DEPARTMENT OF TECHNICAL EDUCATION :: AP

Name : N. USHA RANI

Designation : Lecturer
Branch : Commercial & Computer Practice (CCP)
Institute : GPW/Guntur
Year/Sem : III Sem
Sub-Code : CCP-302
Subject : ACCOUNTANCY-II
Topic : Non-Trading Concerns
Duration : 100 minutes
Sub Topic : Final Accounts & Terms used in Final
Accounts
Teaching Aids : PPT, ANIMATIONS
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Objectives:

On completion of the period, you would be able to:

understand various terms used in Final Accounts of Non-

Trading concerns for preparation of Final Accounts

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Recap:

In the previous classes, you learnt

 Meaning of Trading & Non-Trading concerns

 Meaning of Capital Expenditure and Capital

Receipt with examples

 Meaning of Revenue Expenditure and Revenue

Receipt with examples.
 Meaning of ‘Deferred Revenue Expenditure’.

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Known to unknown

 What are the statements prepared in Final

Accounts of Trading Concerns
1. Trading Account
2. Profit & Loss Account
3. Balance Sheet (Statement)

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Final Accounts of Non-Trading consist of

 Receipts and Payments Account

 Income and Expenditure Account
 Balance Sheet

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Receipts and Payments Account

2. All cash transactions entered

3. Both Revenue and Capital Receipts and Payments
entered
4. All Receipts posted on Debit side
5. All Payments posted on Credit side

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Income and Expenditure Account

1. Revenue Receipts and Revenue payments

only entered

2. Revenue expenditure to be Debited

3. Revenue Receipts to be Credited

4. Only recurring receipts and payments

entered

5. Revenue Receipts and Payments of the

current financial year only entered

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Some of the important items peculiar to
non-trading concerns are
1. Subscriptions
2. Donations
3. Legacy
4. Life Membership Fees
5. Honorarium
6. Entrance Fees
7. Sale of Sports Material
8. Sale of old Newspapers
9. Sale of old assets

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Other important terms of
non-trading concerns
10. Endowment Fund

11.Other Revenue Receipts

12. Receipts on Consumable Items

13. Purchase of Consumable Items

14. Revenue Expenses

15. Other Capital Expenditure

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1. Subscriptions

 Major source of income

 Recurring in nature
 It is a receipt
 Appears on the Debit side of Receipts and Payments
account
 Appears on the Credit side of Income and Expenditure
account

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2. Donations:

 It is received as gift from person/firm/company

Ex: land Donation to ‘Eye bank’

 Treatment depends on its nature

 It can be Specific or General Purpose

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Donations contd.

 Specific purpose Donation is capitalized (Balance

Sheet Liabilities side)
 General purpose Donation of small amount is
Revenue receipt Credited to Income and Expenditure

Account purpose Donation of large amount is

 General
capitalized

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3. Legacy:

 It is a rare item

 It is a gift of personal property by will

 Treated as Capital receipt and not posted to Income

and Expenditure Account

 Taken to Liabilities side of Balance Sheet

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4. Life Membership Fees

 Members required to pay membership fees annually

 Instead of annual subscription
 Life Membership Fees paid in one single payment
 Unless otherwise instructed, to be capitalised

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5. Honorarium
 Amount paid to Guest Lecturers or Professors
 For giving lectures to the members
 It is a Revenue Expenditure
 Appears on the Credit side of Receipts and Payments
account
 Appears on Debit side of Income and Expenditure
account

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6. Entrance Fees:

 It is received from New members.

 Posted to Liabilities side of Balance Sheet if

capitalized

 Posted to Credit side of Income and Expenditure

Account if taken as revenue income

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7. Sale of Sports Material:

 Sports material is an asset

 Sale of sports material treated as Revenue income

 Sale of bats, balls, old nets are some examples

 Credited to Income and Expenditure Account

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8. Sale of old Newspapers:

 It is Revenue income

 Credited to Income and Expenditure Account

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9. Sale of old Assets:

 Furniture is an example of old Assets

 Sale of furniture is a Capital Receipt and not posted

to Income and Expenditure Account

 Deducted from the Asset in the Balance Sheet

 Profit or loss on sale is Credited or Debited to Income

and Expenditure Account

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10. Endowment Fund:

 Permanent income source to the concern

 Treated as capital receipt

 Posted to Liabilities side of Balance Sheet

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 11. Other Revenue Receipts:

 It includes Rents, Proceeds from

Entertainments, Concerts, and
Interest on Investments.

 Credited to Income and Expenditure Account

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12. Receipts on Consumable Items:

 Treated as Revenue receipt.

 It includes amount received on sale of bar-material,

foods, cigars, cards, medicines.

 Credited to Income and Expenditure Account

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13. Purchase of Consumable Items:

 Purchase of above mentioned items treated as

Revenue Item.
 Posted to Income and Expenditure Account.

 Adjustment are made for purchase and sale of

consumable Items, any amount payable to supplier
and value of stock of the items.

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Purchase of Consumable Items contd.

 Net result taken to Income and Expenditure Account.

 Posted Assets side Balance Sheet, the value of stock

in hand

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14. Revenue Expenses:

 It is an expenditure paid for day to day activities.

 Examples:1. Salaries, Wages, Taxes, Rent, Printing and

Stationery, Subscription to newspapers
and periodicals, Advertisement, Interest,
Refreshment Expenses etc.

2. Expenses incurred for maintaining Fixed

Assets.
Eg: Repairs, Depreciation
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15. Other Capital Expenditure:

 Purchase of books, Furniture, Investment, Buildings

etc are assets

 Appears in Balance Sheet

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Illustration 1:

Explain how the following items are treated in the

Case of Non-Trading concern:

1. Charity fund, Rs.10,000; Charities paid Rs.3,000

2. Prize Fund, Rs.25,000; Interest received on Prize

Fund Investment Rs.1,250; Prizes paid 1,200

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Ilustraion 1 contd.

3. Receipts for Cricket Tournament, Rs.2,800;

Cricket Tournament expenses Rs.3,200

4. Proceeds from Benefit shows Rs.5,600;

Benefit show expenses Rs.3,200

5. Tennis Match expenses, Rs.900

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Solution and Notes:

1. Charity Fund is a specific Fund.

Hence Charities Paid of Rs. 3,000
are deducted from Charity Fund, Rs.10,000;
and the balance of charity Fund, Rs.7,000
is shown on the liabilities side of the balance sheet.

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Solution and Notes contd:

1. Prize Fund is a specific Fund.

Hence Interest (income) of Rs.1,250
arising from its investements,
is added to the Prize Fund of Rs. 25,000
(Total Rs.26,250) and from the total,
Prizes paid Rs.1,200 are deducted.
The balance of Prize Fund Rs.25,050 is
then shown on the liabilitiesside of the balance sheet

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Solution and Notes contd:

1. Receipt for Cricket Tournament:

There is no specific fund,
but receipts are for a specific purpose.
Hence the receipts of Rs. 2,800,being lesser
are deducted from the expenses Rs. 3,200
and the net amount of Rs.400 is
debited to Income & Expenditure a/c.

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Solution and Notes contd:
1. Benefit shows:
Since the receipts of Rs.5,600
are more than expenses of Rs.3200,
the net receipts of Rs.2400 are credited to
Income & Expenditure account as Proceeds
from benefit show.

5. Tennis Match Expense: Being an independent

expense, the entire Tennis Match Expense
Rs.900 is debited to Income and Expenditure
account.
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Summary
 All types of Incomes and Expenses ,irrespective of
the year (whether it is Previous, current or Next
year) they are shown in Receipts and Payments
Account

 All the Receipts are shown on Debit Side and all

the Payment are shown on Credit Side

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Summary contd.
 Only Current financial year’s Revenue Expenditure
is shown in Income & Expenditure Account on
Debit Side
 Only current financial year’s Revenue income is
shown in Income &Expenditure Account on Credit
Side

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Summary contd.

 Donations, and entrance are special types of

Accounts
 They will be treated as Capital income and Posted to
Balance Sheet On Liabilities Side unless and
otherwise specially mentioned as Revenue Income

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Summary contd.
Important terms of non-trading concerns
1. Subscriptions
2. Donations
3. Legacy
4. Life Membership Fees
5. Honorarium
6. Entrance Fees
7. Sale of Sports Material
8. Sale of old Newspapers
9. Sale of old assets

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Summary contd.
Other important terms of non-trading
concerns

10. Endowment Fund

11.Other Revenue Receipts

12. Receipts on Consumable Items

13. Purchase of Consumable Items

14. Revenue Expenses

15. Other Capital Expenditure

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Quiz

1. Final Accounts of Non-Trading concern consists of

a. Trading and Profit & Loss Account

b. Cash Account, Bank Account

a. Receipts and Payment Account, Income and

Expenditure Account, Balance Sheet.

d. None of the above

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2. Receipts and Payments Account contains

a. Revenue receipts

c. Capital Payments

e. Revenue and Capital Receipts and Payments

g. None of the above

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3. In Income and Expenditure Account, we
have to post only

a. Capital Receipts

c. Revenue Receipts

e. Revenue Receipts and Payments

g. None of the above

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4. Revenue items posted to Debit side of the
Receipts and Payments account are Credited to
the Income and Expenditure Account

a. Correct

c. Incorrect

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Frequently Asked Questions:

1. Briefly explain the following terms

a) Legacy b) Donations c) entrance fee

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