Balance Sheet of Not-for-Profit Organisations

Understand Balance Sheet of Not-for-Profit Organisations

Key rules to remember

Opening capital fund

Capital fund = Total assets − Outside liabilities − Specific funds

Use only opening balances. If a specific fund exists, deduct it too, because it is shown separately.

Closing capital fund

Closing capital fund = Opening capital fund + Surplus (or − Deficit) + Capitalised items

Capitalised items are entrance fees, life membership fees or general donations only when the question says to capitalise them.

Surplus or deficit

Surplus = Total income − Total expenditure (from Income and Expenditure Account)

If expenditure is higher, the result is a deficit and reduces the capital fund.

Balance sheet check

Total assets = Capital fund + Specific funds + Liabilities

Both sides must tally. A difference means an error or a missed adjustment.

Fixed asset closing value

Closing value = Opening value + Purchases − Depreciation − Book value of assets sold

Take purchases from the Receipts and Payments Account unless told otherwise.

How to solve Balance Sheet of Not-for-Profit Organisations questions

1. 1List all opening assets: opening cash and bank from the Receipts and Payments Account, fixed assets, investments, stock, subscriptions due and prepaid expenses.
2. 2List all opening liabilities and specific funds: outstanding expenses, subscriptions received in advance, loans and funds. Deduct these from total assets to get the opening capital fund.
3. 3Prepare or take the surplus or deficit from the Income and Expenditure Account. Add the surplus to the capital fund, or deduct the deficit.
4. 4Add to the capital fund the receipts the question says to capitalise, such as entrance fees. Show a legacy or special donation as a separate fund when it is for a specific purpose.
5. 5Write the closing assets: closing cash and bank, fixed assets after additions and depreciation, investments, stock, accrued income and prepaid expenses.
6. 6Write the closing liabilities: outstanding expenses, income received in advance, loans and specific funds with their additions.
7. 7Total both sides and check they match. Show working notes for any figure that is not obvious.

Quickest way: Balancing-figure method

Common mistakes in Balance Sheet of Not-for-Profit Organisations

• Showing the capital fund in the opening balance sheet as a given figure instead of computing it.

  Students forget that the capital fund is the balancing figure.

  Fix: Add up assets, deduct liabilities and specific funds, and write the result as capital fund with a working note.

• Adding a specific fund such as a legacy fund to the capital fund.

  Both appear on the liabilities side, so they look the same.

  Fix: Keep specific funds as separate lines. Only items the question says to capitalise go to the capital fund.

• Forgetting to add the surplus or deduct the deficit when finding the closing capital fund.

  Students stop after the opening balance and move to assets.

  Fix: Always write the capital fund as a short statement: opening + surplus (or − deficit) + capitalised items = closing.

• Showing fixed assets at cost without deducting depreciation.

  The depreciation is in the Income and Expenditure Account, so it is not seen as a balance sheet item.

  Fix: Compute each asset's closing value in a working note and show the net value in the balance sheet.

• Placing subscriptions received in advance on the assets side, or outstanding subscriptions on the liabilities side.

  Students mix up the direction of the item.

  Fix: Subscriptions due are an asset. Subscriptions received in advance are a liability. Outstanding expenses are liabilities. Prepaid expenses are assets.

• Including the cash and bank balance as a liability, or using only cash and ignoring the bank balance.

  A bank overdraft or a bank balance in the Receipts and Payments Account is not read carefully.

  Fix: A favourable balance is an asset. An overdraft is a liability. Show cash and bank as separate lines.

Worked examples