Balance Sheet

A company prepares a Balance Sheet at the end of the accounting year to ascertain the financial position of the business. Even though a not-for-profit organisation does not engage in any sort of manufacturing or trading business and carries on its activities for the sole motive of welfare of the society, it is equally important to determine the financial position of such an organisation so as to make improved decisions in the future.

The procedure followed to prepare the Balance Sheet of a not-for-profit organisation is more or less similar to that of a company. It follows the same principles of preparing the financial statements.

The Balance Sheet is divided into two parts. The assets are reflected on the right side and liabilities on the left side. Instead of capital, there will be a capital fund or general fund in its place. The surplus or deficit computed from the Income and Expenditure account is added or deducted from the capital fund.

A not-for-profit organisation generally creates specific funds to meet a certain objective. The same will be shown on the left side of the balance sheet, i.e., the liabilities side. These funds can exist by the names of building fund, sports fund, match fund etc.

Preparation of Balance Sheet –

The following steps are suggested to be taken to prepare a balance sheet of a not-for-profit organisation –

1. The opening balance of Capital/ general fund is taken as the base and the surplus or deficit derived from the Income and Expenditure account is adjusted to the balance. The amount so arrived is the closing balance of the Fund. This is shown on the liabilities side. Further, any sort of money received during the year in respect of entrance fees, life membership fees etc. is added.
2. The assets available with the organisation are depicted on the assets side of the balance sheet. The closing balance is calculated as follows – Opening balance of assets plus any additions made to the assets less depreciation charged.
3. Then, the receipt side of the Receipt and Payment account is compared with the income side of the Income and Expenditure account and the payment side of the Receipt and Payment account is compared with the expenditure side of the Income and Expenditure account. This is done to ascertain amounts paid in advance or the amounts due.

Chapter 1 – Accounting for Not-for-Profit Organisation

1. Meaning and Characteristics of Not-for-Profit Organisation
2. Accounting Records of Not-for-Profit Organisations
3. Receipt and Payment Account
4. Income and Expenditure Account
5. Balance Sheet
6. Some Peculiar Items