How To Be Registered As 501c Non Profit Organization

Definition: Non-turn a profit organisation are established to provide aid to society, such as developing charity, commerce and religion. Notwithstanding, it has a separate legal entity other than its members, and their primary objective is to provide services without the intention of earning profits in return similar trading organizations. The main source of earning for such organizations are "Donations"  and " Government Grants" which are not certain.

Thus, the fund received is treated as "Surplus" and non a profit in the organization'south income and expenditure account. This surplus fund will be utilized for the farther betterment of the organizations and providing more facilities to the society.

Content: Non-turn a profit organization

1. Types of Accounts
2. Format of Receipt and Payment Account
3. Format of Income and Expenditure Business relationship
4. Format of Rest sail
5. Features
6. Advantages
7. Disadvantages
8. Receipt and Payment Business relationship Vs Income and Expenditure Account
9. Conclusion

Types of Accounts in a Not-Turn a profit Organisation

Since, these organizations don't work for turn a profit-making, preparing trading and turn a profit and loss account is not relevant for them, these organizations prepare:

1. Receipts and Payments Account

Numerous charitable organizations gear up receipt and payment business relationship, which shows the random cash transactions that occurred throughout the year. Information technology is competent for small organizations, but it has a disadvantage that pre-payments and accrual payments are not recorded in it; withal,

• Information technology simply debits the account with all the receipts and credits the account with all the payments irrespective of its nature.
• It tin be revenue or capital nature payments for the current year, previous yr, successive year, and at last, it displays just bank or cash residue.

Format of Receipt and Payment Account

XYZ Limited
For the year concluded 31, December 2019

Receipts	₹	Payments	₹
To balance b/d cash 20 depository financial institution xx	xxx	By wages	xxx
To subscription -Previous year -Current year -successive year	30	By electricity	30
To life membership fees	xxx	By stationery	xxx
To donations	xxx	By banking concern charges	xxx
To interest	thirty	By travelling expenses	xxx
To dividend	xxx	By sundry expenses	xxx
To entrance fees	xxx	By repairs	xxx
To sundry receipts	xxx	By balance c/d greenbacks xx banking concern xx	30
	-------- XXXX --------		-------- XXXX --------

2. Income and Expenditure Account

Income and expenditure business relationship is the final account for the non-profit arrangement which deals with the revenue receipts and expenses. It is prepared on the basis of the accrual concept of bookkeeping, i.due east., it displays the summary of just current bookkeeping yr transactions regardless of whether received/paid in the current year or not.

All the incomes are recorded on the credit side, and all the expenses are recorded on the debit side of the statement. If the credit side exceeds debit side information technology would exist a surplus and vis-a- versa if debit side exceeds credit side information technology would be considered as a deficit. At last, the remaining balance, whether arrears or the surplus gets transferred to Upper-case letter account of the proprietor. It is like a profit and loss account of the trading organizations.

Format of Income and Expenditure Account

XYZ Limited
For the year concluded 31, December 2019

Expenditure	₹	Income	₹
To salary and wages (+) Previous Yr Prepaid (-) Current Year Prepaid	------- xxx	By donation	xxx
To depreciation	xxx	Past dividends	xxx
To repairs	30	By interest on deposits	30
To bad debts	xxx	By subscription (-) Previous twelvemonth outstanding (+) Current Year outstanding	------- 30
To press and jotter	thirty	By entrance fees	xxx
To rent	30	Past all revenue receipts	xxx
To all revenue payments	xxx	By grants received	30
To surplus *(excess of income over expenditure)	thirty	By deficit *(excess of expenditure over income)	thirty
	------- XXXX -------		------- XXXX -------

3. Balance sheet

Later preparing receipt and payment and income and expenditure account, the not-profit organization prepares balance sheet stating the position of the organization's assets and liabilities. Such organizations' rest sheet is like to the other trading organizations prepare at the end of the financial twelvemonth. Upper-case letter fund in it is the overall backlog capital after reducing all assets from all the liabilities, which includes acquirement earned as well every bit surplus earned throughout the year past the organisation.

Format of Balance sheet

XYZ Limited
As at 31, Dec 2019

Liabilities	₹	Assets	₹
Capital account (+)surplus (-)arrears (+)entrance fees (+)life membership subscription (capitalized) ---------------------	----- xxx -----	Current assets Cash and bank balance Fixed deposit ----------------	30 xxx ------ xxxx ------
Bank overdraft	xxx	Fixed assets Building (+)improver (-)depreciation ---------------------	xxx
Outstanding expenses	xxx	Furniture (+)improver (-)depreciation (-)sale of furniture ---------------------	30
Creditors	30	Investments Prize funds Government securities ---------------------	xxx xxx
Inventory	xxx	Machinery (+)addition (-)depreciation ---------------------	xxx
	------------- xxx -------------		------------- xxx -------------

Features of Non-profit System

Post-obit are the features of the Non-Turn a profit Organization:

1. The primary objective of such organizations is to serve gild.
2. No surplus gets distributed amongst its members.
3. Major funding is washed by donation and contribution in the non-profit organization.
4. The non-profit organization too considered as a dissever legal entity.
5. The elected members of the organization handle the administration.
6. Numerous non-turn a profit organizations are dependent on the agile assistance of the volunteers.

Advantages of Non-Profit System

Following are some of the advantages of Non-Turn a profit Organisation:

1. Enduring existence: Non- profit organizations have life even if the promoter or donour leaves the organisation. They are always admissible to brand revenue from other donours.
2. Tax exemption: Not- trading system are exempted from paying taxes to the government; thus, they can regulate their whole income dorsum in the organization's advancement.
3. Government grants: Non- profit organizations get various allocations from the government in the grade of government grants for the edification of the organisation and to benefit social club.
4. Defined debts: In example of whatsoever dispute creditors have explicit rights for suing on the organization; they tin only recover their debts with the organization'due south avails, and the owner is not liable to pay whatever indebtedness with his personal avails.
5. Inherent Compensation: Non- profit arrangement administer services and favour to the overlooked or neglected department of the society, such as impoverished children.

Disadvantages of Non-profit Organisation

Following are the disadvantages of the Non-Turn a profit Organization:

1. Time and Money: For starting a non-profit organization, information technology takes a lot of coin and devotion towards work, without whatever intention of earning turn a profit in return.
2. Maintenance Expenses: Non-profit organisation have to maintain the costs incurred during the year from the limited available funds and so that the organization continues for long run efficiently.
3. Public Enquiry: Anyone from the general public tin can ask for the non-profit organization's fillings and can review their incomes and expenditures. If you have a broad public-facing organisation, you go liable to answer their questions to maintain your organization'due south prototype.
4. No Gain: Non-profit organizations don't offer whatever profit to its members; thus, it becomes difficult sometimes to bring out business organization from the likely investors.
5. Filling Brunt: To maintain the active and exempt status, the non-profit organization's need to acknowledge almanac fillings to the government.

Receipt and Payment Account Vs Income and Expenditure Account

Basis of comparison	Receipt and Payment account	Income and Expenditure account
Initiation	Information technology automatically initiates with the opening balance carried forward from the previous twelvemonth.	It does non take any opening and endmost balance.
Nature	It is summary of the overall cash affairs of the organisation of the current accounting year.	Information technology is an assay of income and expenses of the organization.
Items	It comprises of both uppercase and acquirement receipts and payments.	It simply consists of acquirement items.
Balancing	At the time of closing accounts the rest left in this account is treated as cash-in-hand or banking company residuum.	It shows the surplus or the deficit at the finish of the year.
Recordings	In receipt and payment accounts subscriptions, Life membership fees, donations are recorded.	Provisions,bad debts, and depreciation is recorded is this account.
Debit/Credit	Receipts are debited and payments are credited in this account.	All expenses and losses are debited whereas; all incomes and gains are credited in this account.
System	Cash system of accountancy is used for preparing this business relationship.	Mercantile organisation of accountancy is used for making of this account.
Accounts	It is treated as a existent account.	It is treated as a nominal business relationship.
Outstanding balances	Outstanding expenses and incomes are not considered in this account,it merely deals with cash transactions.	All the outstanding expenses and incomes are considered in this account.

Conclusion

Non-profit arrangement piece of work for the edification of humanity without any promise of rewards in monetary and non-monetary class. Members in information technology work with devotion towards society and provide various charitable services for which authorities and different investors offer a fund to these organizations.

These organizations are gratis from the revenue enhancement burden, i.due east. they do not have to pay taxes to the government in the form of income tax, but they need to maintain proper records of their works in the organized format for getting this reward.

Source: https://theinvestorsbook.com/non-profit-organization.html

Posted by: jensenharks1998.blogspot.com

Share this post