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

Which of the following statements about the financial statements of a not-for-profit organisation (NPO) is correct?

The Income and Expenditure Account is prepared on accrual basis and reveals the surplus or deficit for the period. The Receipts and Payments Account is only a summary of cash and bank transactions, including capital items, and does not measure the period's surplus.

  1. AThe Receipts and Payments Account is a nominal account prepared on accrual basis
  2. BThe Income and Expenditure Account is prepared on accrual basis and shows the surplus or deficit for the periodCorrect
  3. CThe Income and Expenditure Account records capital receipts such as entrance fees for life members
  4. DThe Receipts and Payments Account shows the surplus or deficit of the period

Explanation

The Income and Expenditure Account is the NPO equivalent of a Profit and Loss Account. It includes only revenue items on accrual basis and ends in a surplus or deficit. The Receipts and Payments Account is a summary of cash transactions and does not show surplus or deficit.

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