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Accounting for Not-for-Profit Organisations Test 10

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Accounting for Not-for-Profit Organisations Test 10
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  • Question 1
    1 / -0
    The affairs of the not-for-profit organisations are usually managed by a managing/executive committee elected by its _______.
    Solution
    b'

    Not for Profit organisations are formed for providing service to specific group or public at large such as education, health care, sports and so on. These are organised as charitable trusts/ societies and subscribers to such organisations are called members. These organisations have service as the main objective. Normally these organisations do not undertake any business activity and are managed by trustees/executive committee. these committee is elected by its members.

    '
  • Question 2
    1 / -0
    If an organisation has followed the _______ entry system, they must prepare a trial balance for checking the accuracy of the ledger accounts.
    Solution
    In a double entry system, every transaction has two effects. One is debit and the other is credit. In Trial Balance, balances of all the ledger accounts are recorded. If debit side of trial balance matches with credit side it shows the mathematical accuracy of all the accounts. 
    So, if an organisation has followed the double entry system, they must prepare a trial balance.
  • Question 3
    1 / -0
    Given : Stock of stationery on Jan. 1, 2015 Rs 200; payments for stationery during 2015 Rs 1,000; and stock of stationery on Dec. 31, 2015 Rs 50.
    What will be the amount posted to Income and Expenditure A/c for the year ending Dec. 31, 2015?
    Solution
    Stationery amount to be shown in income & expenditure account can be calculated using the formula given below:
    $$Stationery\quad amount=\quad Opening\quad stock-Closing\quad stock+Payments\quad made$$
    Substitute values in the above equation
    $$Stationery\quad amount=\quad Rs200-Rs50+Rs1000\quad =Rs1,150$.
  • Question 4
    1 / -0
    Not-for-Profit organisations refer to the organisations that are used for the welfare of the _________ and are set up as charitable institutions which function without any profit motive.
    Solution
    The not-for-profit organisations are the ones which are responsible for the welfare of society and are a type of places which run without considering the profit. This type of organisation is funded mainly by the donations given by people and in return they are obliged to take care of the welfare of the society.  
  • Question 5
    1 / -0
    Consider the following statements.
    1. Operational loss is a source of funds
    2. Decrease in working capital is a source of funds
    3. Addition to fixed assets are an application of funds
    4. Fresh introduction of capital is an application of funds
    Which of the above statements are applicable while preparing the funds flow statement?
    Solution
    Fund flow statement is a statement that shows the inflow and outflow of cash in the business :
    1) Operational loss is not a source of fund hence this statement is incorrect. Operational loss is when operating expenses exceed operating income. 
    2) Decrease in working capital is a source of fund as the more the working capital the more funds are blocked hence when working capital is reduced the funds are released. Hence, Decrease in working capital is source of funds.
    3)Addition to fixed assets is application of funds as cash is being used to purchase fixed assets.
    4) Fresh introduction of capital is sources of funds as cash is coming in the business.
  • Question 6
    1 / -0
    Non-profit earning companies are mostly formed as ______________.
    Solution
    Limited by guarantee companies are formed by not for profit organisations, such as sports clubs, charitable organisations etc. A company limited by guarantee does not have any shares or stakeholders but is owned by guarantors who agree to pay a set amount of money towards company debts. In case of NPO, this amount is known as subscription. Each member is responsible towards NPO till the subscription amount only. 
  • Question 7
    1 / -0
    Income and Expenditure Account records income and expenditure item of ____________________.
    Solution
    Income and Expenditure Account is prepared on an accrual basis. All incomes and expenses relating to the accounting year, whether they are actually received and paid or not, are taken into consideration. Expenditure is recorded on the debit side and income is recorded on the credit side. A distinction is made between capital and revenue items and only revenue items are included in this account.
  • Question 8
    1 / -0
    Income and Expenditure account is similar to __________ account.
    Solution
    Every business have to make its financial statement at the end of every year which includes profit & loss account and balance sheet.

    Profit & Loss account is prepared by the trading and manufacturing organizations.

    Where there is no trading activity, Income and Expenditure account is prepared. Normally all professionals like CA's , doctors, lawyers are preparing the Income & Expenditure account.

    Income & Expenditure account is similar to profit & loss account. 
  • Question 9
    1 / -0
    Income and expenditure account is called ________.
    Solution
     Income and Expenditure Account is a Nominal Account which is prepared at the end of the accounting period by a Not-For-Profit Organisation to ascertain the surplus, i.e., excess of income over expenditure, or the deficit, i.e. Excess of expenditure over income.
  • Question 10
    1 / -0
    The income and expenditure account is prepared on the basis of __________ system of accounting.
    Solution
    Financial Accounting is based on dual system of accounting.Income & expenditure account is also based on this basic system of accounting.
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