Peculiar Items –
Although a not-for-profit organisation prepares its financial statements on the same lines as that of a company, however, there are a some peculiar items which vary in terms of their nature. They require special treatment in the financial statements.
Some of the peculiar items are listed below –
Subscriptions – It is a primary source of income. A not-for-profit organisation earns its major income from this source. Subscription is basically a membership fees collected by a not-for- profit organisation from its members annually. This amount facilitates the members in keeping their membership alive.
It is recorded on the receipt side of the Receipt and Payment account and on the income side of the Income and Expenditure account.
The only difference in recording the subscription amount in the accounts is that Receipt and Payment account records subscription actually received during the year, i.e., the period to which it relates to is irrelevant. And the Income and Expenditure account records amount related to only the current year irrespective of whether the amount has been received or not.
Donations – Another peculiar item which is present in the financial statements of a not-for-profit organisation is donations. These are amount received in cash or kind from any individual or an organisation. These are recorded on the receipt side of the Receipt and Payment account.
Donations can further be categorised into General and Specific Donations
i) General Donations are those which are received for no specific purpose in mind. They are given to meet the general objectives of the organisation. Since this forms the regular source of revenue it is recorded on the income side of the Income and Expenditure account.
ii) Specific Donations are to be used for a particular purpose and therefore they are capitalised and shown on the liability side of the Balance Sheet. The specific purpose for which the donation has been made could vary. It can be for expansion of a project or extension of a building etc.
Legacies – The amount left behind to the organisation by a deceased person in his will is another source of income for a not-for-profit organisation and is one of the peculiar items. If the will specifies the purpose for which it is to be utilised it is called Specific Legacy in which case it is shown in the Balance Sheet as a liability otherwise it is known as General Legacy and shown as income in the Income and Expenditure account because it is revenue receipt
Life Membership Fees/ Entrance Fees – When instead of paying the subscription amount annually, a member pays lump-sum amount it is referred to as Life Membership Fees. This peculiar item is to be dealt with while preparing the financial statements. It is capital receipt in nature and therefore shown in Balance Sheet under the head Capital Fund. The treatment of entrance fees is also the same as it is received only at the time a person becomes a member.
Sale of Periodicals/ Sale of sports material – Sale of Periodicals and sale of sports material by a sports club are recurring in nature, i.e., they happen quite regularly. Hence, they are recorded on the income side of the Income and Expenditure account.
Honorarium payment – Just like salary is paid to an employee, honorarium is a peculiar item which is paid to an artist who is not an employee of the organisation and is hired on a contractual basis to perform or attend any event. It is an expense of revenue nature and therefore recorded on the expense side of the Income and Expenditure account.
Government Grant – Government provide grants to organisation to support them in achieving the objectives. These grants could be given for a specific purpose or for general activities of the organisation. If a specific grant is received, it is capitalised and transferred to the specific fund account so created. For eg – grant received for expansion of a building is transferred to building fund account. If it is a grant of recurring nature, it is shown on the income side of the Income and Expenditure account.
Special Funds – Another peculiar item in the books of a not-for-profit organisation are the variety of funds created for meeting certain purposes. The most common funds are – prize fund, sports fund etc. The income earned on such funds is added to the fund balance and the expenses incurred in regard of meeting the objectives for which the fund was set up are deducted from the fund balance.