A Balance Sheet is a financial statement that shows the financial position of a Not-for-Profit Organisation on a particular date. It is prepared in the same manner as the Balance Sheet of a business organisation and contains Assets, Liabilities, and the Capital Fund. The Balance Sheet provides information about what the organisation owns and what it owes at the end of the accounting period.
The surplus or deficit determined from the Income and Expenditure Account is transferred to the Capital Fund. If the Income and Expenditure Account shows a surplus, it is added to the Capital Fund, whereas a deficit is deducted from it. If the opening Capital Fund is not given, it is calculated by deducting total liabilities from total assets at the beginning of the accounting period.
Capital Fund = Total Assets − Total Liabilities
Features of Balance Sheet
1.Statement of financial position: It shows the financial position of the organisation on a specific date.
2.Prepared at the end of the accounting year: It is prepared after the Receipts and Payments Account and Income and Expenditure Account.
3.Shows assets and liabilities: It contains all the assets owned and liabilities owed by the organisation.
4.Includes Capital Fund: The Capital Fund appears on the liabilities side and represents the accumulated funds of the organisation.
5.Surplus or deficit adjustment: The surplus is added to the Capital Fund, while the deficit is deducted from it.
6.Contains capital and revenue adjustments: It includes adjustments for outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, and other closing balances wherever applicable.
7.Prepared on the accrual basis: The Balance Sheet reflects all adjustments made under the accrual system of accounting to present the true financial position
Steps in preparing Balance Sheet:
Step 1: When the opening balance of the Capital Fund is not given, it is arrived at by preparing the Opening Balance Sheet. Opening Capital Fund is an excess of assets over the liabilities in the beginning. The surplus/deficit ascertained from Income & Expenditure A/c is added/deducted, as the case may be.
Step 2: The net amount of the liabilities is shown in the liabilities side of the Balance Sheet. Liabilities already appearing in the previous year's Balance Sheet should be seen as to whether any payment has been made against them.
Step 3: Assets appearing in the previous year's Balance Sheet are adjusted for any sale, purchase during the year and depreciation. If any part of the asset is sold, then the book value of an asset is deducted from the concerned asset. The difference between the book value and the actual sale proceeds is treated as profit or loss, which is shown in the Income & Expenditure A/c. On purchase of the new asset, the payment is shown on the payment side of the Receipts and Payment A/c.
Step 4: The adjusted value of the advance given is shown on the assets side of the Balance Sheet.
Step 5: The adjusted value of the expenses made in Income & Expenditure A/c will also appear on the Balance Sheet, i.e., Outstanding Expenses will appear on the liability side and Prepaid Expenses will appear on the assets side of the Balance Sheet.
Format of Balance Sheet:
Name of the organisation
Balance Sheet
(as on ..)
Illustration: From the following additional information and Receipt & Payment Account, prepare Income & Expenditure A/c and Balance Sheet of Geeks Foundation for the year ended on 31st March 2021.
Additional Information:
a) 50% of Donations and Entrance Fees to be capitalized.
b) Write off ₹700 from Books and ₹900 from Furniture.
c) In the beginning of the year, the Foundation's books showed:
Assets: Furniture ₹30,000, Books ₹17,000, Investment ₹5000, Arrears in Subscription ₹4,900, and
Liabilities: Capital Fund ₹40,400, ₹1,700 Rent is still unpaid, General Fund ₹18,300, Building Fund ₹11,600 and Sports Fund ₹10,400.
Solution:
