Donations are the second most important source of income for an NPO. These are basically received in form of charity. These are the gifts, which are normally received in cash and in some cases in form of assets. Usually, donations are received from the members of an NPO, however, there are times, when donations are also received from external sources such as from top-ranked organizations like WHO, UNICEF and from elite people as well. Types of Donations are discussed below
Types of Donations
For purpose of accounting treatment, donations can be classified into two broad categories.
General Donations: Such donations are received without any specific conditions of use. Thus, as these types of donations do not carry any specific conditions, so these amounts can be utilized for meeting any purposes (i.e. general purposes).
Specific Donations: Unlike general donations, specific donations are received with some specific conditions attached to their use. These donations can only be used for the purpose for which these are received by the organization. For example, if an NPO receives a donation for the extension of the pavilion, then this amount can only be used for this specific purpose only (i.e. for the extension of the pavilion). Some other examples of Specific Donations are donations for the construction of the canteen, donations for buildings, etc.
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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.