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

Which statement about the accounting records of a typical not-for-profit organisation is correct?

A not-for-profit organisation prepares a Receipts and Payments Account, which summarises all cash and bank receipts and payments during the period, whether capital or revenue and whether relating to this year or not. It also prepares an accrual-based Income and Expenditure Account and a Balance Sheet.

  1. AIt prepares a Trading and Profit and Loss Account showing net profit on the owner's capital
  2. BIt prepares a Receipts and Payments Account, which is a summary of cash and bank transactions of the periodCorrect
  3. CIt prepares an Income and Expenditure Account on the cash basis of accounting only
  4. DIt prepares no Balance Sheet because it has no owners

Explanation

The Receipts and Payments Account is a real account summarising cash and bank receipts and payments, including capital items, for the period. The Income and Expenditure Account follows the accrual basis, and a Balance Sheet is still prepared. Hence only option B is correct.

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