts and Payments Account = Cash book summary (capital + revenue, all periods); It includes amounts relating to past and future years if cash moved in this year.
Result of the account: Surplus = Total Income − Total Expenditure; If expenditure is more, the difference is a deficit. A surplus is added to the Capital Fund; a deficit is deducted.
Expense for the year (outstanding and prepaid): Expense for the year = Paid in year + Outstanding at end − Outstanding at start + Prepaid at start − Prepaid at end; Use this for salaries, rent, and similar items. Show the result on the debit side.
Subscription income for the year: Subscription = Received in year + Outstanding at end − Outstanding at start − Advance at end + Advance at start; Show the result on the credit side. Subscription outstanding at end is an asset, and subscription received in advance is a liability.
Consumption of stationery or similar stock: Consumed = Opening stock + Purchases − Closing stock; Purchases are the amount for the year, so adjust for unpaid amounts first.
Depreciation: Depreciation charged to Income and Expenditure Account; asset shown in Balance Sheet at reduced value; Depreciation is a non-cash expense. It does not appear in the Receipts and Payments Account.
Items excluded: Capital receipts and capital payments → Balance Sheet only; Examples: sale of old assets, purchase of fixed assets, life membership fees, specific-purpose donations, and normally legacies and entrance fees unless the question says otherwise. Also exclude opening and closing cash balances.
Subscriptions for the year: Subscriptions received + Outstanding at end + Advance at beginning − Outstanding at beginning − Advance at end; Use this for the Income and Expenditure Account. The opening items are those carried from last year's Balance Sheet.
Capital receipts rule: Entrance fee, life membership fee, legacy, specific donation → Balance Sheet (Capital Fund or specific fund); Exceptions: if the question says the item is revenue, credit it to Income and Expenditure.
Revenue receipts rule: Current subscriptions, general donations, sale of old newspapers → Income and Expenditure Account; General donations are revenue unless a purpose or condition is stated.
Specific fund balance: Opening fund + Donation or transfer + Fund investment income − Fund expenses = Closing fund; Show the closing balance as a liability. Set fund expenses against the fund. Show a transfer to the fund in Income and Expenditure only where the question directs it.
Consumables used: Opening stock + Purchases (or payments + outstanding − opening creditors) − Closing stock; Charge the amount used to Income and Expenditure. Show closing stock as a current asset.
Sale of old asset: Profit or loss = Sale price − Book value; Take only the profit or loss to Income and Expenditure. Remove the book value of the asset from the Balance Sheet.
Opening Capital Fund: Capital Fund = Total Assets − Outside Liabilities − Specific Funds (at the opening date); Include cash and bank balances from the opening of the Receipts and Payments Account. Count outstanding subscriptions as assets. Count advance subscriptions and outstanding expenses as liabilities.
Closing Capital Fund: Opening Capital Fund + Surplus (or − Deficit) + Capitalised items (entrance fees, legacies, general donations); Add the capitalised items only if the question says to treat them as capital receipts.
Accounting equation of NPO: Assets = Capital Fund + Specific Funds + Outside Liabilities; Use it to check that the closing balance sheet tallies.
Subscription income for the year: Received − Opening Outstanding + Closing Outstanding + Opening Advance − Closing Advance; Opening advance was received last year but belongs to this year. Closing advance was received this year but belongs to next year.
Closing outstanding subscription: Opening Outstanding + Subscription due for the year − Subscription received for the year; Use it when the question gives the amount due rather than the closing outstanding.
Closing value of an asset: Opening Value + Purchases − Sales (book value) − Depreciation; Show the asset at the closing book value on the balance sheet.
Canteen profit or loss: Sales + Closing stock - Opening stock - Purchases - Direct expenses; A positive result is profit, a negative result is loss. Transfer only this net figure.
Purchases: Cash paid to creditors + Closing creditors - Opening creditors; Use this when only cash payments and creditor balances are given.
Sales: Cash received from debtors + Closing debtors - Opening debtors + Cash sales; Include cash sales if separately given.
Stock consumed: Opening stock + Purchases - Closing stock; This is the cost of goods sold by the canteen.
Fees earned of a professional: Fees received + Closing fees receivable - Opening fees receivable - Advance fees received this year (closing) + Opening advance fees; Fees are income only when earned, not when received. Opening advance fees relate to this year's work.
Treatment in Income and Expenditure Account: Profit on canteen/bar/billiards: income side. Loss: expenditure side; Never show the full sales and purchases there.

Quick revision

Not-for-profit bodies show a surplus or deficit, not profit or loss.
Receipts and Payments Account is a summary of cash and bank, with opening and closing balances.
Income and Expenditure Account follows the accrual basis and has only revenue items.
Capital receipts and payments themselves are not shown in the Income and Expenditure Account. Only related revenue effects, such as depreciation or profit or loss on sale of an asset, appear there.
Subscription income = Subscriptions received − Opening outstanding (arrears of last year, received this year) + Closing outstanding − Closing advance (received for next year) + Opening advance (received last year for this year).
Subscriptions are generally treated as revenue income.
Entrance fees are usually capitalised, but they are treated as revenue income if the question says so or if the amount is small and recurring.
General donations are normally revenue income. Donations for a specific purpose that is capital in nature (building, endowment, fixed asset) are capital receipts. A donation for a specific revenue purpose (for example prizes or an event) is revenue unless stated otherwise.
Legacies are usually capitalised unless stated to be revenue in nature.
Surplus increases the capital fund; deficit reduces it.
Opening capital fund = opening assets − opening liabilities.
Outstanding expenses and income receivable appear in the balance sheet on the proper side.
Profit from a canteen or similar activity is shown on the credit side of the Income and Expenditure Account, a loss on the debit side.

Common mistakes

Thinking an NPO can never earn a surplus. Fix: Remember that NPOs can earn a surplus. It simply is not distributed to members; it is used for the objects.
Writing profit and loss instead of surplus and deficit. Fix: Use surplus and deficit, and Capital Fund instead of capital, for every NPO.
Including depreciation, outstanding expenses or prepaid expenses in the account. Fix: Remember: Receipts and Payments Account is cash only. If no cash moved, the item does not appear.
Showing the opening balance on the wrong side. Fix: Opening cash and bank balances go on the debit side. An opening bank overdraft goes on the credit side.
Including capital receipts such as life membership fees or specific donations as income. Fix: Ask of each receipt: does it benefit only this year? If not, send it to the Balance Sheet.
Showing opening and closing cash and bank balances in the Income and Expenditure Account. Fix: Remember that the account is not a cash summary. Balances are never shown in it.
Crediting the whole subscription received in cash to Income and Expenditure Fix: Always do the subscription working. Add closing dues, subtract opening dues, and adjust the advances in the same way.
Treating life membership fees as current income Fix: It is a lifetime payment and benefits many years. Capitalise it unless the question asks you to transfer part to income each year.
Treating the opening cash and bank balance as missing when finding the opening Capital Fund. Fix: Always add the opening cash and bank figures to the assets before subtracting liabilities.
Showing outstanding subscription as a liability. Fix: Outstanding income is money to be received, so it is an asset. Outstanding expense is a liability. Advance income is a liability. Prepaid expense is an asset.

Exam tips

Questions are mostly definition-based. Learn the four or five features by heart.
Watch the word pairs: surplus and profit, Capital Fund and capital. Examiners place the wrong one in options.
Know examples: clubs, trusts, societies, hospitals, schools and professional bodies.
Remember the three statements and what each shows. Differences between them are a favourite question.
If a number question appears, find the opening Capital Fund first from assets less liabilities.
Questions often ask which item will not appear in the account. Pick depreciation, outstanding expenses or accrued income.
Expect statement-type MCQs on features. Remember: cash basis, real nature, capital and revenue both, no profit or loss.
For numerical MCQs, tick cash items first, then total. This saves time and avoids trap items.