Financial Accounting · Financial Statements of Not-for-Profit Organisations

Subscriptions, Donations, Legacies and Funds in NPO Accounts

Updated 10 October 2026 · Fact-checked

Special items in not-for-profit accounts are treated as revenue or capital. Subscriptions for the year go to Income and Expenditure on accrual basis. Specific donations, legacies for a stated purpose, life membership fees and general funds go to the Balance Sheet. General donations are usually income. Use the nature of the item and the stated purpose to decide.

Understand Special Items: Subscriptions, Donations, Legacies and Funds

A not-for-profit organisation (NPO) starts from a Receipts and Payments Account, which is cash based. The Income and Expenditure Account must be on accrual basis. So you must adjust each special item to show only what belongs to the current year.

Subscriptions are the regular fees from members. They are revenue income. Only the subscription that relates to the current year goes to the Income and Expenditure Account, whether or not it was received in cash. Subscription in arrears is due but not yet received. Advance subscription is received for a future year. Arrears at the end are a Balance Sheet asset (outstanding subscription). Advance at the end is a Balance Sheet liability.

The cash received in the year may include arrears of the last year and advance for the next year. You must remove these and add this year's arrears. That is why the working note matters more than the final number.

Capital versus revenue. The test is whether the receipt is recurring and meets running expenses (revenue), or is non-recurring and builds the capital base or is for a specified purpose (capital). By convention, entrance fees (admission fees) are capitalised unless the question says to treat them as income. General donations are income. Specific donations (for a building, a hall, a purpose named by the donor) are capital and go to the Balance Sheet. Legacies are gifts under a will. They are capital by convention, unless the question says they are small or recurring.

Funds. A specific fund (prize fund, building fund, sports fund) is a liability. Receipts go in, and related expenses are deducted from it, not charged to Income and Expenditure. Interest on fund investments is added to the fund. Life membership fee is received once and covers the whole life. It is a capital receipt shown as a liability in the Balance Sheet (Life Membership Fund). Some questions ask you to credit a yearly share to income. Follow the question. When an asset is sold, the sale price is a capital receipt and any profit or loss goes to Income and Expenditure.

Key rules to remember

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.

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

Use this method for any question that gives a Receipts and Payments Account with special items.

1List every special item in the Receipts and Payments Account and in the adjustments: subscriptions, entrance fees, donations, legacies, life membership fees, funds, asset sales.
2Mark each as revenue or capital. Check the question for instructions first, then apply conventions.
3For subscriptions, draw the Subscription Account. Put opening arrears, opening advance, cash received, closing arrears and closing advance in the right places. Find the balancing figure.
4Take the revenue items (current year subscription, general donations, interest on general investments) to the credit side of Income and Expenditure.
5Take capital items (entrance fees, specific donations, legacies, life membership fees) directly to the Balance Sheet under the Capital Fund or specific fund.
6Adjust specific funds: add receipts and interest, deduct purpose expenses, and carry the closing figure to the Balance Sheet.
7For asset sales, remove the asset at book value, show the sale proceeds as capital cash and take the profit or loss to Income and Expenditure.
8Check that every item in the Receipts and Payments Account appears once, in Income and Expenditure or in the Balance Sheet.

Quickest way: Subscription T-account in 30 seconds

When to use it: Use when the question gives opening and closing arrears and advance with subscriptions received.

Write four numbers: opening arrears, opening advance, closing arrears, closing advance.
Start with cash received. Subtract opening arrears (belong to last year). Add closing arrears. Add opening advance (it belongs to this year). Subtract closing advance (belongs to next year).
Remember the pattern: arrears at the start out, arrears at the end in, advance at the start in, advance at the end out.
Arrears written off as bad are debited in the Subscription Account when finding income, and shown as an expense in Income and Expenditure. Do not deduct them twice.
For other items, ask one question: is it for running the club this year, or for building its base? Running goes to Income and Expenditure. Base or purpose goes to the Balance Sheet.

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

Taking cash subscriptions received straight to Income and Expenditure.
The Receipts and Payments Account looks complete, so students copy it.
Fix: Always prepare the Subscription Account and adjust for arrears and advance.
Reversing the treatment of opening and closing advance.
Advance sounds like income, so students add it.
Fix: Closing advance is for next year, so deduct it. Opening advance was received last year for this year, so add it.
Treating all donations as income.
Donations feel like earnings.
Fix: Only general donations are revenue. Donations for a stated purpose are capital and go to the Balance Sheet.
Charging fund-purpose expenses to Income and Expenditure.
The payment appears in the Receipts and Payments Account as an expense.
Fix: If the expense is for a specific fund, deduct it from that fund in the Balance Sheet.
Crediting life membership fees to Income and Expenditure in full.
Students treat them as normal subscriptions.
Fix: Show them as a liability. Transfer to income only when the question tells you to.
Ignoring the question's own instruction on entrance fees or legacies.
Students apply the general convention from memory.
Fix: Read the adjustments and notes first. The instruction in the question overrides convention.

Worked examples

Example 1

A sports club received subscriptions of ₹1,80,000 during the year ended 31 March. Further information: subscriptions in arrears on 1 April ₹12,000; arrears on 31 March ₹15,000; subscriptions received in advance on 1 April ₹6,000; advance on 31 March ₹9,000. Find the subscription to be credited to Income and Expenditure Account and show the Balance Sheet items.

Show the solution

Start with cash received: ₹1,80,000.
Deduct opening arrears (last year's income): 1,80,000 – 12,000 = 1,68,000.
Add closing arrears (this year's, not received): 1,68,000 + 15,000 = 1,83,000.
Add opening advance (received last year for this year): 1,83,000 + 6,000 = 1,89,000.
Deduct closing advance (for next year): 1,89,000 – 9,000 = 1,80,000.
Check with the account: debit side = opening arrears 12,000 + closing advance 9,000 + Income and Expenditure 1,80,000 = 2,01,000. Credit side = opening advance 6,000 + cash 1,80,000 + closing arrears 15,000 = 2,01,000. It balances.

Answer: Subscription credited to Income and Expenditure Account is ₹1,80,000. Balance Sheet: outstanding subscription ₹15,000 (asset) and subscription received in advance ₹9,000 (liability).

Example 2

A club's Receipts and Payments Account for the year shows: entrance fees ₹20,000; general donations ₹15,000; donation for a new pavilion ₹1,00,000; legacy ₹50,000 (no purpose stated); life membership fees ₹30,000. Opening Capital Fund was ₹4,00,000. Show the treatment of each item and the effect on Income and Expenditure and the Capital Fund. Treat entrance fees as capital.

Show the solution

General donations of ₹15,000 have no stated purpose. They are revenue and are credited to Income and Expenditure.
Donation for the pavilion of ₹1,00,000 is a specific donation. It is capital, shown as Pavilion Fund in the Balance Sheet.
Legacy of ₹50,000 has no purpose stated. By convention it is capital and is added to the Capital Fund.
Entrance fees of ₹20,000 are to be treated as capital as instructed. Add to the Capital Fund.
Life membership fees of ₹30,000 are shown as Life Membership Fund, a liability. No income is credited, as no instruction is given.
Capital Fund = 4,00,000 + 50,000 + 20,000 = 4,70,000 (before adding any surplus for the year).

Answer: Income and Expenditure is credited with ₹15,000 only. Capital Fund rises to ₹4,70,000 before the year's surplus. Pavilion Fund ₹1,00,000 and Life Membership Fund ₹30,000 are shown separately in the Balance Sheet.

Exam tips

Read the notes and adjustments before you start. A single line such as 'treat entrance fees as revenue' changes the answer.
Show the Subscription Account as a working note. Examiners give step marks for it even if the final figure is wrong.
Write the word 'capital' or 'revenue' next to each special item. This makes your classification visible to the examiner.
In MCQs, check the sign pattern: opening arrears out, closing arrears in, opening advance in, closing advance out.
If the question says nothing, apply convention: general donation is revenue; specific donation, legacy and entrance fees are capital; life membership fee is a liability.

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

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

How do I treat subscription in arrears and advance?

Only the subscription relating to the current year is credited to Income and Expenditure. Arrears at year end are an asset and advance at year end is a liability. Use the Subscription Account to find the balancing figure.

Are entrance fees capital or revenue?

By convention they are capital receipts and go to the Capital Fund. If the question says to treat them as revenue, credit them to Income and Expenditure. Always follow the instruction given in the question.

What is the difference between specific and general donation?

A specific donation is given for a stated purpose such as a building and is capital. A general donation has no stated purpose and is revenue income. The donor's condition decides the treatment.

How are legacies and life membership fees shown?

Legacies are normally added to the Capital Fund, or to a specific fund if the will states a purpose. Life membership fees are shown as a liability in the Balance Sheet unless the question asks you to transfer a part to income.