UPSC » UPSC CSE Study Materials » Commerce » Audit for Non-Profit Organisation

Audit for Non-Profit Organisation

This article highlights the records of audit for a non-profit organisation, and the steps involved in receipt and payment method, and expenditure and income account.

Some organisations have been established to provide services to the broader public. Philanthropic institutions, clubs, trade unions, religious organisations, schools, welfare groups, and society for the development of art and culture are examples of such organisations. The primary goal of these organisations is to provide service rather than profit, as is the case with businesses. Trustees are fully accountable to their members and society for using funds raised to meet the organisation’s objectives. These organisations usually do not participate in any commercial activity and are handled by administrators.

Records of Accounting for Non-Profit Organisations

Typically, such organisations do not engage in any trading or business. Subscriptions from members, donations, government financial support, and investment revenue are the primary sources of income. The majority of their transactions are carried out in cash or through a bank. According to the laws of the 2021-22 Audit for Non-Profit Organisation, the organisations must keep accurate accounting records and maintain proper control over the use of their funds.

This is why organisations usually keep a cash book to record all their receipts and payments. They also maintain a ledger of their incomes, expenditure, assets, and obligations, making it easier to prepare financial statements at the end of the accounting period.

Receipt and Payment Account

This is prepared at the end of the accounting year using the cash book’s cash receipts and cash payments. It is a list of cash and bank transactions organised by category. Subscriptions collected from members on separate dates that appear on the debit side of the cash book, for example, shall be shown as one item on the receipts side of the Receipt and Payment Account with its total amount. Salary, rent, and electricity charges are paid regularly and are, therefore, entered on the credit side of the cash book, but the total salary, rent, and electricity charges paid during the year are recorded on the payment side of the Receipt and Payment Account.

Thus, the Receipt and Payment Account provides a summary of various receipts and payments, regardless of whether they relate to the present period, the previous period, or the following period, or whether they are capital or revenue in nature.

The steps involved in the preparation of Receipt and Payment Account for auditing of a non-profit organisation are as follows:

  1. Take the cash-in-hand and cash in the bank opening balances and input them on the debit side
  2. If you have a bank overdraft at the beginning of the year, put it on this account’s credit side
  3. Show the total sums of all receipts on the debit side, regardless of their type (capital or revenue) or whether they relate to previous, current, or future periods
  4. Show the total amounts of all payments made on its credit side, regardless of their nature (capital or revenue) or whether they relate to previous, current, or future periods
  5. No receivable revenue or payable expense should be recorded in this account because they do not entail cash inflow or outflow
  6. Calculate the difference between the debit and credit sides of the account and enter it on the credit side as the cash or bank account’s closing amount
  7. If the total of the credit side exceeds the total of the debit side, show the difference as a bank overdraft on the debit side, and cancel the account

Expenditure and Income Account

It is a summary of the income and expenses for the accounting year. It is comparable to a Profit and Loss Statement prepared on an accrual basis for a company. It only includes revenue items, and the final balance shows whether there is a profit or loss. The Income and Expenditure Account serves the same purpose as a Profit and Loss Account in a business.

The steps involved in the preparation of Expenditure and Income Account for auditing of a non-profit organisation are as follows:

  • Investigate the Payment and Receipt Account in depth
  • Cash and bank account opening and closing balances are not included, as they are not revenue
  • Capital receipts and payments are not included because they must be reported on the Balance Sheet
  • On the income side of the Income and Expenditure Account, only income receipts must be shown
  • Some of these may need to be tweaked by eliminating amounts from prior and succeeding periods and replacing them with amounts from the current year that are yet to be received
  • Transfer the revenue expenses to the expense side of the Income and Expenditure Account, making any necessary adjustments based on the extra information provided regarding the funds received in advance and those not yet received

Refer to the following during the audit of a non-profit organisation that does not appear in the Receipt and Payment Account but must be considered when calculating the current year’s surplus or deficit:

(a) Fixed asset depreciation

(b) A provision for dubious debts, if necessary

(c) Profit or loss resulting from the sale of fixed assets


Non-Profit Organisations are those that exist for the benefit of society. They are set up as benevolent institutions that operate without financial motivation. Their primary goal is to serve a specific group or the general public. They usually don’t make, buy, or sell goods, and they don’t deal in credit. As a result, they do not need to keep as many books of account (as trading companies do) or a Trading and Profit and Loss Account. These organisations’ funds are credited to a capital or a general fund.


Frequently asked questions

Get answers to the most common queries related to the UPSC Examination Preparation.

What are some of the characteristics of non-profit organisations?

Answer: Non-profit organisations are founded to provide services to a specific group such as education, recreation, ...Read full

What are the peculiar items in the audit for a non-profit organisation?

Answer: Non-profit organisations’ final accounts are prepared the same way as business organisations’ fi...Read full

What do you mean by subscription?

Answer: A subscription is an annual membership fee paid by the member. Such organisations’ primary source of r...Read full

What do you mean by a life membership fee?

Answer: Some members prefer to pay a one-time life membership cost rather than have a monthly subscription. This sum...Read full