CMA Intermediate · Financial Accounting

Financial Statements of Not-for-Profit Organisations: formula sheet

Full chapter guide

Key formulas

Surplus or deficit: Surplus or Deficit = Total Income − Total Expenditure; Surplus if income is more. Deficit if expenditure is more. Do not call it profit or loss.
Capital Fund (opening): Capital Fund = Total Assets − Outside Liabilities − Special/Specific Funds (e.g. prize fund, building fund); Used when the opening Balance Sheet is not given. Deduct outside liabilities and every special or specific fund from the assets. What remains is the Capital Fund.
Closing Capital Fund: Closing Capital Fund = Opening Capital Fund + Surplus (or − Deficit) + Capitalised items; Legacies and specific donations are capital receipts. They go to the Capital Fund or the relevant fund in the Balance Sheet, not to Income and Expenditure. Entrance fees are capitalised unless the question treats them as revenue. Always check the question's instruction.
Receipts and Payments Account basis: Receipts and Payments Account = Summary of cash book (cash and bank, all items, any period); It includes capital and revenue items and has an opening and closing balance.
Balancing rule: Opening cash and bank + Total receipts during the year = Total payments during the year + Closing cash and bank; This is how you find a missing closing balance or a missing payment. Both sides must total the same.
Closing balance: Closing balance = Opening balance + Receipts − Payments; A bank overdraft is a negative balance. An opening overdraft is shown on the payments side, and a closing overdraft is shown on the receipts side as the balancing figure.
Side rule: Receipts (Dr) side: opening balances and all money received. Payments (Cr) side: all money paid and closing balances; Opening favourable cash and bank balances sit on the receipts side, and closing favourable balances sit on the payments side. Overdrafts are the reverse: an opening overdraft on the payments side and a closing overdraft on the receipts side.
Cash-basis rule: Amount shown = amount actually received or paid in the period; Ignore outstanding, prepaid and advance adjustments. Show the full amount received, even if it relates to another year.
Result of the year: Surplus or Deficit = Total Income − Total Expenditure; Surplus is added to the Capital Fund. Deficit is deducted from it.
Income for the year (accrual): Income = Received in cash + Outstanding at end − Outstanding at beginning − Advance at end + Advance at beginning; Use for subscriptions and other incomes.
Expenditure for the year (accrual): Expense = Paid in cash + Outstanding at end − Outstanding at beginning − Prepaid at end + Prepaid at beginning; Use for salaries, rent, insurance and similar items.
Format sides: Debit side: Expenditure. Credit side: Income.; Opposite of the Receipts and Payments Account, where receipts are on the debit side.
Non-cash items: Depreciation and loss on sale of asset go to the debit side. Profit on sale of asset goes to the credit side.; These never appear in the Receipts and Payments Account as such. Sale proceeds are a capital receipt.
Stock-based items: Consumption = Opening stock + Purchases − Closing stock; Purchases are the amount for the year, adjusted for creditors.
Subscription for the year (income): Subscription for the year = Cash received – Opening arrears + Closing arrears + Opening advance – Closing advance; Easier to compute in the Subscription Account. Arrange the opening and closing balances carefully.
Subscription Account (ledger form): Debit: Opening arrears + Closing advance + Income and Expenditure (balancing figure). Credit: Opening advance + Cash received + Closing arrears; The balancing figure is the subscription shown in Income and Expenditure. Arrears written off as bad are debited to the Subscription Account (with opening arrears and closing advance). This reduces the balancing figure. The write-off is charged to Income and Expenditure as an expense.
Entrance fees: Capital receipt, shown in Balance Sheet (add to Capital Fund), unless told to treat as income; If the question says treat as revenue, credit Income and Expenditure. If a portion is to be treated as revenue, split it.
General donation: Revenue receipt: credit Income and Expenditure; Applies when no purpose is given.
Specific donation: Capital receipt: add to the relevant fund or capital in the Balance Sheet; Applies where the donor specifies a purpose such as building.
Legacy: Capital receipt: add to Capital Fund unless stated otherwise; If the testator specifies a purpose, credit that specific fund.
Life membership fees: Credit to Life Membership Fund (liability); transfer to income only if the question says so; Some questions transfer an equal portion every year. Follow the instruction.
Specific fund with expenses: Closing fund = Opening fund + Receipts + Interest on fund investments – Expenses for the purpose; Expenses for the fund purpose are adjusted against the fund and not shown in Income and Expenditure.
Sale of asset: Profit or loss = Sale price – Book value; show in Income and Expenditure; Remove the asset at book value from the Balance Sheet.
Consumption of stationery or sports material: Consumption = Opening stock + Purchases during the year - Closing stock; Purchases mean the amount for the year: cash paid + closing creditors - opening creditors. This consumption is the expense in Income and Expenditure.
Purchases for the year (credit purchases): Purchases = Cash paid to suppliers + Closing creditors - Opening creditors; Use this when payments are given in the Receipts and Payments Account and creditors are given in the balance sheets.
Sales of canteen/bar: Sales = Cash received + Closing debtors - Opening debtors; Use this only if some sales are on credit. If all are cash, receipts equal sales.
Profit or loss of the activity: Profit = Sales - (Opening stock + Purchases - Closing stock) - Direct expenses of the activity; A negative figure is a loss. Show profit on the income side and loss on the expenditure side of Income and Expenditure Account.
Treatment in Income and Expenditure: Net profit of activity: credit side. Net loss: debit side.; Do not show the sales receipts again. Stocks of consumables go to the Balance Sheet as assets.
Opening capital fund: Opening capital fund = Opening total assets − Opening outside liabilities; Opening cash and bank come from the receipts and payments account. Add every other opening asset given in the notes. Include opening outstanding income as an asset and opening prepaid expenses as an asset. Deduct opening outstanding expenses and income received in advance as liabilities.
Closing capital fund: Closing capital fund = Opening capital fund + Surplus (or − Deficit) + Capitalised receipts; Capitalised receipts are items such as entrance fees, general donations or legacies when the question says to capitalise them. Add them directly to the capital fund. They do not go through the income and expenditure account.
Subscription income for the year: Subscriptions = Received − Opening outstanding + Closing outstanding + Opening advance − Closing advance; Opening advance means received last year for this year. Closing advance means received this year for next year.
Expense for the year: Expense = Paid + Closing outstanding − Opening outstanding + Opening prepaid − Closing prepaid; The same pattern works for salaries, rent, insurance and similar items.
Balance sheet check: Total assets = Outside liabilities + Closing capital fund (and any specific funds); If this does not tally, recheck the opening capital fund and the adjustments.

Quick revision

Receipts and Payments Account is a summary of cash and bank; it has no accrual items and no non-cash items like depreciation.
Income and Expenditure Account is like a Profit and Loss Account; it shows revenue items on an accrual basis and gives surplus or deficit.
Capital receipts and capital payments never go to the Income and Expenditure Account.
Subscription income for the year = subscriptions received + closing outstanding + opening advance received - opening outstanding - closing advance.
Recompute subscriptions with a working note; do not adjust by guessing.
Surplus or deficit is added to or deducted from the Capital Fund or General Fund in the Balance Sheet.
Specific donations are usually kept as a liability or fund, not taken to income, unless the question states otherwise.
Legacies are generally treated as capital receipts unless stated to be for revenue use.
Life membership fees are normally capitalised, or credited to income in parts, depending on the question's instruction.
For canteen or bar, prepare a trading account and take only the profit or loss to the Income and Expenditure Account.
First find purchases for the year: purchases = cash paid for purchases + closing creditors - opening creditors. Then apply: consumed stock = opening stock + purchases for the year - closing stock.
The opening Balance Sheet figure of the Capital Fund is the balancing figure of opening assets less opening liabilities.

Common mistakes

Calling the result of an NPO a profit or loss. Fix: Use surplus for an excess of income over expenditure and deficit for the reverse. Marks are often lost on wording.
Saying an NPO cannot earn any surplus or income. Fix: Say it can earn a surplus, but the surplus is not shared by owners and is used for its objects.
Including depreciation, outstanding expenses or accrued income in the account Fix: Ask one question for each item: did money actually move? If not, leave it out.
Adjusting subscriptions or expenses for the current year only Fix: Show the full cash received or paid, even if part of it relates to an earlier or later year.
Including opening cash and bank balances in the account. Fix: Opening and closing cash and bank balances are never in the income and expenditure account. Leave them out.
Putting purchase of furniture or investments on the debit side. Fix: Treat them as capital payments. They are shown as assets in the Balance Sheet. Only depreciation goes to the account.
Taking cash subscriptions received straight to Income and Expenditure. Fix: Always prepare the Subscription Account and adjust for arrears and advance.
Reversing the treatment of opening and closing advance. Fix: Closing advance is for next year, so deduct it. Opening advance was received last year for this year, so add it.
Charging the full purchases of stationery or sports material to Income and Expenditure. Fix: Always compute consumption using opening stock, purchases and closing stock. Charge only the consumed amount.
Showing canteen sales and canteen purchases on both the activity account and Income and Expenditure. Fix: Use the activity account to find the net result. Move only the net profit or loss to Income and Expenditure, unless the question asks for gross items.

Exam tips

For a "distinguish" question, use a two-column table-style layout with at least five points. Each point earns a mark.
Always use the words surplus, deficit and Capital Fund. Examiners look for them.
Give an example for every type you name. It shows you understand the concept.
For MCQs, watch for options that call the result a profit or that say an NPO cannot earn income. Both are wrong.
Link the theory to the statements: Receipts and Payments Account, Income and Expenditure Account and Balance Sheet. This sets up the later numerical topics.
Read the question for the words cash, bank, received and paid. These tell you what goes in the account. Treat accrual words like outstanding, prepaid and accrued as traps.
Write the full heading with the organisation's name and the period. Examiners give marks for correct presentation, so keep it neat.
Show cash and bank separately when the question does, and total each side clearly so the examiner sees the check.