Fundamentals of Accounting · Accounting for Non-Profit Organizations
Subscriptions, Donations, Legacies and Funds in Non-Profit Accounts
Updated 11 October 2026 · Fact-checked
Treat each item by asking: is it recurring (revenue) or one-time (capital)? Subscriptions go to Income and Expenditure on an accrual basis. Legacies and general donations are usually added to the Capital Fund; life membership fees go to a separate Life Membership Fund. Specific donations form separate funds. Entrance fees are capitalised unless told otherwise.
Understand Special Items: Subscriptions, Donations, Legacies and Funds
A non-profit organisation (club, school society, charitable trust) does not earn profit. It prepares an Income and Expenditure Account on the accrual basis. The test for every special item is simple: does it help run the organisation this year, or does it add to its long-term resources?
Revenue receipts go to the Income and Expenditure Account. Capital receipts go straight to the Balance Sheet, usually added to the Capital Fund (General Fund). If you put a capital receipt into income, you overstate the surplus.
Subscriptions are the regular fees from members. They are revenue income. Only the amount that belongs to the current year is shown as income, whether received or not. So you adjust for arrears (outstanding), advance receipts and amounts received for the previous year.
Entrance fees, life membership fees, legacies and general donations are generally one-time receipts. They are normally capitalised. Entrance fees, legacies and general donations are added to the Capital Fund. Life membership fees are kept as a separate Life Membership Fund on the liability side, not added directly to the Capital Fund, unless the question says otherwise. Donations for a specific purpose (building, sports) and legacies for a stated purpose are kept in a separate specific fund on the Balance Sheet. Small or recurring items, or where the question says to treat them as revenue, go to income.
A specific fund is shown on the liability side. Expenses for that purpose are deducted from the fund, not charged to Income and Expenditure. Income earned on fund investments is added to the fund. The General Fund is the balance of assets minus outside liabilities, and surplus or deficit is added or deducted each year.
Key rules to remember
- Subscription income for the year
- Income = Cash received − opening arrears + closing arrears + opening advance − closing advance
- Use the subscription account format: opening arrears and advance, then cash, then closing balances. Opening advance is added; closing advance is deducted.
- Subscription received, if income is known
- Cash received = Income + opening arrears − closing arrears − opening advance + closing advance
- Do not memorise this. Build the account and find the missing figure as the balancing number.
- Entrance fees, legacies, general donations
- Capital receipt → add to Capital Fund in Balance Sheet
- Unless told to treat as revenue, or the amount is small and recurring.
- Life membership fees
- Capitalise the full amount as a Life Membership Fund; transfer a yearly share to income only if the question says so
- Default: capital, shown as a separate Life Membership Fund on the liability side, not added directly to the Capital Fund. Some questions spread it over the expected life.
- Specific donations and specific legacies
- Show as a separate fund in the Balance Sheet. Purpose expenses reduce the fund.
- Specific fund investment income is added to the fund.
- Sale of old asset
- Sale proceeds − book value = profit or loss. Profit or loss goes to Income and Expenditure; proceeds are not income.
- Remove the asset at book value from the Balance Sheet. The sale of an asset is a capital transaction, so follow the question's instruction. The usual exam treatment is to take the profit or loss on sale to Income and Expenditure.
- Special events
- Income from event − expenses of event = net surplus or deficit. Show the net, or show both sides, in Income and Expenditure.
- Examples: concert, annual day, tournament.
How to solve Special Items: Subscriptions, Donations, Legacies and Funds questions
Use this order for any question on special items. It keeps each amount on the correct side and stops capital items entering income.
- 1List each item from the Receipts and Payments Account and the additional information given.
- 2Tag each as revenue or capital. Ask: is it recurring, or for a specific purpose, or one-time?
- 3For subscriptions, build a subscription account: opening arrears, opening advance, cash received, closing arrears, closing advance. Find the income for the year.
- 4Put revenue items in Income and Expenditure. Put entrance fees, legacies and general donations in the Capital Fund unless the question says otherwise. Put life membership fees in a separate Life Membership Fund on the liability side unless the question says otherwise.
- 5Create a separate fund for specific donations, specific legacies and specific purpose funds. Deduct the related expenses from that fund.
- 6For sale of an asset, compute the profit or loss on sale. Follow the question's instruction; the usual exam treatment is to show only that profit or loss in Income and Expenditure. Remove the asset at book value.
- 7Net special events (receipts less expenses) and show the result in Income and Expenditure.
- 8Check the Balance Sheet: all capital items and funds appear on the liability side, and arrears and advances appear as current assets or liabilities.
Quickest way: Revenue or capital, then adjust
When to use it: Use when time is short and the question has many items in a Receipts and Payments Account.
- Scan the list and mark R (revenue) or C (capital) beside each item.
- Move the C items directly to the liability side: Capital Fund or a specific fund.
- For subscriptions, write income = cash received − opening arrears + closing arrears + opening advance − closing advance.
- Write the net result of events and the profit or loss on asset sale in one line each.
- Do a final check: every item in the Receipts and Payments Account appears in either Income and Expenditure or the Balance Sheet.
Common mistakes in Special Items: Subscriptions, Donations, Legacies and Funds
Showing the cash received as subscription income without adjustment.
Students treat the account like a cash record.
Fix: Always prepare the subscription account and adjust arrears and advances to get the amount for the current year.
Treating entrance fees and legacies as income by default.
They look like receipts from members and donors.
Fix: Treat them as capital unless the question says to treat them as revenue. Say your assumption in a note.
Crediting the full sale price of an old asset to Income and Expenditure.
Students forget that the asset was an existing item in the Balance Sheet.
Fix: Take only the profit or loss on sale to Income and Expenditure and remove the book value from the asset.
Charging specific fund expenses to Income and Expenditure.
The expense appears in the Payments side, so it looks like normal expenditure.
Fix: Deduct the expense from the specific fund. Show only the balance of the fund in the Balance Sheet.
Forgetting arrears and advances when closing subscriptions appear in the Balance Sheet.
Students adjust income but ignore the matching balance sheet entries.
Fix: Show closing arrears as an asset and closing advance as a liability.
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 ₹3,000 at the end. Find subscription income for the year.
Show the solution
- Cash received = ₹60,000.
- Remove opening arrears collected: ₹60,000 − ₹5,000 = ₹55,000.
- Add closing arrears: ₹55,000 + ₹8,000 = ₹63,000.
- Add opening advance, now earned this year: ₹63,000 + ₹2,000 = ₹65,000.
- Deduct closing advance, belongs to next year: ₹65,000 − ₹3,000 = ₹62,000.
Answer: Subscription income for the year is ₹62,000, to be credited to the Income and Expenditure Account.
Example 2
A society's Receipts and Payments Account shows: entrance fees ₹10,000, general donations ₹25,000, donation for the building fund ₹50,000, legacy ₹1,00,000 (no purpose stated), proceeds from sale of old furniture ₹6,000 (book value ₹9,000). Show the treatment of each.
Show the solution
- Entrance fees ₹10,000: capital receipt, add to Capital Fund.
- General donations ₹25,000: capital receipt, add to Capital Fund.
- Building fund donation ₹50,000: specific purpose, show as Building Fund on the liability side.
- Legacy ₹1,00,000: no purpose stated, capitalise in the Capital Fund.
- Sale of furniture: loss = ₹9,000 − ₹6,000 = ₹3,000. Follow the question's instruction; the usual exam treatment is to debit the ₹3,000 loss to Income and Expenditure. Remove furniture at ₹9,000 from assets.
- Capital Fund addition = ₹10,000 + ₹25,000 + ₹1,00,000 = ₹1,35,000.
Answer: Capital Fund increases by ₹1,35,000. Building Fund shows ₹50,000. Income and Expenditure shows a loss on sale of furniture of ₹3,000, which is the usual exam treatment unless the question says otherwise.
Exam tips
- In subscription questions, always show the working account. Marks are given for steps even if the final number is wrong.
- Write one line for each assumption, for example 'Legacy is treated as capital as no purpose is stated'.
- Read the question for words such as 'specific', 'for building', 'to be treated as revenue'. These change the treatment.
- Check that the Balance Sheet balances. A wrong capital or revenue tag usually causes the mismatch.
- Keep a small table of items and their treatment on your rough sheet for fast checking.
Practice questions from Accounting for Non-Profit Organizations
- In a non-profit organization, what is the term for the excess of its total income over total expenditure for a year, as shown in the Income …
- Greenfield Club's Income and Expenditure Account for the year showed total income of Rs 5,60,000 and total expenditure of Rs 5,95,000. How s…
- In the books of a non-profit organisation, which of the following items is shown on the credit (income) side of the Income and Expenditure A…
- Which of the following is treated as a capital receipt in the books of a non-profit organization and is therefore not credited to the Income…
- Which of the following best describes the primary objective of a non-profit organization such as a charitable club or society?
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
Are entrance fees capital or revenue?
By default they are treated as capital receipts and added to the Capital Fund. If the question says to treat them as revenue, or the fees are recurring and small, take them to Income and Expenditure.
How are life membership fees treated?
They are usually capitalised as a Life Membership Fund because the member pays once for life. Some questions ask you to transfer a part to income each year. Follow the instruction given.
What is the difference between a legacy and a donation?
A legacy is money or property received under a will. A donation is given during the donor's lifetime. Both are capital if no purpose is stated, and both go to a specific fund if given for a specific purpose.
Where does a specific fund appear in the accounts?
On the liability side of the Balance Sheet. Expenses for that purpose are deducted from the fund, and income from its investments is added to it.