Non-trading concerns: receipts and payments account, income and expenditure account, capital fund
Financial Accounting · Unit IV · Topic 12 of 14 · 4 min read
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Cases checked to exist. Read the judgment before quoting a holding.
Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.
1. Non-trading concerns
Clubs, societies, charitable trusts, hospitals, schools, libraries and professional associations exist to serve their members or the public, not to earn profit. Their income comes from subscriptions, donations, entrance fees, grants and fees for services. Because there is no buying and selling of goods, they do not prepare a Trading Account. Their final accounts are:
- Receipts and Payments Account — a summary of cash and bank.
- Income and Expenditure Account — the equivalent of the P&L Account; its balance is a surplus (excess of income over expenditure) or a deficit.
- Balance Sheet — with capital fund (general fund) in place of capital.
Where the concern runs a canteen or sells sports goods, a small trading account for that activity may also be prepared, and its profit taken to the I&E Account.
2. Receipts and payments account
A summary of the cash book for the year, classified under heads. It opens with the cash and bank balance (debit side), records all receipts on the debit side and all payments on the credit side, whether of a capital or revenue nature and whatever year they relate to, and closes with the cash and bank balance carried down. It is a real account (it is the Cash A/c in summary). It shows only what was received and paid; it does not show the surplus or the position.
3. Receipts and payments account and income and expenditure account distinguished
| Point | Receipts and Payments A/c | Income and Expenditure A/c |
|---|---|---|
| Nature | Real account (summary of cash book) | Nominal account (like P&L) |
| Basis | Cash basis | Accrual basis |
| Items | Capital and revenue, all received/paid | Revenue items only |
| Period | Any year, past, current or future | Only the current year |
| Opening balance | Starts with cash and bank balance | No opening balance |
| Sides | Receipts Dr, payments Cr | Expenditure Dr, income Cr |
| Balance | Cash/bank in hand (always debit, unless overdraft) | Surplus or deficit |
| Non-cash items | Depreciation, outstanding items excluded | Included |
| Link | Balance goes to Balance Sheet as asset | Surplus is added to capital fund |
4. Capital fund
The capital fund (general fund or accumulated fund) is the excess of the assets of the organisation over its outside liabilities. It is built up from surpluses of past years and from capitalised receipts (legacies, life membership fees, entrance fees if capitalised).
How it is calculated. Where it is not given, prepare an opening statement of affairs: opening capital fund = assets at the beginning of the year (cash, bank, furniture, books, investments, subscriptions outstanding, prepaid expenses) − liabilities at the beginning (outstanding expenses, subscriptions received in advance, loans). Closing capital fund = opening fund + surplus (or − deficit) + items capitalised during the year.
5. Treatment of special items
- Annual subscriptions — revenue income. Only the amount for the current year goes to the I&E Account: received for the year + outstanding at the end − outstanding at the beginning (already counted last year) − advance at the end + advance at the beginning.
- Entrance (admission) fees — revenue, unless the question says capitalise (as both January 2026 papers do).
- Life membership fees — capital, added to the capital fund.
- Donations — general donations are revenue income; specific donations (for a building, for a prize) are capital, shown as a separate fund on the liabilities side.
- Legacies — capital receipts, added to the capital fund.
- Specific funds (tournament fund, match fund, prize fund) — liabilities; expenses for that purpose are deducted from the fund and its income added to it.
- Sale of sports materials / old newspapers — revenue income (small, recurring).
- Sale of fixed assets — the proceeds are a capital receipt; the asset is reduced by its book value, and the profit or loss on sale goes to the I&E Account.
- Government grants — revenue if for running expenses; capital if for a building or asset.
6. Worked problem: Manjunatha Charitable Trust (January 2026)
Receipts and Payments Account for the year ending 31-3-2024
| Receipts | Rs. | Payments | Rs. |
|---|---|---|---|
| To Balance b/d (cash) | 5,000 | By Newspapers and journals | 300 |
| To Subscriptions | 20,000 | By Printing and stationery | 500 |
| To Donations | 2,000 | By Rent | 4,000 |
| To Entrance fees | 2,000 | By Furniture | 5,000 |
| By Electricity charges | 200 | ||
| By Government bonds | 5,000 | ||
| By Balance c/d (cash) | 14,000 | ||
| 29,000 | 29,000 |
Receipts 5,000 + 20,000 + 2,000 + 2,000 = 29,000; payments 300 + 500 + 4,000 + 5,000 + 200 + 5,000 = 15,000; closing cash 14,000. Furniture and bonds are capital payments but appear here because the account records every receipt and payment of cash.
How this is examined
The 10-mark essay on final accounts of non-trading concerns (January 2026) uses sections 1 to 5: list the three statements, explain each, add the distinction table and the special items. The 6-mark R&P problem needs only a correctly sided account with a balance; do not try to separate capital and revenue in it. The capital fund note needs the statement-of-affairs method in figures.
Now try the real questions: Financial Accounting past question papers.