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Fundamentals of Financial and Cost Accounting · Financial Statements of a Not-for-Profit Organisation

Special Items in NPO Accounts: Subscriptions, Funds, Legacies and Donations

Updated 10 October 2026 · Fact-checked

In a not-for-profit organisation, revenue items such as current-year subscriptions and general donations go to the Income and Expenditure Account. Capital items such as entrance fees (usually), life membership fees, legacies and specific donations go to the Balance Sheet. Always adjust subscriptions for outstanding and advance amounts first.

Understand Special Items: Subscriptions, Funds, Legacies and Donations

A not-for-profit organisation (NPO) has no profit motive. Its Income and Expenditure Account shows only revenue items of the current year on an accrual basis. Anything that is capital in nature goes straight to the Balance Sheet. Every item in this topic is a test of that one split.

Subscriptions are the regular fees paid by members. They are revenue income. Only the amount that belongs to the current year goes to the Income and Expenditure Account, whether or not it was received in cash. So you adjust the cash received for dues at the start and end of the year, and for advance receipts.

Entrance fees are paid once, when a person joins. The usual treatment is to capitalise them (add to Capital Fund). If the question says they are revenue in nature, or the club follows a revenue policy, credit them to Income and Expenditure. Life membership fees are paid once for lifetime membership. They are normally capitalised: shown as a Life Membership Fund in the Balance Sheet. Some questions ask you to transfer a part each year to income; follow the question.

Donations depend on purpose. A general donation is revenue and goes to Income and Expenditure. A donation for a specific purpose (such as a building or a sports ground) is capital and goes to the Balance Sheet. A legacy is money or property left by a will. It is normally capital and added to Capital Fund, unless the question says it is revenue.

Specific funds such as a Sports Fund or Prize Fund are built from a donation or from transfers. Income from the fund's investments is added to the fund. Related expenses, such as the cost of sports events or prizes, are set against the fund. The fund balance is shown on the liabilities side. Fund expenses are set against the fund, not charged again to Income and Expenditure. If the fund is built by transfers from general income, show that transfer in Income and Expenditure only where the question directs it. Sale of an old asset is capital: the profit or loss on sale goes to Income and Expenditure, but the sale proceeds do not. Stock of consumables (stationery, sports material) used in the year is an expense, found as opening stock + purchases − closing stock.

Key formulas to remember

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.

How to solve Special Items: Subscriptions, Funds, Legacies and Donations questions

Use this order for any question with special items. Decide first whether each item is capital or revenue, then place it.

  1. 1List every special item in the question: subscriptions, entrance fees, life membership fees, donations, legacies, funds, asset sales, consumables.
  2. 2Check the wording for instructions such as 'treat as revenue income' or 'for building'. Instructions in the question override the usual rule.
  3. 3For subscriptions, build a small working with the received amount, opening dues and advances, closing dues and advances. Find the current-year figure.
  4. 4Mark each item: revenue goes to Income and Expenditure, capital goes to the Balance Sheet (Capital Fund or specific fund).
  5. 5For specific funds, add income and donations to the fund, deduct fund expenses, and show the closing balance as a liability.
  6. 6For asset sales, compute profit or loss against book value. Take only that to Income and Expenditure.
  7. 7For consumables, compute the amount used and charge it. Show closing stock as an asset.
  8. 8Match your final figure to the exact item the question asks for, such as the amount credited to Income and Expenditure.

Quickest way: Capital or revenue sort, then the subscription box

When to use it: Use for MCQs asking what amount is credited to Income and Expenditure or what is shown in the Balance Sheet.

  1. Read for keywords: 'life', 'legacy', 'entrance', 'specific' point to the Balance Sheet.
  2. Read for keywords: 'current year', 'general donation' point to Income and Expenditure.
  3. For subscriptions, start with cash received. Add closing dues and opening advance. Subtract opening dues and closing advance.
  4. Check the options for the common trap: the cash figure alone, which is almost never the answer.
  5. If the question gives an instruction, follow it even when it differs from the usual rule.

Common mistakes in Special Items: Subscriptions, Funds, Legacies and Donations

  • Crediting the whole subscription received in cash to Income and Expenditure

    Students copy the Receipts and Payments figure without adjusting for dues and advances.

    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

    It looks like a subscription, so it feels like revenue.

    Fix: It is a lifetime payment and benefits many years. Capitalise it unless the question asks you to transfer part to income each year.

  • Taking a legacy or a specific donation to Income and Expenditure

    Students see 'receipt' and assume income.

    Fix: Treat both as capital and add them to Capital Fund or the named fund, unless told otherwise.

  • Deducting fund expenses in Income and Expenditure while the fund also shows the same amount

    The expense is counted twice, once in the fund and once in the account.

    Fix: Charge the expense against the fund only. The fund balance on the Balance Sheet then shows the net amount.

  • Putting the full sale price of an old asset in Income and Expenditure

    The sale looks like an income.

    Fix: The sale price is capital. Take only the profit or loss over book value to Income and Expenditure.

  • Charging consumables purchased instead of consumables used

    Students ignore opening and closing stock.

    Fix: Use opening stock + purchases − closing stock for the charge.

Worked examples

Example 1

A club received subscriptions of ₹80,000 during the year. Subscriptions outstanding were ₹6,000 at the start and ₹10,000 at the end. Subscriptions received in advance were ₹3,000 at the start and ₹5,000 at the end. Find the subscription credited to Income and Expenditure.

Show the solution
  1. Cash received = ₹80,000.
  2. Add closing outstanding: 80,000 + 10,000 = 90,000.
  3. Add opening advance (it was received last year for this year): 90,000 + 3,000 = 93,000.
  4. Subtract opening outstanding (it belongs to last year): 93,000 − 6,000 = 87,000.
  5. Subtract closing advance (it belongs to next year): 87,000 − 5,000 = 82,000.

Answer: ₹82,000 is credited to Income and Expenditure Account.

Example 2

A sports club's Sports Fund stood at ₹50,000 on 1 April. During the year it received a donation of ₹30,000 for the Sports Fund. Interest on Sports Fund investments was ₹4,000. Expenses on sports events were ₹24,000. The club also received a legacy of ₹1,00,000 and an entrance fee of ₹12,000, which it capitalises. What is the closing Sports Fund, and what do the legacy and entrance fee do to the Balance Sheet?

Show the solution
  1. Opening Sports Fund = ₹50,000.
  2. Add donation: 50,000 + 30,000 = 80,000.
  3. Add fund interest: 80,000 + 4,000 = 84,000.
  4. Subtract sports expenses: 84,000 − 24,000 = 60,000.
  5. Legacy of ₹1,00,000 is capital, so it increases Capital Fund.
  6. Entrance fee of ₹12,000 is capitalised, so it also increases Capital Fund. Total addition to Capital Fund = 1,00,000 + 12,000 = ₹1,12,000.

Answer: Closing Sports Fund is ₹60,000 (a liability). Capital Fund increases by ₹1,12,000. None of these items appear in Income and Expenditure.

Exam tips

  • Read the instruction words first. 'Treat as revenue' or 'for a specific purpose' changes the answer.
  • In subscription MCQs, the cash figure is usually a wrong option. Do the full adjustment.
  • Remember that a specific donation goes to the Balance Sheet, while a general donation goes to Income and Expenditure.
  • For fund questions, track the fund balance with a short running total and watch for investment income added to the fund.
  • With no negative marking, always mark an answer. Eliminate options that put capital items in Income and Expenditure.

Practice questions from Financial Statements of a Not-for-Profit Organisation

Special Items: Subscriptions, Funds, Legacies and Donations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Special Items: Subscriptions, Funds, Legacies and Donations: frequently asked questions

What is the treatment of subscription in the Income and Expenditure Account?

Only the subscription belonging to the current year is credited, whether or not it was received. Adjust the cash received for opening and closing dues and advances.

How are entrance fees and life membership fees treated?

Both are usually capital receipts and are added to Capital Fund or shown as a separate fund. If the question says to treat entrance fees as revenue, credit them to Income and Expenditure.

Where do legacies and specific donations go in NPO accounts?

A legacy is normally added to Capital Fund. A donation for a specific purpose is capital and is shown in the Balance Sheet, often as a specific fund. Treat them as revenue only if the question says so.

How do I treat Sports Fund and Prize Fund in an NPO?

Add donations and fund investment income to the fund and set the fund's expenses against it. Show the closing balance on the liabilities side. Do not charge those expenses again in Income and Expenditure, and show a transfer to the fund there only if the question directs it.