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

In an NPO, the excess of income over expenditure for a year is called surplus. Where is this surplus ultimately taken in the Balance Sheet?

The surplus of income over expenditure is added to the Capital Fund, also called General Fund, shown on the liabilities side of the Balance Sheet. An NPO has no owners to receive profit, so the surplus increases the fund, while a deficit reduces it.

  1. AAdded to the Capital Fund (General Fund) on the liabilities sideCorrect
  2. BShown as a profit on the assets side
  3. CDistributed as dividend to members
  4. DCredited to the Receipts and Payments Account

Explanation

Since an NPO has no owners, its surplus from the Income and Expenditure Account is added to the Capital Fund. A deficit is deducted from it. The Receipts and Payments Account is a summary of cash, not a place for surplus.

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