Accounting · Financial Statements of Not-for-Profit Organisations

Treatment of Special Items in Not-for-Profit Accounts

Updated 1 October 2026

Special items in NPO accounts are receipts and payments that need a decision: income or capital. Revenue items such as subscriptions go to the Income and Expenditure Account. Capital items such as life membership fees, legacies and specific donations go to the Balance Sheet. Always read the question for clues like 'for building' or 'general'.

Understand Treatment of Special Items

A not-for-profit organisation (NPO) has no owner and no profit motive. So the Income and Expenditure Account shows only revenue items of the current year. Capital items go straight to the Balance Sheet. Most marks in this topic depend on one decision: is this receipt revenue or capital?

Subscriptions are the regular fee members pay for the year. They are revenue. They are credited to Income and Expenditure on an accrual basis, so you adjust for arrears (outstanding), advance and the opening balances. Only the amount that belongs to the current year is taken to income.

Entrance fees, life membership fees, donations, legacies and grants are the tricky ones. There is no single fixed rule, so follow the question. If the question gives a policy, use it. If it is silent, use the usual treatment: entrance fee is capitalised (a recurring or small one may be treated as income if stated), life membership fee is capitalised (or spread over years if stated), general donations are income, specific donations are capital or credited to a specific fund, and legacies are capital.

Specific funds, such as a Sports Fund, Prize Fund or Building Fund, are shown on the liabilities side. Income earned on the fund's investments is added to the fund. Expenses for the fund's purpose, such as sports materials consumed or prizes, are deducted from the fund. They do not go to the Income and Expenditure Account unless the question says so.

Sale of an asset is not income. The profit or loss on sale is shown in Income and Expenditure. If the asset was bought from a specific fund, the treatment follows the question's instruction.

Key rules to remember

Subscription income for the year: Subscription received in the year + Closing outstanding − Opening outstanding + Opening advance − Closing advance; Opening outstanding and closing advance relate to other years, so they are deducted. Opening advance relates to this year (it was received last year), so it is added. Closing outstanding relates to this year, so it is added. The simplest way is to build a subscription account.
Subscription account (check): Opening outstanding + Income for the year + Closing advance = Cash received + Opening advance + Closing outstanding; Use it when the two years' figures are unclear. Debit side: opening outstanding, closing advance, and income (the balancing figure transferred to Income and Expenditure). Credit side: cash received, opening advance, closing outstanding. Solve for the missing figure.
Entrance fee (usual treatment): Capital receipt: credit to Capital Fund; If the question says treat it as revenue, credit it to Income and Expenditure.
Life membership fee (usual treatment): Capital receipt: credit to Life Membership Fund; If the question gives a policy, transfer a part to Income and Expenditure each year.
General donation: Revenue receipt: credit to Income and Expenditure; Donations of a recurring or small nature are also income.
Specific donation: Capital receipt: add to the named fund or a Balance Sheet liability; Look for words like 'for building' or 'for hospital'.
Legacy: Capital receipt: add to Capital Fund; A small legacy may be treated as income only if stated.
Specific fund: Closing fund = Opening fund + Fund income − Fund expenses; Income from fund investments is added. Expenses for the purpose are deducted.
Sale of asset: Profit or loss = Sale price − Book value; Show only the profit or loss in Income and Expenditure. The asset is removed from the Balance Sheet.

How to solve Treatment of Special Items questions

Use this order for any question on special items. It keeps your decisions consistent and your Balance Sheet in line with the Income and Expenditure Account.

1List every special item in the question: subscriptions, entrance fees, donations, legacies, grants, funds, asset sales.
2Underline any policy words, such as 'capitalise', 'treat as revenue', 'for building' or 'specific'. These override the usual rule.
3Mark each item as revenue (Income and Expenditure) or capital (Balance Sheet).
4For subscriptions, draw a small subscription account. Find the income for the year and the closing outstanding or advance.
5For specific funds, write the fund's opening balance, add its income, and deduct its related expenses to get the closing balance.
6For asset sales, compute book value, find the profit or loss, and remove the asset from the Balance Sheet.
7Prepare the Income and Expenditure Account with only revenue items, and the Balance Sheet with capital items, funds and outstanding or advance items.
8Check that the Balance Sheet totals tally and note your assumptions in one line.

Quickest way: Revenue or Capital tag method

When to use it: Use when the question lists many receipts and you have little time. It works for a quick first pass before you build the full accounts.

Next to each item in the Receipts and Payments Account, write R for revenue or C for capital.
Mark subscriptions, general donations and interest as R. Mark entrance fee, life membership fee, legacies and specific donations as C, unless the question says otherwise.
Only for the R items, adjust for outstanding and advance amounts. Skip adjustments for C items.
Take all R items to the Income and Expenditure Account and all C items to the Balance Sheet.
Add fund income and deduct fund expenses in a side note to get the closing fund.

Common mistakes in Treatment of Special Items

Crediting the full subscription received to Income and Expenditure.
Students copy the cash figure from the Receipts and Payments Account without adjusting for arrears and advance.
Fix: Always build a subscription account or use the adjustment formula. Only the current year's amount is income.
Treating all donations as income.
The word 'donation' looks like revenue.
Fix: Check the purpose. A general donation is income. A specific donation, such as for a building, goes to the Balance Sheet.
Ignoring the policy stated in the question and applying the usual rule.
Students memorise the usual rule and skip the instructions.
Fix: Read the question twice. A stated policy always wins over the usual rule.
Showing expenses from a specific fund in Income and Expenditure.
Students treat every expense as revenue.
Fix: Deduct such expenses from the specific fund in the Balance Sheet. Show the fund's closing balance only.
Putting the full sale price of an asset in Income and Expenditure.
The sale is seen as a receipt of the year.
Fix: Show only the profit or loss. Remove the asset's book value from the Balance Sheet.
Forgetting to add interest on fund investments to the fund.
Interest looks like normal income.
Fix: If the investment belongs to a specific fund, add the interest to that fund, not to Income and Expenditure.

Worked examples

Example 1

A club received subscriptions of ₹60,000 during the year. Subscriptions outstanding at the start were ₹5,000 and at the end ₹8,000. Subscriptions received in advance were ₹2,000 at the start and ₹4,000 at the end. Find the subscription income for Income and Expenditure and the items for the Balance Sheet.

Show the solution

Start with the cash received: ₹60,000.
Add closing outstanding: 60,000 + 8,000 = ₹68,000.
Subtract opening outstanding, because it belongs to last year: 68,000 − 5,000 = ₹63,000.
Subtract closing advance, because it belongs to next year: 63,000 − 4,000 = ₹59,000.
Add opening advance, because it was received last year but belongs to this year: 59,000 + 2,000 = ₹61,000.
Balance Sheet: outstanding subscriptions ₹8,000 on the assets side. Subscriptions received in advance ₹4,000 on the liabilities side.

Answer: Subscription income for the year is ₹61,000. Show ₹8,000 as an asset and ₹4,000 as a liability.

Example 2

A sports club had a Sports Fund of ₹1,00,000 at the start of the year, with investments of ₹1,00,000 against it. During the year it received interest of ₹8,000 on these investments and a specific donation of ₹20,000 for sports. It consumed sports materials costing ₹30,000 (a revenue expense, not an asset), which is to be charged to the Sports Fund. It also received a general donation of ₹10,000 and an entrance fee of ₹6,000, to be capitalised. Show how each item is treated and find the closing Sports Fund.

Show the solution

Opening Sports Fund: ₹1,00,000.
Add interest on fund investments: 1,00,000 + 8,000 = ₹1,08,000.
Add specific donation: 1,08,000 + 20,000 = ₹1,28,000.
Deduct sports materials consumed, as the question says to charge them to the fund: 1,28,000 − 30,000 = ₹98,000.
The general donation of ₹10,000 is revenue, so it is credited to Income and Expenditure.
The entrance fee of ₹6,000 is capitalised, so it is added to the Capital Fund in the Balance Sheet.

Answer: Closing Sports Fund is ₹98,000. The sports materials expense (₹30,000) is charged to the fund, not to Income and Expenditure. The general donation (₹10,000) goes to Income and Expenditure. The entrance fee (₹6,000) goes to the Capital Fund.

Exam tips

Write one line on your assumption for each item the question does not clearly classify. It earns marks even if the examiner prefers another treatment.
Always show the working for subscriptions as a small separate note or account. Step marks depend on it.
Show specific funds as a short statement: opening balance, additions, deductions, closing balance.
Highlight any policy given in the question first. Most wrong answers come from missing it.
Check that the Balance Sheet agrees. A mismatch often means a capital item was left in Income and Expenditure.

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

Treatment of Special Items: frequently asked questions

How are subscriptions treated in the Income and Expenditure Account?

Subscriptions are revenue and are credited on an accrual basis. Only the amount that relates to the current year is shown. Adjust the cash received for outstanding and advance amounts of both years.

Are entrance fees and life membership fees capital or revenue?

Unless the question says otherwise, both are capital receipts and are credited to the Capital Fund or a separate fund. Some questions ask you to treat entrance fees as revenue, or to spread life membership fees over several years. Follow the instruction given.

How do I tell a specific donation from a general donation?

A specific donation is given for a stated purpose, such as a building or a hospital wing, and is treated as capital. A general donation has no stated purpose and is credited to Income and Expenditure. The wording of the question usually tells you.

How is a legacy treated?

A legacy is money or property left by someone in a will. It is a non-recurring receipt, so it is normally added to the Capital Fund and not shown in Income and Expenditure.

Where do specific fund expenses go?

They are deducted from the specific fund in the Balance Sheet. They are not shown in Income and Expenditure unless the question says so.