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TS Grewal Solutions Class 12: Chapter 1 Overview

TS Grewal Solutions Class 12: Chapter 1 Overview

Q: 1. What is a Not-for-Profit Organisation (NPO) and what is its primary purpose?

A Not-for-Profit Organisation (NPO) is an entity established for purposes other than earning profit, such as promoting art, culture, education, sports, or providing charitable services. Its primary objective is to serve society or its members, not to generate financial returns for owners. Any surplus generated is used to further the organisation's objectives rather than being distributed as dividends.

Q: 3. How does an Income and Expenditure Account differ from a Receipts and Payments Account?

The primary difference lies in the basis of accounting. A Receipts and Payments Account is a summary of cash transactions (cash basis), including both capital and revenue items. In contrast, an Income and Expenditure Account is prepared on an accrual basis. It includes only revenue items for the current period and makes adjustments for outstanding and prepaid amounts to calculate the surplus or deficit, much like a Profit and Loss Account.

Q: 5. Explain the difference between a specific donation and a general donation for an NPO.

A general donation is a contribution made without any condition from the donor regarding its use; it is treated as revenue income and credited to the Income and Expenditure Account. A specific donation is received for a particular purpose (e.g., donation for a new building). This amount cannot be used for general purposes and is treated as a liability on the Balance Sheet until it is spent for the specified purpose.

Q: 6. Why do NPOs maintain a 'Capital Fund' instead of a 'Capital Account' like for-profit businesses?

NPOs use a Capital Fund (or General Fund) because they do not have owners or shareholders who contribute capital with a profit motive. The Capital Fund represents the accumulated surplus of the organisation over the years, along with other capitalised items like legacies and life membership fees. It signifies the organisation's net worth and is not owned by any individual, unlike the Capital Account in a sole proprietorship or partnership which represents the owner's investment.

Q: 7. How is 'fund-based accounting' applied for a special fund like a 'Tournament Fund'?

Under fund-based accounting, a separate self-balancing set of accounts is maintained for specific funds. For a 'Tournament Fund':The initial fund amount and any further donations for the tournament are shown on the liabilities side of the Balance Sheet.All income related to the tournament (e.g., sale of tickets) is added to this fund.All expenses incurred for the tournament are deducted from this fund.These items are not routed through the Income and Expenditure Account.

Q: 8. What is a 'Legacy' and how is it treated in the final accounts of a Not-for-Profit Organisation?

A legacy is the amount an NPO receives as per the will of a deceased person. It is not a recurring source of income. Because of its non-recurring nature, it is generally treated as a capital receipt. This means it is directly added to the Capital Fund on the liabilities side of the Balance Sheet, rather than being shown as income in the Income and Expenditure Account.

Class 12 Accountancy TS Grewal Solutions Volume 1 Chapter 1 - Company Accounts Financial Statements of Not-for-Profit Organisations

Accounting norms and practices of non-profit organizations are different from profit-making entities. The rate of taxes, financial statements, and bookkeeping are dissimilar to regular business. Unlike other business entities, a non-profit does not thrive for profit but aims at providing service to fellow members and the general public. TS Grewal Class 12 Solutions Volume 1 Chapter 1- Company Accounts Financial Statements of Not-for-Profit Organizations explain this accounting system's necessity and importance. As these are not for profit, raise funds from the public and receive grants from the government, it is imperative to maintain a transparent accounting system. TS Grewal Solutions Class 12 Accountancy Volume 1 Chapter 1 states the meaning of non-profit organizations and explains various accounting systems.

Overview of Chapter 1- Company Accounts Financial Statements of Not-for-Profit Organizations

Non-profit organizations' primary objective is to render service to fellow beings; it can be a hospital, sports or recreational club, church, temple, or to promote art, culture, and education. TS Grewal Class 12 Solutions 2025-26 Volume 1 NPO covers every aspect of accounting for non-profit organizations. The source of income comes from grants provided by governments, subscriptions, and donations from the public. The PDF also describes how to prepare receipts and payments, income and expenditure, balance sheet receipts and payment accounts.

TS Grewal Class 12 Solutions 2025-26 Volume 1 NPO educates a student on how to post cash payments on the credit side irrespective of capital or revenue nature, regardless of current, previous, or subsequent fiscal year. Only actual cash receipts and payments are recorded in the accounting system. Depreciation and significant expenditures are eliminated. It clarifies that nominal accounts like; income and expenditure accounts are treated alike as profit and loss accounts of business organizations.It also explains the accrual concept of accounting.

Illustration

Income and expenditure accounts are prepared in the same manner as profit and loss accounts. NPO Class 12 TS Grewal solutions 2025-26 clarify the credit balance(excess of income over expenditure), and debit balance(a lot of expenditure over income). The chapter elucidates the term ‘legacy’, where an organization receives a property on the donor's demise through a valid will. If the entity is one of the will's beneficiaries, the donation is referred to as legacy. Entrance or admission fee is paid by a member while joining the organization, which is recurring and treated as income. Grant is the financial aid provided by a government to the non-profit organization and posted as revenue income in the income and expenditure account. Not-for-profit organization Class 12 Solutions TS Grewal 2025-26 covers every aspect of these organizations' accounting systems systematically.

TS Grewal Solutions Class 12 Volume 1 Chapter 1 for the Best Understanding to Students

The author explains the accounting norms of non-profit organizations in a clear, comprehensive manner with numerous examples. The solved examples help students understand how the accounting system works for these organizations and differentiate them from regular accounting norms.

Why Should the Students Study from the TS Grewal Solutions Class 12?

TS Grewal Solutions Class 12 is one of the popular resources for the preparation of Class 12 Accountancy.
The solutions are written in a simple and understandable manner.
It is available for free.
It is designed as per the CBSE Syllabus and guidelines.
Chapter-wise solutions are provided in this book.

Conclusion

Class 12 accounts Chapter 1 solutions NPO give the student insight into nonprofit organizations' accounting norms and practices. This chapter, curated by TS Grewal and other experts, helps students understand different accounting aspects and score outstanding marks.

Important Topics Links

Some important topics links related to this chapter are provided below.

Commerce Related Links

FAQs on TS Grewal Solutions Class 12: Chapter 1 Overview

1. What is a Not-for-Profit Organisation (NPO) and what is its primary purpose?

A Not-for-Profit Organisation (NPO) is an entity established for purposes other than earning profit, such as promoting art, culture, education, sports, or providing charitable services. Its primary objective is to serve society or its members, not to generate financial returns for owners. Any surplus generated is used to further the organisation's objectives rather than being distributed as dividends.

2. What are the key financial statements prepared by an NPO for its final accounts?

As per the CBSE Class 12 Accountancy syllabus for 2025-26, NPOs prepare three main financial statements at the end of an accounting period:

Receipts and Payments Account: A summary of all cash and bank transactions during the year.
Income and Expenditure Account: An account similar to the Profit and Loss Account, prepared on an accrual basis to determine the surplus or deficit for the period.
Balance Sheet: A statement showing the financial position of the NPO by listing its assets and liabilities on a specific date.

3. How does an Income and Expenditure Account differ from a Receipts and Payments Account?

The primary difference lies in the basis of accounting. A Receipts and Payments Account is a summary of cash transactions (cash basis), including both capital and revenue items. In contrast, an Income and Expenditure Account is prepared on an accrual basis. It includes only revenue items for the current period and makes adjustments for outstanding and prepaid amounts to calculate the surplus or deficit, much like a Profit and Loss Account.

4. What is the correct accounting treatment for 'Subscriptions' in the accounts of an NPO?

Subscriptions are a major source of revenue for NPOs. Their treatment involves:

The total amount received during the year is shown in the Receipts and Payments Account.
Only the subscription amount related to the current accounting period is credited to the Income and Expenditure Account.
Outstanding subscriptions (due but not received) for the current year are added to the subscription income and shown as an asset in the Balance Sheet.
Subscriptions received in advance are deducted and shown as a liability in the Balance Sheet.

5. Explain the difference between a specific donation and a general donation for an NPO.

A general donation is a contribution made without any condition from the donor regarding its use; it is treated as revenue income and credited to the Income and Expenditure Account. A specific donation is received for a particular purpose (e.g., donation for a new building). This amount cannot be used for general purposes and is treated as a liability on the Balance Sheet until it is spent for the specified purpose.

6. Why do NPOs maintain a 'Capital Fund' instead of a 'Capital Account' like for-profit businesses?

NPOs use a Capital Fund (or General Fund) because they do not have owners or shareholders who contribute capital with a profit motive. The Capital Fund represents the accumulated surplus of the organisation over the years, along with other capitalised items like legacies and life membership fees. It signifies the organisation's net worth and is not owned by any individual, unlike the Capital Account in a sole proprietorship or partnership which represents the owner's investment.

7. How is 'fund-based accounting' applied for a special fund like a 'Tournament Fund'?

Under fund-based accounting, a separate self-balancing set of accounts is maintained for specific funds. For a 'Tournament Fund':

The initial fund amount and any further donations for the tournament are shown on the liabilities side of the Balance Sheet.
All income related to the tournament (e.g., sale of tickets) is added to this fund.
All expenses incurred for the tournament are deducted from this fund.
These items are not routed through the Income and Expenditure Account.

8. What is a 'Legacy' and how is it treated in the final accounts of a Not-for-Profit Organisation?

A legacy is the amount an NPO receives as per the will of a deceased person. It is not a recurring source of income. Because of its non-recurring nature, it is generally treated as a capital receipt. This means it is directly added to the Capital Fund on the liabilities side of the Balance Sheet, rather than being shown as income in the Income and Expenditure Account.

9. What is a common mistake students make while calculating the amount of consumables (like stationery) to be shown in the Income and Expenditure Account?

A common mistake is incorrectly adjusting for creditors and stock. To find the correct amount of consumables used during the year, one must account for the opening and closing stock as well as opening and closing creditors for those consumables. The correct formula is: Amount paid for consumables during the year + Opening Stock + Closing Creditors - Closing Stock - Opening Creditors. Simply using the cash paid amount is incorrect as it ignores the accrual concept.