CBSE Notes

By going through these CBSE Class 12 Accountancy Notes Chapter 2 Accounting for Partnership: Basic Concepts, students can recall all the concepts quickly.

Accounting for Partnership: Basic Concepts Notes Class 12 Accountancy Chapter 2

Due to the limitation of sole-tradership regarding limited capital, limited managerial abilities, the low scale of business, involves more risk due to unlimited liability, tie need of partnership arises. A partnership is a relation of mutual trust and faith. There are certain peculiarities in ” the accounts of partnership firm than those are prepared in the sole tradership firm. The main peculiarities regarding the accounting of partnership firms are maintenance of the capital accounts of partners, distribution of profits to the partners, etc.

Meaning of Partnership:
The partnership is an agreement written/oral between two or more persons who have agreed to do some lawful business and to share profit ! or loss arising from the business.

According to the Indian Partnership Act, 1932, Section 4
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

In partnership, two or more persons join hands to set up a business and share its profit and losses.

Persons who have entered into a partnership with one another are called individually partners and collectively ‘a firm’, and the name under which their business is carried on is called the ‘firm name’. A partnership firm is not a separate legal entity apart from the partners constituting it.

There must be a minimum of two persons to form a partnership firm, according to the Indian Partnership Act, 1932, but it does not specify the maximum number of partners. In this issue Section 11 of the Companies Act, 1956 limits the number of partners to 10 for a partnership carrying on banking business and 20 for a partnership carrying on any other type of business.

Features of Partnership
1. Two or More Persons: There must be a minimum of two persons to form a partnership firm, according to the Indian Partnership Act, 1932, but it does not specify the maximum number of partners. In this issue Section 11 of the Indian Companies Act, 1956 limits the number of partners to 10 (ten) for a partnership carrying on banking business and 20 (twenty) for a partnership carrying on any other type of business.

2. Agreement: Partnership comes into existence on account of an agreement among the partners, and not from status or operations of law. The agreement becomes the basis of the relationship between the partners. It may be written or oral. It may be for a fixed period or for a particular venture or at will.

3. Business: A partnership can be formed for the purpose of carrying on some lawful business with the intention of earning profits. Mere co-ownership of a property does not amount to a partnership.

4. Mutual Agency: The partnership business may be carried on by all the partners or any of them acting for all. This statement means that every partner is entitled to participate in the conduct of the affairs of its business and there exists a relationship of mutual agency between all the partners.

Partners are agents as well as principals for all other partners. Each partner can bind other partners by his acts and also is bound by the acts of other partners with regard to the business of the firm. Relationship of the mutual agency is so important feature of partnership that one can say that there would be no partnership if this feature is absent,

5. Sharing of Profit: The agreement between the partners must be to share the profits (or losses). Though the definition of partnership, according to Partnership Act, describes the partnership as the relationship between people who agree to share the profits of a business, the sharing of loss is implied. If some persons join hands for the purpose of some charitable activity, it will not be termed as a partnership.

6. Liability of Partnership: The liability of partnership is unlimited. Each partner is liable jointly with all the other partners and also individually to the third party for all the acts of the firm done while he is a partner.

Partnership Deed:
A partnership is formed by an agreement, it is essential that there must be some terms and conditions agreed upon by all the partners. These terms and conditions or Agreements may be written or oral. Though the Partnership Act does not expressly require that there should be an agreement in writing. But in order to avoid all misunderstandings and disputes, it is always the best course to have a written agreement duly signed and registered under the Act.

A document in writing which contains the terms of agreement for the partnership is called ‘Partnership Deed’. This document contains the details about all the aspects affecting the relationship between the partners including the objectives of the business, the contribution of capital by each partner, ratio in which the profit and losses will be shared by the partners, and entitlement of partners to interest on capital, interest on the loan, etc. The clauses of the partnership deed can be altered with the consent of all the partners.

Contents of Partnership Deed:

1. Names and Addresses of the firm and its main business.
2. Names and Addresses of all partners.
3. Amount of capital contributed or to be contributed by each partner.
4. The accounting period of the firm.
5. Date of commencement of partnership firm.
6. Rules regarding operations of a bank account.
7. Profit and loss sharing ratio.
8. Duration of partnership, if any.
9. Rate of interest on capital, loan, drawings, etc.
10. Salaries, commissions, etc., if payable to any partner(s).
11. The rights, duties, and liabilities of each partner.
12. Mode of auditor’s appointment, if any.
13. Rules to be followed in case of admission, retirement, death of a partner.
14. Rules to be followed in case of insolvency of one or more partners.
15. Settlement of accounts on the dissolution of the firm.
16. Rules for the settlement of disputes among the partners.
17. Safe custody of the books of accounts and other documents of the firm.
18. Any other matter relating to the conduct of business.

Provisions Relevant for (Affecting) Accounting of Partnership:
Normally, the partnership deed covers all matters relating to the mutual relationship of partners amongst themselves. But if the partnership silent on certain matters, or in the absence of any deed, the provisions of the Indian Partnership Act, 1932 shall apply.

The important provisions affecting partnership accounts are:

1. Profit-Sharing Ratio: In absence of deed or agreement, according to the act, the profit-sharing ratio is equal i.e. the profit and loss of the firm are to be shared equally by the partners, irrespective of their capital contribution in the firm.
2. Interest on Capital: No interest on capital shall be allowed to the partners. In case the deed provides for payment of interest on capital but does not specify the rate, the interest will be paid at the rate of 6% p.a., only from the profits of the firm. It is not payable if the firm incurs losses during the period.
3. Interest on Drawings: No interest is to be charged on drawings.
4. Interest on Loan, Advances: If any partner, apart from his capital, provides a loan to the firm, he is entitled to get interested at the rate of 6% per annum. Such interest shall be paid even if there a losses to the firm.
5. Remuneration to Partners: No partner is entitled to any salary or commission for participating in the business of the firm.

Apart from the above, the Indian Partnership Act specifies that subject to a contract between the partners:

• If a partner derives any profit for himself/herself from any transaction of the firm or from the use of the property or business connection of the firm or the firm name, he/ she shall account for the profit and pay it to the firm
• If a partner carries on any business of the same nature as and competing with that of the firm, he/she shall account for and pay to the firm, all profit made by him/her in that business.

Maintenance of Capital Accounts of Partners:
There are two methods by which the capital accounts of partners are maintained. They are the following:
(a) Fixed Capital Method
(b) Fluctuating Capital Method

(a) Fixed Capital Method: Under the fixed capital method, the capitals of the partner shall remain fixed or unaltered unless some additional capital is introduced or some amount of capital is withdrawn with the consent of all the partners.

In this method, two accounts for each partner are to be maintained:

1. Capital Account
2. Current Account.

1. Capital Account: This account is credited with the amount of capital introduced by the partner. This account will continue to show the same balance from year to year unless some amount of capital is introduced or withdrawn. This account always appears on the liabilities side in the balance sheet.

2. Current Account: All entries relating to drawings, interest on capital, interest on drawings, salary or commission, the share of profit or loss, etc. are made in this account. This account is debited with drawings, interest on drawings, the share of loss, etc. and credited with the interest on capital, salary, commission, the share of profit, etc. The balance of this account will fluctuate from year to year. If it has a credit balance then it will appear on the liabilities side of the Balance Sheet and if it has a debit balance then it will appear on the assets side of the Balance Sheet.

The format of the Capital Account and Current account are as follows:


(b) Fluctuating Capital Method: Under this method, only one account i.e. Capital Account is maintained for each partner. All the entries relating to the interest on capital, salary, commission to partners, the share of profit and loss, drawings, interest on drawings, etc. are directly recorded in the capital accounts of the partners. The balance of this account fluctuates from year to year. The format of Fluctuating Capital Account is as follows:

Partner’s Capital Account

Difference between Fixed and Fluctuating Capital Accounts


Profit and Loss Appropriation Account:
In partnership, net profit after adjustment of partner’s interest on capital, salary, and commission to partner’s, interest on drawings, etc. is distributed among the partners in the agreed profit sharing ratio. For this purpose, a separate account is prepared called Profit and Loss Appropriation Account.

It is merely an extension of the Profit and Loss Account. All adjustments in respect of partner’s commission and salary, interest on capital and on drawings, etc. are made through this account. It starts with the net profit/net loss as per the Profit and Loss Account is transferred to this account.

Journal Entries relating to Profit and Loss Appropriation Account:
1. Transfer of Net Profit/Net Loss as per Profit and Loss Account to Profit and Loss Appropriation Account:
(a) If Profit:
Profit and Loss A/c Dr.
To Profit and Loss App. A/c

(b) If Loss:
Profit and Loss App. A/c Dr.
To Profit and Loss A/c

2. Interest on Capital:
(a) For crediting interest on capital to partner’s Capital/Current
Account:
Interest on Capital A/c Dr.
To Partner’s Capital A/c or Current A/c (Individually)

(b) For transferring interest on Capital to Profit and Loss Appropriation A/c:
Profit and Loss App. A/c Dr
To Interest on Capital A/c OR

Only one entry may be passed in place of the above two entries:
Profit and Loss Appropriation A/c Dr.
To Partner’s Capital/Current A/c (Individually)

3. Interest on Drawings:
(a) For charging interest on drawings to partner’s Capital/ Current A/c:
Partners Capital/Current A/c (Individually) Dr.
To Interest on Drawings A/c

(b) For transferring interest on drawings to Profit and Loss Appropriation Account:
Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c OR

Only one entry may be passed in place of the above two entries:
Partner’s Capital/Current A/c (Individually) Dr.
To Profit and Loss Appropriation A/c

4. Salary to Partner(s):
(a) For crediting partner’s salary’ to partner’s Capital/Current A/c:
Salary to Partner A/c Dr.
To Partner’s Capital /Current A/c (Individually)

(b) For transferring partner’s salary to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Salary to Partner A/c OR

Only one entry may be passed in place of the above two entries:
Profit and Loss Appropriation A/c Dr.
To Partner’s Capital/Current A/c (Individually)

5. Commission to Partner(s):
(a) For crediting partner’s commission to partner’s Capital/ Current A/c:
Commission to Partner A/c Dr.
To Partner’s Capital/Current A/c (Individually)

(b) For transferring partner’s commission to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Commission to Partner A/c OR

Only one entry may be passed in place of the above two entries:
Profit and Loss Appropriation A/c Dr.
To Partner’s Capital/Current A/c (Individually)

6. Share of Profit/Loss after adjustments:
(a) If Profit
Profit and Loss Appropriation A/c Dr.
To partner’s Capital/Current A/c (Individually)
OR
(b) If Loss:
Partner’s Capital/Current A/c (Individually) Dr. To Profit and Loss Appropriation A/c
Format of Profit and Loss Appropriation Account is given below:
Profit and Loss Appropriation Account

Interest on Capital:
Interest on Capital is generally provided for in two situations:

1. When the partners contribute unequal amounts of capital but share profits equally.
2. When the capital contribution is the same but profit sharing is unequal.
   Interest on Capital = Amount of Capital × \(\frac{\text { Rate }}{100}\) × Time

When there are both addition and withdrawal of capital by the partners during the financial year, the interest on capital can be calculated as:
1. On the opening balance of Capital A/c, interest is calculated for the whole year.
If the closing balance of the Capital A/c is given then we have to find the opening balance of Capital A/c:
Closing Capital + Drawings during the year + Interest on Drawing – Share of Profits – Salary to Partner – Commission
to Partner – Additional Capital = Opening Capital

2. On the additional capital brought in by any partner during the year, interest is calculated from the date of introduction of additional capital to the last day of the financial year

3. On the amount of capital withdrawn (other than usual drawings) during the year interest for the period from the date of withdrawal to the last day of the financial year is calculated and deducted from the total of the interest calculated under points (1) and (2) above.
Or
Drawing has been made then the amount deducted from the capital and interest is calculated on the balance amount.

The interest on capital is allowed only when there is profit during the financial year. No interest will be allowed on capital if the firm has incurred a net loss during the year. If the profit of the firm is less than the amount due to the partners as interest on capital, the payment of interest will be restricted to the number of profits. In other words, profit will be distributed in the ratio of interest on capital of each partner.

Interest on Drawings:
Drawings is the amount withdrawn, in cash or in-kind, for personal use by the partner(s). Interest on drawings is calculated with reference to the date of withdrawal.

The calculation of interest on drawings under different situations is shown as under:
(a) When Fixed Amount is Withdrawn Every Month/Quarter:
If the equal amount is withdrawn at equal intervals of times, interest on the drawing can be calculated by Monthly/Quarterly Drawing Methods. While calculating the time period, attention must be paid to whether the fixed amount was withdrawn on the first day (beginning) of the month, at the last day (end) of the month, middle of the month, at the beginning of the Quarter or at the end of Quarter. Depending upon the time period the interest on drawings can be calculated as follows:

When drawings are made:
1. At the beginning of each month of the financial year:
Interest on Drawings = Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{6^{1 / 2}}{12}\)
Here, time period is 6\(\frac{1}{2}\) months.

2. At the middle of each month of the financial year
Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{6}{12}\)
Here, time period is 6 months.

3. At the and of each month of the financial year:
Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{5^{1 / 2}}{12}\)
Here, time period is 5\(\frac{1}{2}\) months.

4. At the beginning of the eaclr quarter of the financial year:
Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{7^{1 / 2}}{12}\)
Here, time period is 7\(\frac{1}{2}\) months.

5. At the end of each quarter of the financial year:
Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{4^{1 / 2}}{12}\)
Here, time period is 4\(\frac{1}{2}\) months.

(b) When Varying Amounts are Withdrawn at Different Intervals: When the partners withdraw different amounts of money at different time intervals, the interest is calculated using the production method. In this method, each amount of drawing is multiplied by the number of days/months (from the date of drawings to the last date of the financial year) to find out the product and then all the products are totaled. Here, the total product and interest for 1 month at the given rate are calculated.

Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{1}{12}\)
or
\(\frac{1}{365}\)

(c) When Dates of Withdrawal are Not Specified: When the total amount withdrawn is given but the dates of withdrawals are not specified, then it is assumed that the amount was withdrawn evenly throughout the year. Here, the time period is taken 6 months.
Interest on Drawings = Total Drawings × \(\frac{\text { Rate }}{100} \times \frac{6}{12}\)

Guarantee of Profit to a Partner:
Sometimes a partner may be guaranteed a minimum amount of profit by one or some or by all the partners in the existing profit sharing ratio or some other agreed ratio. The minimum guaranteed amount shall be paid to a partner when his share of profit as per the profit-sharing ratio is less than the guaranteed amount.

The following steps may be followed in this case:

1. Calculate the share of profit of the partner who has been guaranteed a minimum amount of profit as per profit sharing ratio. If this amount is more than or equal to the amount guaranteed, no adjustment is required.
2. If the share of profit of that partner is less than the guaranteed amount, then we have to find out the difference between the guaranteed amount and the share of profit of that partner.
3. Then, we add this difference to the share of the profit of the partner and deduct the difference from the share of profit of other partners or partner who has guaranteed the amount in the agreed ratio.

Past Adjustments:
Sometimes, after making of final accounts and the distribution of profits among the partners, a few omissions or errors in the recording of transactions or the preparation of summary statements are found. These errors or omissions need adjustments for correction of their impact.

This error or omissions may relate to:

1. Interest on capital may have omitted or have been wrongly treated.
2. Interest in drawings may have been omitted.
3. Salary or commission payable has been omitted in the capital account of the partner.
4. The profit-sharing ratio has been changed from the past.
5. Interest in the partner’s loan has been omitted.

Instead of altering old accounts, necessary adjustments can be made either by:
(a) through ‘Profit and Loss Adjustment Account’
Or
(b) directly in the capital account of the concerned partners.

(a) Profit and Loss Adjustment Account:
1. For omission of Interest on Capital, Salaries to partner(s), Commission to partner, etc.
Profit and Loss Adjustment Account Dr.
To Partner’s Capital/Current A/c (Individually)

2. For omission of Interest on drawings etc
Partner’s Capital/Current A/c Dr.
To Profit and Loss Adjustment Account

3. Calculate the difference or balance of the Profit and Loss Adjustment Account and transfer it to the Capital/Current Accounts of partners in the profit-sharing ratio.
(a) If Profit (Credit balance):
Profit and Loss Adjustment A/c Dr.
To Partner’s Capital/Current A/c (Individually)
OR

(b) If Loss (Debit balance):
Partner’s Capital/Current A/c (Individually) Dr.
To Profit and Loss Adjustment A/c (b) Adjustment through a single entry or directly in the capital account of the concerned partner(s):

In this case, the following steps should be taken:

1. Calculate amount which should have been credited to each partner’s Capital/Current Account by way of (Interest on Capital + Salaries to Partner(s) + Commission to Partner(s) – Interest on Drawings etc.)
2. Distribute the amount calculated in step (1) in the current profit sharing ratio.
3. Calculate the difference between the above two steps for each partner (1) – (2)
   (-) Excess or (+) Short

Pass the following Journal entry:
Excess having Partner’s Capital A/c Dr.
To Short Partner’s Capital A/c

By going through these CBSE Class 12 Accountancy Notes Chapter 1 Accounting for Not for Profit Organisation, students can recall all the concepts quickly.

Accounting for Not for Profit Organisation Notes Class 12 Accountancy Chapter 1

There are certain institution or organization which are set-up not to earn a profit, but for providing service to its members and the public in general. The main aim of this institution or organization is rendering service to its members and the public, but not the profit as in the case of business. Such organization includes schools, hospitals, clubs, charitable institutions, religious organizations, trade unions, welfare societies, consumer-cooperatives, literary societies, etc.

These organizations or institutions are managed by a group of people known as trustees who are fully accountable to their members and the society for the utilization of funds and the objectives of the organization. So, they have to maintain proper accounts and financial statements in the form of the Receipt and Payment Account, Income and Expenditure Account, and the Balance Sheet. This financial statement helps them to keep track of their income and expenditure as well as fulfill the legal requirements for maintaining records.

Meaning of Not-For-Profit Organisation:
All trading and business organizations are profit organizations since their main objective is to earn profit. Not-For-Profit Organisations are those organizations whose main aim/objective is to rendering service to their members or the society at large and not the earning of profits.

These organizations refer to the organizations that are set up for the welfare of the society, as charitable institutions, which run without a profit motive. Their main aim is to provide services to its members or the society at large. The funds, raised by such organizations are represented as capital funds or general funds. The main source; of their income usually are subscriptions from their members, donations, grants, income from investment, etc.

These organization keeps the accounting records to meet the statutory requirements and controlling utilization of their funds. They usually prepare them at the end of the financial year to ascertain their income and expenditure and the financial position of the organization and submit them to the statutory authority i.e. Registrar of Societies.

Characteristics of Not-For-Profit Organisation:
1. Service Motive: The main motive of these organizations is service motive. They provide service either free of cost or at a nominal cost and not to earn profit. These are formed for rendering service to a specific group or society at large such as education, health care, recreation, sports, and so on without any consideration of caste, creed, and color.

2. Organisation: Not-For-Profit Organisations are organized as charitable trusts or societies. The subscribers to such trust or societies are called its members.

3. Management: The affairs of Not-For-Profit Organisations are normally managed by a managing committee or executive committee. These committees are elected by their members or subscribers.

4. Source of Income: The main source of income of these organizations are:

1. Subscriptions from members
2. Life-membership fees
3. Endowment fund
4. Donations
5. Legacies
6. Grant-in-aid
7. Income from investments etc.

5. Capital Fund or General Fund: The funds raised by Not-For-Profit Organisations through various sources are credited to capital funds or general funds.

6. Surplus Added to Capital Fund: The surplus generated in the form of excess income over expenditure is simply added to the capital fund or general fund. It is not distributed amongst the members as in trading or business organization.

7. Goodwill: The Not-For-Profit Organisation earn their reputation or goodwill on the basis of their contribution to the welfare of the society rather than on the customers’ satisfaction or owner’s satisfaction.

8. Accounting Records: The accounting records of these organizations are totally different from the trading or business organization. They are not prepared financial statements like Trading Account and Profit and Loss Account, instead, they prepare Receipts and Payment Account and Income and Expenditure Account. The preparation of the Balance Sheet is the same in both organizations.

9. Statutory Requirement: The accounting information provided by such organizations is meant for the present and potential contributors to meet the statutory requirements.

Accounting Records of Not-For-Profit Organisations:
As we know that Not-For-Profit Organisations are not engaged in any trading or business activity normally. Their main source of income is subscriptions/donations, financial assistance or grant from the government, etc. Most of their transactions are in form of cash or through the bank. These organizations are required by law to keep proper accounting records and keep proper control over the utilization of their funds.

For maintaining accounting records these organizations usually keep a cash book to record all receipts and payments and maintain ledger accounts of all income, expenses, assets, and liabilities. In addition, they maintain a stock register to keep records of all fixed assets and consumables.

In place of the capital account, they maintain a capital fund or general fund that goes on increases due to surpluses, life membership fees, donations, legacies, etc. received from year to year.

Final Accounts or Financial Statements of Not-For-Profit Organisations:
As they are non-profit making entities, so they are not required to make Trading and Profit and Loss Account but instead of these accounts to know whether the income during the year was enough to meet the expenses or not they prepare:

1. Receipts and Payment Account,
2. Income and Expenditure Account, and
3. Balance Sheet.

For the preparation of these financial statements, the general principles of accounting are fully applicable. The statements provide the necessary financial information to members, donors, and to the Registrar of Societies.

Along with all these, Not-For-Profit organizations also prepare a trial balance for checking the accuracy of ledger accounts. The trial balance also facilitates the preparation of an accurate Receipt and Payment Account as well as the Income and Expenditure Account and the Balance Sheet.

Receipts and Payment Account:
A Receipts and Payments Account is a summary of cash A transactions. It is prepared at the end of the accounting period from the cash receipts journal and cash payment journals.

“Receipts and Payment Account is nothing more than a summary of the cash book (Cash and Bank transactions) over a certain period, analyzed and classified under the suitable heading. It is the form of account most commonly adopted by the treasurers of societies, clubs, associations, etc. When preparing the results of the year’s working.” – William Pickles

In ‘other words, the Receipt and Payment Account simply is a summary of cash and bank transactions under various heads. On the debit side, it begins with an opening balance of cash and bank and records all the items of receipts irrespective of whether they are of capital or revenue nature or whether they pertain to the current or past or future accounting periods.

The payments are recorded on the credit side without making any distinction between items of revenue and capital nature and whether they belong to the current or past or future accounting period(s). It may be noted that this account does not show any non-cash item like depreciation.

At the end of the period, this account is balanced to ascertain the balance of cash in hand or cash at the bank. The annual totals of various items of receipts and payments are found from their respective accounts in the ledger or from the cash book and are then entered in the Receipts and Payment Account.

Salient Features of Receipts and Payment Account:
1. Real Account: It is a real account, so the rule of a real account i.e. ‘Debit what comes in and credit what goes out, is followed. Thus receipts are recorded on the Debit side and the payments are recorded on the Credit side.

2. Summary of the Cash Book: It is a summary of the cash book. Its form is similar to cash book (without discount and bank column) with debit and credit sides.

3. Shows amount irrespective of period: It shows the total amount of all receipts and payments irrespective of the period to which they pertain.

4. No distinction between nature (Capital or Revenue nature): It includes all receipts and payments whether they are of capital nature or of revenue nature.

5. No distinction between the mode of the transaction (Cash or Bank): No distinction is made in receipts/payments made in cash or through the bank. With the exception of the opening and closing balances, the total amount of each receipt and payment is shown in this account.

6. Do not show non-cash items: Non-cash items like depreciation, outstanding expenses, accrued income, etc. are not shown in this account.

7. Opening and closing balances: The opening and closing balance in its respective mean cash in hand or cash at a bank in the j beginning and at the end. The balance of receipts and payment account must be debit being cash in hand or cash at the bank unless there is a bank overdraft.

8. Does not reflect net income or net loss: Thir account does not tell us whether the current income exceeds the current expenditure or vice versa or in other words, it does not give any information of net 1 income or a net loss.

Steps in the prepare ion of Receipt and Payment Account:
1. Put the opening balance of cash in hand and cash at the bank at the beginning on the Receipt side. If there is a bank overdraft at the beginning, but the same in the Payment side of the account.

2. Enter the total amounts of all receipts (either cash or cheque) in the Receipt side (Dr. side) irrespective of their nature, (whether capital or revenue) and whether they pertain to past, present, and future periods.

3. Enter the total amounts of all payments (either cash or cheque) in the Payment side (Cr. side) irrespective of their nature (whether capital or revenue) and whether they pertain to past, present, and future periods.

4. Do not enter the non-cash item like depreciation, outstanding expenses, accrued income, etc.

5. Find out the difference between the total debit side and the total credit side of the tired account and enter the same on the credit side as the closing balance of cash or bank balances.

But, if the total of credit side is more than of debit side, show the difference on the debit as bank overdraft and close the account.

Examples of Important Receipts and Payments Items:

Format of Receipts and Payments A/c:


There will be either of the two amounts i.e. cash at a bank or bank overdraft, not both.

Limitations of Receipts and Payments Account:

1. It does not show expenses and incomes on an accrual basis.
2. It does not show whether the organization is able to meet its day-to-day expenses out of its income.

Income and Expenditure Account:
It is a nominal account of the Not-For-Profit Organisation equivalent to the profit and loss account of the trading concerns. The terms profit is substituted by the words excess of income over expenditure (surplus) and the loss is expressed as an excess of expenditure over income (deficit).

It reveals the surplus or deficit arising out of the organization’s activities during an accounting period. This account is prepared on an accrual basis and includes only items of revenue nature. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side (debit side), and incomes and gains on the income side (credit side) of the account. It shows the net operating result in the form of surplus or deficit, which is transferred to the capital fund shown in the balance sheet.

Salient Features of Income and Expenditure Account:
1. Nominal Account: It is a nominal account, therefore the rule of nominal account i.e. “Debit all expenses and losses and credit all incomes and gains” is followed.

2. Ignore Items of Capital Nature: In this account, only items of revenue nature are to be considered and all the items of capital nature should be ignored.

3. Prepare from Receipt and Payment Account: It is generally
prepared from a given Receipts and Payments Account and other information after making necessary adjustments.

4. No Opening and Closing Balances: In this account, no opening and closing balances of cash and bank are recorded.

5. Same as Profit and Loss Account: This account is prepared in the same manner in which a Profit and Loss Account is prepared, considering, all adjustments relating to the current year.

6. Exclude Past and Future Items: It excludes all the items of j income and expenditure which do not pertain to the current period.

7. End-balance of this Account: The end balance of the Income and Expenditure Account, which may be either ‘excess of income over expenditures’ or ‘excess of expenditure over income’ would be added to or deducted from, as the case may be, tire capital fund, on the liabilities side of the Balance Sheet.

Steps in the Preparation of Income Expenditure Account:

1. From the Receipts and Payments, the Account excludes the opening and closing balance of cash and bank as they are not an income.
2. Exclude the items of capital nature as these are to be shown in the balance sheet.
3. Take out the revenue receipts only for the current year to be shown on the income side of the Income and Expenditure Account. These are adjusted by excluded the amounts relating to the preceding and the succeeding periods and including the amounts relating to the current year not yet received.
4. Take out the revenue payments only for the current year to be shown on the expenditure side of the Income and Expenditure Account. These are adjusted by excluded the amounts relating to the preceding and the succeeding periods and including the amounts relating to the current year not yet paid,
5. Make the adjustments of non-cash items like:
   (a) Depreciation on fixed assets.
   (b) Provision for doubtful debts, if required.
   (c) Profit or Loss on sale of fixed assets etc.

For determining the surplus/deficit for the current year.

So, we can also prepare the Income and Expenditure Account with the help of the following methods after considering Receipt and Payment Account and information given:

Income and Expenditure Account for the year ended.

Format of Income and Expenditure Account Income and Expenditure Account for the year” ended.


The distinction between Income and Expenditure Account and Receipt and Payment Account


Balance Sheet:
Not-For-Profit organizations prepare a Balance Sheet at the end of an accounting period to ascertain the financial position of the organization. The preparation of their Balance Sheet is the same as that of the business or trading entities. It is prepared in the usual way showing assets on the ‘right-hand side’ and the liabilities on the ‘left-hand side. However, the term capital is not to be found.

Instead, there will be a capital fund or a general fund, or an accumulated fund, and the surplus or deficit as per Income and Expenditure Account shall be added to or deducted from this fund. Some capitalized items like legacies, entrance fees, and life membership fees directly (added) in the capital fund.

Sometimes it becomes necessary to prepare a Balance Sheet at the beginning of the year in order to find out the opening balance of the capital/general fund.

Steps in the Preparation of Balance Sheet:
1. Find out the Capital fund as per the Opening Balance Sheet and add surplus from the Income and Expenditure Account. Then, add capitalized items like legacies, entrance fees, and life membership fees, etc. received during the year.

2. Put all the fixed assets (from the opening balance sheet) with additions (from Receipts and Payments Account) after charging depreciation (as per Income and Expenditure Account), on the assets side of the balance sheet.

3. Compare items on the receipts side of the Receipts and Payments Account with the income side of the Income and Expenditure Account to find out the amounts of:
(a) Subscription due but not yet received,
(b) Income received in advance,
(c) Sale of fixed assets made during the year,
(d) Items to be capitalized etc.

4. Compare items on the payment side of the Receipts and Payments Account with the expenditure side of the Income and Expenditure Account to find out the amount of:
(a) Outstanding Expenses,
(b) Prepaid Expenses,
(c) Purchases of a fixed asset during the year,
(d) Depreciation on fixed assets,
(e) Stock of consumable items like stationery in hand,
(f) Closing balance of cash in hand and cash at bank etc.

Format of Balance Sheet:
Balance Sheet of……………………
as on…………………….

Some Important items relating to Not-For-Profit Organisations:
1. Subscription: It is the amount paid by the members of the organization periodically so that their membership is not canceled. This is the main source of income of Not-For-Profit Organisations.

Treatment:

1. The total amount of subscriptions received during the accounting period is shown on the receipt side (Dr. side) of the Receipt and Payment Account.
2. Subscription related to the current period shown in the income side (Cr. side) of Income and Expenditure Account. The amount of subscription to be shown in the Income and Expenditure Account is calculated as follows :
   Table Showing Calculation of Subscriptions
   
   or
   Subscription Account
   
3. Subscription Outstanding at the end of the year is shown on the assets side of the Balance Sheet and subscription received in advance in the current year for the next year is shown on ‘ the liabilities side of the Balance Sheet.

2. Donations: It is a type of gift in cash or in property received from some person, firm, or company. The donation can be for specific purposes or for general purposes. Both the donation received appears on the receipts side of the Receipts and Payments Account.
1. Specific Donations: If the amount received as the donation is for a specific purpose such as a donation for extension of the existing building, donation for the library, for construction of new computer laboratory, etc., it is capitalized and is shown in the liabilities side of Balance Sheet.

2. General Donations: Such donations are to be utilized to promote the general purpose of the organization. It is of two types:
(a) General Donation of Big Amount: It is shown on the liability side of the Balance Sheet because it is non-recurring in nature as the donations of huge amounts cannot be expected every year.
(b) General Donation of Small Amount: These are treated as revenue receipts as it is a regular source of income hence, it is taken to the income side of the Income and Expenditure Account of the current year.

3. Legacies: It is in the nature of a gift, received in cash or in the property as per the will of a deceased person. It is not treated as an income because it is not of recurring nature. Such receipts come very rarely and therefore it is of a capital nature and is shown on the liabilities side of the Balance §heet. It appears on the receipt side of the Receipts and Payments Account and is directly added to Capital Fund in the Balance Sheet. However, legacies of the small amount may be treated as income and show on the income side of the Income and Expenditure Account.

4. Life Membership Fees: In order to become a member of an organization for the whole of the life, some members pay the fee in lump sum i.e. once in their lifetime. It is a receipt of non-recurring nature since the members will not be required to pay the fees regularly. It is shown on the receipt side of the Receipt and Payment Account and added to the Capital Fund in the Balance Sheet. It should not be credited to the Income and Expenditure Account.

5. Entrance Fees: The entrance fee also known as the Admission Fee is paid only once the member at the time of becoming a member.
1. In the case of organizations like clubs and some charitable institutions, where the membership is limited and the amount of Entrance Fees is quite large. It is treated as a non-¬recurring item and added directly to Capital Fund in the Balance Sheet and also shows in the receipt side of the Receipt and Payment Account.

2. For some organizations like educational institutions the entrance fee is a regular income and the amount is quite small. So it is treated as the recurring item and shown in the income side of the Income and Expenditure Account. It is also shown on the receipt side by the Receipt and Payment Account.

From the examination point of view, if there is no specific instruction about Entrance Fees, it should be treated as Capital Receipt and directly added to Capital Fund in the Balance Sheet.

6. Sale of Old Assets: Receipt from the sale of the old asset appears in the receipt side of Receipt and Payment Account. Only the profit or loss on the sale of a fixed asset is credited or debited, as the case may be, to the Income and Expenditure Account. In the Balance Sheet, the book value of the asset sold should be deducted from the relevant asset.

7. Sale of Periodicals: Receipts from the sale of periodicals shown in the receipt side of Receipt and Payment Account. It is an item of recurring nature and shown in the income side of the Income and Expenditure Account.

8. Sale of Sports Materials: The sale of sports materials like old bats, old nets, etc. is a regular feature with any sports club. It is treated as revenue income on the assumption that their book value is zero. It is therefore shown in the income side of the Income and Expenditure Account. It is also shown on the receipt side of the Receipt and Payment Account.

9. Payment of Honorarium: It is the payment made to a person for his specific services rendered by him, not as a regular employee. This is an item of expense and is shown in the ‘debit or expenditure side’ of the Income and Expenditure Account.

10. Endowment Fund: “It is a fund arising from a bequest or gift, the income of which is devoted for a specific purpose. – Eric L. Kohler

Thus, Endowment Fund is a capital receipt and is shown on the liabilities side of the Balance Sheet.

11. Government Grant: Some organizations like schools, colleges, public hospitals, etc. depend upon Government grants for their activities.

It is shown on the receipt side of the Receipt and Payment Account:

1. The tie maintenance grant is a recurring grant. It is treated as a revenue receipt and shown on the income side of the Income and Expenditure Account.
2. Grants such as building grants are treated as capital receipts and transferred to the building fund account.
   Cash subsidy: Some Not-For-Profit Organisations receive cash subsidies from the Government or Government agencies. This subsidy is also treated as revenue income for the year in which it is received.

12. Special Funds: Not-For-Profit Organisation creates some special funds for a specific purpose such as ‘prize funds’, ‘match fund’ and ‘sports fund’ etc. The number of such hands is invested in securities and the income earned on such investment is added to the respective fund, not credited to the Income and Expenditure Account. Similarly, the expenses incurred on such a specific purpose are also deducted from the fund.

13. Stationery (or some consumable items): Expenses incurred on Stationery (or some consumable items) are charged to the Income and Expenditure Account.

If the opening or closing stock of stationery is given, then the amount of stationery consumed during the year will be shown in the Income and Expenditure Account and the closing stock in the Balance Sheet.

The calculation for Expenses for the Current Year

Total Amount Paid shown in Payment side of Receipt and Payment Account. Outstanding expenses at the end of the current year shown in the Liabilities side of the Balance Sheet and prepaid at the end shown in the Assets side of the Balance Sheet.

The calculation for Income for the Current Year

Total Amount Received shown in Receipt side of Receipt and Payment Account. Accrued income at the end of the current year shown in assets side of Balance Sheet and Income received in advance at the end of the current year shown in the liabilities side of Balance Sheet

Studying from CBSE Class 11th Accountancy Revision Notes helps students to prepare for the exam in a well-structured and organised way. Making Class 11 Accountancy Theory Notes Pdf saves students time during revision as they don’t have to go through the entire textbook. In CBSE Notes, students find the summary of the complete chapters in a short and concise way. Students can refer to the NCERT Solutions for Class 11 Accountancy, to get the answers to the exercise questions.

Accountancy Class 11 Notes| Theory Notes of Accountancy Class 11

Class 11 Accounts Notes: Financial Accounting Part 1

• Chapter 1 Introduction to Accounting Class 11 Notes
• Chapter 2 Theory Base of Accounting Class 11 Notes
• Chapter 3 Recording of Transactions 1 Class 11 Notes
• Chapter 4 Recording of Transactions 2 Class 11 Notes
• Chapter 5 Bank Reconciliation Statement Class 11 Notes
• Chapter 6 Trial Balance and Rectification of Errors Class 11 Notes
• Chapter 7 Depreciation, Provisions and Reserves Class 11 Notes
• Chapter 8 Bills of Exchange Class 11 Notes

Notes of Accounts Class 11: Financial Accounting Part 2

• Chapter 9 Financial Statements 1 Class 11 Notes
• Chapter 10 Financial Statements 2 Class 11 Notes
• Chapter 11 Accounts from Incomplete Records Class 11 Notes
• Chapter 12 Applications of Computers in Accounting Class 11 Notes
• Chapter 13 Computerised Accounting System Class 11 Notes
• Chapter 14 Structuring Database for Accounting Class 11 Notes
• Chapter 15 Accounting System Using Database Management System Class 11 Notes
• Chapter 16 Accounting for Not-for-Profit Organisation Class 11 Notes

We hope students have found these CBSE Class 11 Accountancy Theory Notes Pdf useful for their studies. If you have any queries related to NCERT Accounts Theory Notes Class 11, drop your questions below in the comment box.

Studying from CBSE Class 12th Accountancy Revision Notes helps students to prepare for the exam in a well-structured and organised way. Making Class 12 Accountancy Theory Notes Pdf saves students time during revision as they don’t have to go through the entire textbook. In CBSE Notes, students find the summary of the complete chapters in a short and concise way. Students can refer to the NCERT Solutions for Class 12 Accountancy, to get the answers to the exercise questions.

Accountancy Class 12 Notes| Theory Notes of Accountancy Class 12

Class 12 Accounts Notes Part 1 Not-for-Profit Organisation and Partnership Accounts

• Chapter 1 Accounting for Not for Profit Organisation Class 12 Notes
• Chapter 2 Accounting for Partnership: Basic Concepts Class 12 Notes
• Chapter 3 Reconstitution of Partnership Firm: Admission of a Partner Class 12 Notes
• Chapter 4 Reconstitution of Partnership Firm: Retirement/Death of a Partner Class 12 Notes
• Chapter 5 Dissolution of a Partnership Firm Accountancy Notes Class 12

Notes of Accounts Class 12 Part 2 Company Accounts and Analysis of Financial Statements

• Chapter 6 Accounting for Share Capital Theory of Accounts Class 12
• Chapter 7 Issue and Redemption of Debentures Class 12 Notes
• Chapter 8 Financial Statements of a Company Class 12 Notes
• Chapter 9 Analysis of Financial Statements Notes of Accounts Class 12
• Chapter 10 Accounting Ratios Accounts Class 12 Notes
• Chapter 11 Cash Flow Statement Class 12 Accounts Notes

We hope students have found these CBSE Class 12 Accountancy Theory Notes Pdf useful for their studies. If you have any queries related to NCERT Accounts Theory Notes Class 12, drop your questions below in the comment box.

By going through these CBSE Class 11 Biology Notes Chapter 22 Chemical Coordination and Integration, students can recall all the concepts quickly.

Chemical Coordination and Integration Notes Class 11 Biology Chapter 22

→ There are special chemicals that act as hormones and provide chemical coordination, integration, and regulation in the human body.

→ These hormones regulate the metabolism, growth, and development of our organs, the endocrine glands, or certain cells.

→ The endocrine system is composed of the hypothalamus, pituitary and pineal, thyroid, adrenal, pancreas, parathyroid, thymus, and gonads (testis and ovary).

→ In addition to these, some other organs, e.g., gastrointestinal tract, kidney, heart, etc., also produce hormones.

→ The pituitary gland is divided into three major parts, which are called pars distalis, pars intermedia, and pars nervosa. Pars distalis produces six tropic hormones. Pars intermedia secretes only one hormone, while pars nervosa (neurohypophysis) secretes two hormones.

→ The pituitary hormones regulate the growth and development of somatic tissues and activities of peripheral endocrine glands.

→ The pineal gland secretes melatonin, which plays a very important role in the regulation of 24-hour (diurnal) rhythms of our body (e.g., rhythms of sleep and state of being awake, body temperature, etc).

→ The thyroid gland hormones play an important role in the regulation of the basal metabolic rate, development, and maturation of the central neural system, erythropoiesis, metabolism of carbohydrates, proteins and fats, menstrual cycle.

→ Another thyroid hormone i.e., thyrocalcitonin regulates calcium levels in our blood by decreasing them.

→ The parathyroid glands secrete parathyroid hormone (PTH) which increases the blood Ca²⁺ levels and plays a major role in calcium homeostasis.

→ The thymus gland recreates thymosins which play a major role in the differentiation of T-lymphocytes, which provide cell-mediated immunity In addition, thymosins also increase the production of antibodies to provide humoral immunity.

→ The adrenal gland is composed of the centrally located adrenal medulla and the outer adrenal cortex. The adrenal medulla secretes epinephrine and norepinephrine. These hormones increase lateness, pupillary dilation, piloerection, sweating, heartbeat, the strength of heart contraction, rate of respiration, glycogenolysis, lipolysis, proteolysis.

→ The adrenal cortex secretes glucocorticoids and mineralocorticoids.

→ Glucocorticoids stimulate gluconeogenesis, lipolysis, proteolysis, erythropoiesis, cardio-vascular system, blood pressure, and glomerular filtration rate and inhibit inflammatory reactions by suppressing the immune response.

→ Mineralocorticoids regulate the water and electrolyte content of the body.

→ The endocrine pancreas secretes glucagon and insulin.

→ Glucagon stimulates glycogenolysis and gluconeogenesis resulting in hyperglycemia. Insulin stimulates cellular glucose uptake and utilization, and glycogenesis resulting in hypoglycemia.

→ Insulin deficiency and/ or insulin resistance results in a disease called diabetes mellitus.

→ The testis secretes androgens, which stimulate the development, maturation, and functions of the male accessory sex organs, appearance of the male secondary sex characters, spermatogenesis, male sexual behavior, anabolic pathways, and erythropoiesis.

→ The ovary secretes estrogen and progesterone. Estrogen stimulates the growth and development of female accessory sex organs and secondary sex characters.

→ Progesterone plays a major role in the maintenance of pregnancy as well as in mammary gland development and lactation.

→ The atrial wall of the heart produces an atrial natriuretic factor that decreases blood pressure.

→ The kidney produces erythropoietin which stimulates erythropoiesis.

→ The gastrointestinal tract secretes gastrin, secretin, cholecystokinin, and gastric inhibitory peptide. These hormones regulate the secretion of digestive juices and help indigestion.

→ Hormones: Hormones are non-nutrient chemicals that act as intercellular messengers and are produced in trace amounts.

→ Anterior pituitary: The pars distalis region of the pituitary, commonly called the anterior pituitary, produce growth hormone (GH)

→ Gonadotrophins: FSH stimulates gonadal activity and hence are called gonadotrophins.

→ Androgens: In males, LH stimulates the synthesis and secretion of hormones called androgens from the testis.

→ Melatonin: Pineal secretes a hormone called Melatonin.

→ Corticoids s The adrenal cortex secretes many hormones, commonly called corticoids.

→ Mineralocorticoids: Corticoids, which regulate the balance of water and electrolytes in our body are called mineralocorticoids.

→ Hormone receptors: Hormones produce their effects on target tissues by binding to specific proteins called hormone receptors located in the target tissues only.