Question

Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.

Answer 1

There are various sources of receipts like donations, subscriptions, government grants, etc. to an NPO. Some receipts are specific while others are general. While the former can only be used for the specific purpose for which they are received, the latter can be used for any purpose. For example, if donation is received for construction of buildings, then this donation is a specific donation and thereby can only be used for construction of the building. The specific receipts are not considered as revenue income for the NPO and hence are not shown in the Income and Expenditure Account. In fact, such receipts are considered as liabilities to the NPO as these amounts are received for specific purpose and cannot be used for any other purpose. Specific receipts are shown in the Liabilities side of the Balance Sheet, until and unless they are fully set off against the purpose for which they are received. On the other hand, if these amounts are invested outside the organisations (in the form of shares, debentures, etc.), then these are called funds like, match funds, prize fund, etc. The interest and income earned on such investments are not credited to the Income and Expenditure Account but in fact are credited to the respective Fund Account. Similarly, the expenses incurred for such funds are not debited to the Income and Expenditure Account but, in fact, are debited to the respective Fund Account. These special funds are shown in the Liabilities side of the Balance Sheet. In case, if the related expenses exceed the related receipts of the fund, then the difference is shown in the income and Expenditure Account.

Treatment

      (Tournament/Match/Prize, etc.) Fund Account

Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount
	Expenses (expenses incurred like, match expenses, tournament expenses)				Balance b/d
					Incomes (income or interest earned on funds invested in the form of donation, interests, dividends, etc.)
	Balanace c/d  (see explanation)		(a)		Income and Expenditure A/c (see explanation)		(b)

Explanation (a)

If the receipts exceed the expenses for specific purpose then the difference between the two is shown in the Liabilities side of the Balance Sheet

                                Balance Sheet

Specific Fund (i.e. Tournament, Match, Prize Fund, etc.)

Tournament Fund Investment

Explanation (b)

If the expenses exceed the receipts for the specific purpose then the difference between the two is shown in the Expenditure side of the Income and Expenditure Account.

                  Income and Expenditure A/c

Expenditure	Amount	Income	Amount
Expenses  (i.e. Tournament, Match, Prize Expenses etc. except capital expenditure like, i.e.  expenses on construction of building)