Financial Statements and Non-Profit Organisations

1. What is the primary objective of preparing financial statements for a non-profit organisation?

A) To determine net profit
B) To find capital employed
C) To show financial position and performance
D) To calculate depreciation
Answer: C – The primary objective is to show the financial position and performance.

2. The financial statements of a non-profit organisation typically include:

A) Trading and Profit & Loss Account
B) Receipt and Payment Account, Income and Expenditure Account, Balance Sheet
C) Cash Book and Journal
D) Cash Flow Statement only
Answer: B – These are the three key financial statements.

3. The Income and Expenditure Account is similar to which account in a business?

A) Cash Book
B) Profit & Loss Account
C) Trading Account
D) Balance Sheet
 Answer: B – It is prepared on accrual basis like a P&L Account.

4. A donation received for building construction should be:

A) Treated as revenue income
B) Shown on the debit side of Income & Expenditure Account
C) Treated as capital receipt
D) Ignored
Answer: C – Capital receipts are shown in the Balance Sheet.

5. Life membership fee received by a club is:

A) Treated as revenue income
B) Shown on the Income & Expenditure Account
C) Treated as capital receipt
D) Treated as deferred revenue
 Answer: C – It’s a capital receipt.

6. Receipt and Payment Account is similar to:

A) Profit & Loss Account
B) Cash Book
C) Income & Expenditure Account
D) Bank Reconciliation Statement
 Answer: B – It’s a summary of cash and bank transactions.

7. Subscription received in advance is shown as:

A) Asset
B) Revenue
C) Liability
D) Capital
 Answer: C – It is a liability until it becomes due.

8. Income and Expenditure Account records:

A) Only cash transactions
B) Only capital items
C) All revenue items on accrual basis
D) Both revenue and capital items
 Answer: C – It includes only revenue items on accrual basis.

9. Subscription due but not received should be shown in:

A) Receipts and Payments Account
B) Income and Expenditure Account only
C) Balance Sheet as Asset
D) Both B and C
 Answer: D – It is added to income and shown as asset.

10. Expenses paid in advance are:

A) Liabilities
B) Revenue expenses
C) Assets
D) Capital expenditure
Answer: C – These are prepaid expenses, hence assets.

11. Which account shows all cash and bank transactions of a non-profit organisation?

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet
D) Profit and Loss Account
Answer: B

12. Which basis is used to prepare Income and Expenditure Account?

A) Cash basis
B) Accrual basis
C) Hybrid basis
D) None of the above
Answer: B

13. Depreciation on assets of a non-profit organisation is shown in:

A) Receipt and Payment Account
B) Income and Expenditure Account
C) Balance Sheet
D) None of these
Answer: B

14. Surplus in Income and Expenditure Account is equivalent to:

A) Loss
B) Profit
C) Capital
D) Revenue
Answer: B

15. Deficit in Income and Expenditure Account represents:

A) Loss
B) Profit
C) Capital
D) Liability
Answer: A

16. Capital receipts of a non-profit organisation are shown in:

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet
D) None
Answer: C

17. Donations for specific purpose are shown as:

A) Revenue receipts
B) Capital receipts
C) Liability
D) Assets
Answer: B

18. Membership fees are generally treated as:

A) Revenue receipt
B) Capital receipt
C) Both A and B depending on type
D) Liability
Answer: C

19. Which of the following is NOT a feature of Receipt and Payment Account?

A) Includes cash and bank transactions only
B) Prepared on cash basis
C) Shows only revenue items
D) Includes opening and closing cash balance
Answer: C

20. Closing balance of cash and bank is shown in:

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet
D) None of these
Answer: B

21. Prepaid expenses are shown in Balance Sheet as:

A) Current asset
B) Current liability
C) Capital
D) Revenue
Answer: A

22. Outstanding expenses are shown in:

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet as liability
D) None
Answer: C

23. Capital fund in a non-profit organisation is shown in:

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet
D) None
Answer: C

24. Sale of old furniture is treated as:

A) Revenue receipt
B) Capital receipt
C) Loss
D) Expense
Answer: A

25. If a non-profit organisation has a surplus in Income and Expenditure Account, it means:

A) It made profit
B) It incurred loss
C) It broke even
D) None of these
Answer: A

26. Which document shows cash receipts and payments during a period?

A) Income and Expenditure Account
B) Receipt and Payment Account
C) Balance Sheet
D) Trial Balance
Answer: B

27. Life membership fees are treated as:

A) Revenue receipts
B) Capital receipts
C) Liability
D) Asset
Answer: B

28. Income received but not earned should be:

A) Debited to Income and Expenditure Account
B) Credited to Income and Expenditure Account
C) Shown as liability
D) Shown as asset
Answer: C

29. Which account is not prepared by non-profit organisations?

A) Receipt and Payment Account
B) Profit and Loss Account
C) Income and Expenditure Account
D) Balance Sheet
Answer: B

30. Which of the following is not included in Receipt and Payment Account?

A) Cash received from members
B) Payment for salaries
C) Credit purchase of goods
D) Sale of old assets
Answer: C

31. Income and Expenditure Account is:

A) A real account
B) A personal account
C) A nominal account
D) None of these
Answer: C

32. The balance of Income and Expenditure Account is transferred to:

A) Capital Fund
B) Current Liabilities
C) Receipts and Payments Account
D) None
Answer: A

33. Which of the following would be shown on the debit side of the Income and Expenditure Account?

A) Subscription received
B) Salaries paid
C) Donation received for building fund
D) Interest received
Answer: B

34. Subscription received in advance is shown as:

A) Asset
B) Income
C) Liability
D) Capital
Answer: C

35. Outstanding subscription is:

A) Income of current year
B) Asset
C) Liability
D) None
Answer: B

36. Which of the following is not an expense for non-profit organisations?

A) Printing and Stationery
B) Salaries
C) Interest on loan
D) Purchase of fixed assets
Answer: D

37. Closing stock in non-profit organisations is shown in:

A) Receipt and Payment Account
B) Income and Expenditure Account
C) Balance Sheet
D) None
Answer: C

38. Interest on investments is recorded in:

A) Receipt and Payment Account
B) Income and Expenditure Account
C) Balance Sheet
D) None
Answer: B

39. Donation for purchase of furniture is:

A) Revenue receipt
B) Capital receipt
C) Deferred revenue
D) Expense
Answer: B

40. An example of capital expenditure is:

A) Salaries paid
B) Purchase of furniture
C) Printing charges
D) Rent paid
Answer: B

41. Outstanding subscription is shown as:

A) Current liability
B) Current asset
C) Fixed asset
D) None
Answer: B

42. A non-profit organisation does not prepare:

A) Receipt and Payment Account
B) Income and Expenditure Account
C) Trial Balance
D) Profit and Loss Account
Answer: D

43. Donation received for day-to-day expenses is:

A) Revenue receipt
B) Capital receipt
C) Deferred income
D) None
Answer: A

44. Income and Expenditure Account shows:

A) Surplus or deficit for the period
B) Cash balance
C) Capital fund
D) Assets of organisation
Answer: A

45. Which of the following is a feature of Receipt and Payment Account?

A) Prepared on accrual basis
B) Includes non-cash transactions
C) Opening and closing balance shown
D) Shows only revenue income
Answer: C

46. When a non-profit organisation earns income but does not receive cash, the income is recorded in:

A) Receipt and Payment Account
B) Income and Expenditure Account
C) Cash Book
D) None
Answer: B

47. The final step in preparation of financial statements of non-profit organisations is:

A) Preparing Receipt and Payment Account
B) Preparing Income and Expenditure Account
C) Preparing Balance Sheet
D) None
Answer: C

48. Which of the following is capital fund?

A) Accumulated surplus
B) Outstanding expenses
C) Subscription received in advance
D) Prepaid expenses
Answer: A

49. Accrued income means:

A) Income earned but not received
B) Income received in advance
C) Income received and earned
D) None
Answer: A

50. A non-profit organisation’s main objective is:

A) Earning profits
B) Providing services without profit motive
C) Maximizing shareholder wealth
D) None of these

Answer: B

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