Accountancy · Ch 2 — Accounts of Not-for-Profit Organisation
Capital Fund, Statement of Affairs and the Balance Sheet of an NPO
Capital Fund, Statement of Affairs and the Balance Sheet of an NPO
Because a not-for-profit organisation has no proprietor, it has no 'Capital' account in the business sense. Instead, the excess of its assets over its liabilities is called the Capital Fund (sometimes called the General Fund), and it behaves in the Balance Sheet exactly the way capital behaves for a sole trader.
Finding the opening Capital Fund
An NPO's Balance Sheet as at the start of the year is not always given directly in a problem. When it is missing, the opening Capital Fund is found by preparing an opening Statement of Affairs — a simple statement listing the organisation's assets and liabilities as on the first day of the year:
Opening Capital Fund = Total Assets (at the start of the year) − Total Liabilities (at the start of the year)
This opening Capital Fund is then carried forward as the opening balance of the Capital Fund for the year.
Building up the closing Capital Fund
Over the year, the Capital Fund grows (or shrinks) because of several distinct items, each added directly to the Fund rather than routed through the Income and Expenditure Account:
| Added to / deducted from Capital Fund | Why |
|---|---|
| Add: Surplus for the year (or deduct: Deficit) | The year's operating result belongs to the members collectively, not to any individual |
| Add: Life Membership Fees received | A one-time capital receipt in place of a lifetime of annual subscriptions (Section 5) |
| Add: Capitalised portion of Entrance/Admission Fees, if the organisation's policy treats it so | Treated as a one-time capital contribution by a new member (Section 5) |
| Add: Specific donations, only if the organisation's own policy is to add them straight to the Fund rather than keep a separate fund | An alternative treatment to carrying a separate named fund — see Section 5 |
The Balance Sheet of an NPO
The closing Balance Sheet is prepared exactly like any Balance Sheet — assets on one side, liabilities and the Capital Fund on the other — using:
- The closing cash/bank balance (the closing balance of the Receipts and Payments Account) as an asset.
- Fixed assets carried forward from the opening Balance Sheet, adjusted for any purchases, sales, and depreciation during the year. …
The accumulated excess of an NPO's assets over its liabilities — the NPO's equivalent of a business's capital. It grows each year by the surplus (or shrinks by the deficit) and by capital rece …
A simple listing of assets and liabilities as on a given date, used to find the Capital Fund (Assets − Liabilities) when a complete opening Balance Sheet …