Life Membership Fees are the lump-sum fees that are paid only once in a lifetime by every member of an NPO. In exchange for these fees, the member can continue his/her membership with the NPO throughout his/her life.
Accounting Treatment of Life Membership Fees
As Life Membership Fee is paid only once during an entire lifetime of a member, so it is treated as capital in nature. Now, as we have learned in the earlier lessons that the items of capital nature are shown in the Balance Sheet so, in this manner, Life Membership Fees are shown as an addition to the Capital Fund on the Liabilities side of the Balance Sheet.
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.
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.
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.
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
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.
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.