Question

What do you understand by non-profitable organisations? For what purposes is income and expenditure account prepared?

Hint:

For non-profit organizations, the Income and Expenditure Account serves as a key tool to evaluate how effectively funds are being used towards achieving organizational goals.

Answer 1

Non-profitable organizations are those organizations that do not have profit-making as their primary goal. Instead, their aim is to serve the community, provide public services, or support charitable causes. These organizations include charities, educational institutions, religious organizations, and clubs. Their primary focus is on fulfilling a social or humanitarian objective rather than earning profits.

Income and Expenditure Account: The Income and Expenditure Account is prepared to summarize the financial activities of non-profit organizations. The purpose of this account is to:

Determine Surplus or Deficit: It helps calculate the surplus or deficit for the financial year by comparing total income with total expenditures.
Show Operational Efficiency: The account reflects the efficiency of the organization in managing its income and expenses in achieving its non-profit objectives.
Monitor Funding and Contributions: It provides a record of funds received through donations, grants, or membership fees and how those funds are spent.
Accountability and Transparency: It helps maintain accountability to donors, stakeholders, and members by showing how the funds are being utilized.


Conclusion: The Income and Expenditure Account is essential for non-profit organizations to ensure financial transparency, manage funds responsibly, and determine the financial position for the year.