Entrance Fees are another important source of income for an NPO. As can be easily inferred from the name itself, such fees are paid at the time of joining an NPO. In different words, entrance fees are paid by an individual at the time of becoming a member of an organization.
Accounting Treatment of Entrance Fees
Generally, there exist two different views regarding the accounting treatment of such fees. One set of experts argues that as entrance fees are paid only once by a member during his/her entire lifetime, so such fees should be treated as capital in nature. On the other hand, another set of experts argues that as these fees are received by an NPO every year (on the admission of new members) and hence these form a regular source of income, so these fees should be treated as revenue in nature. Thus, on the basis of these two different views, the accounting treatment of Entrance fees can be bifurcated into two types (depending on whether such fees are treated as capital or as revenue).
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Interest on Capital
Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.
Interest on Drawings
Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.
What is Operating Profit?
Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.
Balance Sheet
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
What are Adjusting Entries?
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.