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Accounting · Financial Statements of Not-for-Profit Organisations

Preparing Final Accounts from Receipts and Payments (Not-for-Profit Organisations)

Updated 1 October 2026 · Fact-checked

Preparing final accounts from a Receipts and Payments Account means converting a cash summary into an accrual-based Income and Expenditure Account and Balance Sheet. Remove capital items, adjust revenue items for outstanding and advance amounts, add depreciation, then build the Balance Sheet from opening balances plus the surplus.

Understand Preparing Final Accounts from Receipts and Payments

A not-for-profit organisation (club, hospital, school, society) keeps a Receipts and Payments Account. It is only a summary of cash and bank: opening balance, all receipts, all payments, closing balance. It mixes capital and revenue items and ignores the period to which items belong.

The Income and Expenditure Account fixes this. It is like a Profit and Loss Account. It shows only revenue items, on an accrual basis, for the current year only. The balancing figure is a surplus (income more than expenditure) or a deficit.

The Balance Sheet shows what the organisation owns and owes on the last day. There is no owner's capital, so the net worth is called the Capital Fund (or General Fund). The surplus is added to it and the deficit is deducted.

A comprehensive question gives you the R&P Account, the opening balance sheet (or enough information to build it) and a list of adjustments. Your job is to sort every item into one of three places: Income and Expenditure Account, Balance Sheet only, or both (like depreciation). Once you sort correctly, the rest is arithmetic.

The key test for each receipt or payment: is it revenue and for this year? If yes, it goes to the Income and Expenditure Account after adjustment. If it is capital in nature (asset purchase, sale of asset, entrance fee or donation treated as capital, legacy, life membership fee), it goes to the Balance Sheet.

Key rules to remember

Opening Capital Fund
Capital Fund = Total Assets − Total Outside Liabilities (at the start of the year)
Use it when the opening Balance Sheet is not given. Include opening cash and bank balance as assets.
Income for the year (receipt items)
Income = Cash received − Opening receivable + Closing receivable + Opening advance received − Closing advance received
Works for subscriptions, interest, rent received. Opening receivable and closing advance are subtracted; closing receivable and opening advance are added.
Expense for the year (payment items)
Expense = Cash paid − Opening outstanding + Closing outstanding + Opening prepaid − Closing prepaid
Opening outstanding and closing prepaid are subtracted; closing outstanding and opening prepaid are added.
Consumption of stock (stationery, medicines)
Consumed = Opening stock + Purchases − Closing stock
Purchases means the amount for the year, after adjusting for creditors if given.
Closing Capital Fund
Closing Capital Fund = Opening Capital Fund + Surplus (or − Deficit) + Capitalised items
Capitalised items are items the question says to treat as capital, such as entrance fees, life membership fees and general donations.
Specific activity (event, canteen, match)
Show net surplus or deficit = Income of activity − Expenses of activity
Show the net figure on the income side if surplus, or on the expenditure side if deficit.

How to solve Preparing Final Accounts from Receipts and Payments questions

Use this order for any comprehensive question. It keeps every figure traceable, which protects step marks.

  1. 1Read the adjustments first. Note which items are to be capitalised, which funds exist and any depreciation rates.
  2. 2Prepare the opening Balance Sheet if it is not given, using assets, liabilities and the opening cash and bank figures. The balancing figure is the Capital Fund.
  3. 3Go through the R&P Account line by line. Mark each item as I&E (revenue), BS (capital) or both. Cross out opening and closing cash and bank balances; they never go to the I&E Account.
  4. 4Prepare working notes for every adjusted item: subscriptions, other income, expenses, stock consumed and depreciation. Show the formula and each figure.
  5. 5Prepare the Income and Expenditure Account with expenses on the left and incomes on the right. Find the surplus or deficit.
  6. 6Prepare the closing Balance Sheet. Capital Fund = opening + capitalised items + surplus. Add special funds, outstanding items and advances to liabilities.
  7. 7Put assets at closing value: opening balance + purchases − sales − depreciation. Add closing cash and bank, outstanding income and accrued income, prepaid expenses and stock.
  8. 8Check that both sides of the Balance Sheet agree. If they do not, recheck the opening Capital Fund and any item that you have left out.

Quickest way: Three-column tick and sort

When to use it: Use this when the question has many R&P items and adjustments and you have limited time. It stops you missing items.

  1. List every R&P line in the rough area with three columns: I&E, BS, Ignore. Tick one column per line.
  2. Write each working note in the form old figure ± adjustments = new figure, in one line, so the examiner can follow it.
  3. Build the I&E Account first. Total it. The surplus or deficit comes out as the balancing figure.
  4. Build the Balance Sheet by starting from the Capital Fund and then listing assets, so the fund is not forgotten.
  5. Tick every adjustment against the question once it appears in the final statements. Any adjustment with no tick has been left out.
  6. Finish with a quick agreement check of the two sides. Spend time looking for the error only if you have time left.

Common mistakes in Preparing Final Accounts from Receipts and Payments

  • Showing capital receipts or payments, such as purchase of equipment or sale of an asset, in the Income and Expenditure Account.

    The R&P Account lists everything together, so students copy items across without sorting.

    Fix: Ask of each line: does it create or change an asset or liability? If yes, it belongs in the Balance Sheet. Only depreciation of the asset goes to I&E.

  • Taking cash received for subscriptions as the income of the year without adjustment.

    Students forget that I&E follows the accrual basis.

    Fix: Always use: cash received − opening outstanding + closing outstanding + opening advance − closing advance. Write the working note out in full.

  • Adding opening and closing cash or bank balances to the I&E Account.

    These are the first and last lines of the R&P Account, so they are copied by habit.

    Fix: Cross them out on your first read. The closing balance appears only in the Balance Sheet as an asset.

  • Wrong opening Capital Fund because the opening cash balance was left out of the assets.

    The balance is in the R&P Account, not in the list of opening assets.

    Fix: Include the opening cash and bank balance as an asset when you find the opening Capital Fund.

  • Forgetting to deduct a depreciation charge from the asset in the Balance Sheet or charging it only in the Balance Sheet.

    Students treat depreciation as one step instead of two.

    Fix: Debit it in I&E and reduce the asset in the Balance Sheet. Both effects must appear.

  • Treating a specific fund or capitalised receipt as income.

    The question says donation or fee, and students assume all such items are income.

    Fix: Follow the instruction in the question. If it says capitalise, or the donation is for a specific purpose, add it to the Capital Fund or the specific fund in the Balance Sheet.

Worked examples

Example 1

A sports club's Receipts and Payments Account for the year ended 31 March 2025 shows: Receipts: Opening cash ₹10,000; Subscriptions ₹1,20,000; Donation for building fund ₹50,000; Entrance fees ₹8,000; Interest on investments ₹6,000 (total ₹1,94,000). Payments: Salaries ₹36,000; Rent ₹24,000; Sports equipment purchased ₹40,000; Printing ₹5,000; Closing cash ₹89,000. Other information: (1) On 1 April 2024 the club had sports equipment ₹60,000, investments ₹1,00,000, subscriptions outstanding ₹6,000 and salaries outstanding ₹3,000. (2) At 31 March 2025 subscriptions outstanding are ₹9,000 and subscriptions received in advance ₹4,000. (3) Salaries outstanding at year end ₹4,000. (4) Interest accrued on investments ₹2,000. (5) Depreciate sports equipment at 10% on the total cost at year end (full year on all). (6) Entrance fees are to be capitalised. Prepare the Income and Expenditure Account and the Balance Sheet as at 31 March 2025.

Show the solution
  1. Opening Capital Fund: assets = cash ₹10,000 + sports equipment ₹60,000 + investments ₹1,00,000 + subscriptions outstanding ₹6,000 = ₹1,76,000. Liability = outstanding salaries ₹3,000. Capital Fund = ₹1,73,000.
  2. Subscriptions income = 1,20,000 − 6,000 + 9,000 − 4,000 = ₹1,19,000.
  3. Salaries expense = 36,000 − 3,000 + 4,000 = ₹37,000.
  4. Interest income = 6,000 + 2,000 = ₹8,000.
  5. Depreciation = 10% of (60,000 + 40,000) = ₹10,000.
  6. Income and Expenditure Account. Expenditure: Salaries ₹37,000, Rent ₹24,000, Printing ₹5,000, Depreciation on sports equipment ₹10,000; total ₹76,000. Income: Subscriptions ₹1,19,000, Interest ₹8,000; total ₹1,27,000. Surplus = 1,27,000 − 76,000 = ₹51,000.
  7. Closing Capital Fund = 1,73,000 + 8,000 (entrance fees) + 51,000 = ₹2,32,000.
  8. Balance Sheet liabilities: Capital Fund ₹2,32,000; Building Fund ₹50,000; Outstanding salaries ₹4,000; Subscriptions received in advance ₹4,000. Total ₹2,90,000.
  9. Balance Sheet assets: Cash ₹89,000; Sports equipment (60,000 + 40,000 − 10,000) ₹90,000; Investments ₹1,00,000; Subscriptions outstanding ₹9,000; Accrued interest ₹2,000. Total ₹2,90,000. Both sides agree.

Answer: Surplus for the year is ₹51,000. The Balance Sheet total is ₹2,90,000, with Capital Fund at ₹2,32,000.

Example 2

A society's Receipts and Payments Account for the year ended 31 March 2025 shows: Receipts: Opening cash ₹5,000; Subscriptions ₹60,000; Life membership fees ₹20,000; Sale of tickets for annual function ₹12,000; Legacy ₹30,000 (total ₹1,27,000). Payments: Expenses of annual function ₹9,000; Stationery purchased ₹7,000; Furniture purchased ₹25,000; Salaries ₹30,000; Closing cash ₹56,000. Other information: stationery stock at 1 April 2024 was ₹2,000 and at 31 March 2025 ₹3,000; subscriptions outstanding at 31 March 2025 are ₹5,000; depreciate furniture at 10% for the full year; life membership fees and the legacy are to be capitalised. Opening assets were only cash and stationery stock, with no liabilities. Prepare the Income and Expenditure Account and the Balance Sheet.

Show the solution
  1. Opening Capital Fund = cash ₹5,000 + stationery stock ₹2,000 = ₹7,000.
  2. Subscriptions income = 60,000 + 5,000 = ₹65,000.
  3. Stationery consumed = 2,000 + 7,000 − 3,000 = ₹6,000.
  4. Annual function: income ₹12,000 − expenses ₹9,000 = surplus ₹3,000, shown on the income side.
  5. Depreciation on furniture = 10% of 25,000 = ₹2,500.
  6. Income and Expenditure Account. Expenditure: Salaries ₹30,000, Stationery consumed ₹6,000, Depreciation ₹2,500; total ₹38,500. Income: Subscriptions ₹65,000, Surplus on annual function ₹3,000; total ₹68,000. Surplus = 68,000 − 38,500 = ₹29,500.
  7. Closing Capital Fund = 7,000 + 20,000 (life membership) + 30,000 (legacy) + 29,500 = ₹86,500.
  8. Assets: Cash ₹56,000; Stationery stock ₹3,000; Furniture (25,000 − 2,500) ₹22,500; Subscriptions outstanding ₹5,000. Total ₹86,500, which equals the Capital Fund. The sheet agrees.

Answer: Surplus is ₹29,500. Capital Fund at 31 March 2025 is ₹86,500, which is also the Balance Sheet total.

Exam tips

  • Show a working note for every adjusted figure. Even if your final number is wrong, you can still earn step marks.
  • Read the capitalisation instructions twice. Entrance fees, donations, legacies and life membership fees are treated differently according to what the question says.
  • Write the Balance Sheet in a clean two-sided format with the Capital Fund first. Examiners expect to see how the fund moved.
  • Keep your own rough check: opening cash and closing cash must not appear in the I&E Account, and total assets must match total liabilities.
  • Practise past ICAI RTP and MTP questions on this topic with a timer. A full question is long, so work on speed in sorting items.

Practice questions from Financial Statements of Not-for-Profit Organisations

Preparing Final Accounts from Receipts and Payments: frequently asked questions

Do opening and closing cash balances go to the Income and Expenditure Account?

No. They are balances, not income or expenses. The closing cash and bank balance appears in the Balance Sheet as an asset. The opening balances are used only to find the opening Capital Fund.

How do I find the Capital Fund if the opening Balance Sheet is not given?

Add up all opening assets, including opening cash and bank. Deduct all opening outside liabilities. The balancing figure is the opening Capital Fund.

Where does a surplus or deficit go in the Balance Sheet?

It is added to or deducted from the Capital Fund. Capitalised items, like entrance fees, are also added to the Capital Fund unless the question says otherwise.

Is depreciation shown in both statements?

Yes. It is an expense in the Income and Expenditure Account. The same amount is deducted from the asset in the Balance Sheet. Purchase of the asset itself never goes to I&E.