Unit-1

Non-Trading Organization

4 Marks Questions

1). Non-Trading Organization: A Non-Trading Organization (also known as a Non-Profit Organization or NPO)
is an entity that operates primarily to fulfill a social, charitable, educational, cultural, or humanitarian purpose
rather than to make a profit. Unlike businesses that aim to generate revenue for owners or shareholders, non-
trading organizations focus on serving their mission, and any surplus income is typically reinvested back into the
organization or its projects rather than distributed as profit.

Characteristics of Non-Trading Organizations:

1. Primary Purpose: They aim to provide services or support in areas like education, healthcare, social
welfare, or environmental protection.

2. No Profit Distribution: Profits (if any) are not distributed to members or stakeholders but are used to
further the organization’s goals.

3. Funding Sources: They often rely on donations, grants, fundraising, or membership fees rather than
revenue from selling products or services.

4. Legal Structure: They are often registered as trusts, societies, charities, or similar legal entities, depending
on the country's regulations.

5. Tax Exemption: Many non-trading organizations are eligible for tax exemptions or benefits due to their
public-serving nature.

Examples of Non-Trading Organizations:

- Charities

- Educational institutions

- Hospitals

- Religious institutions

- Environmental organizations

Non-trading organizations play an essential role in addressing social issues and promoting welfare in society
without focusing on profit-making.

2). Explain the features of Non-Trading Organizations?

The primary features of Non-Trading Organizations (NPOs) reflect their focus on service rather than profit.

1. Service-Oriented Purpose: Non-trading organizations exist to fulfill a social, educational, charitable, or

community-based mission rather than to generate profit. Their primary goal is to provide services or support to
the public or a specific group in need.

2. Non-Profit Motive: Unlike commercial businesses, NPOs do not operate with the intent to make profits for
distribution among members or shareholders. Any surplus (revenue exceeding expenses) is reinvested into the
organization to enhance or expand its activities.
 3. Sources of Funding: NPOs typically rely on external funding, such as donations, grants, government
subsidies, and membership fees. Some may also engage in fundraising activities or receive support from
foundations and philanthropists.

4. Surplus Utilization: Any surplus generated by the organization is not distributed as profits but is instead
reinvested in its projects, services, or operational improvements. This ensures that all resources directly support
the organization’s mission.

5. Legal Structure: Non-trading organizations are often registered as trusts, societies, or charitable
foundations, depending on local legal requirements. This legal status helps them qualify for tax exemptions and
government support in many cases.

6. Management by Trustees or Governing Body: Non-trading organizations are typically managed by a

board of trustees or a governing body rather than shareholders. These individuals oversee the organization's
activities, ensuring alignment with its mission and legal obligations.

7. Accountability and Transparency: NPOs are often subject to strict regulatory standards to maintain
transparency and accountability. They may be required to publish financial statements, annual reports, or impact
assessments to show donors and stakeholders how funds are utilized.

8. Tax Exemptions and Benefits: Many non-trading organizations are eligible for tax exemptions and
benefits due to their non-profit nature and public service focus. This allows them to channel more resources
toward their cause.

9. Volunteerism: Many NPOs depend on volunteers who contribute time and skills to support the
organization's mission. Volunteer work often reduces operational costs and helps mobilize community support
for the cause.

10. Long-Term Sustainability and Mission Focus: Non-trading organizations generally work toward achieving
long-term goals related to societal or community welfare. They are guided by their mission, which shapes their
activities, programs, and use of resources.

Conclusion: These features help distinguish non-trading organizations from for-profit entities, enabling them
to focus on delivering public value over generating income.

3). Receipts and Payments Account?

A Receipts and Payments Account is a summary of all cash and bank transactions made by a non-
trading or non-profit organization (such as a charity, club, or school) during an accounting period, usually
a year. It is a simple cash book summary that shows the actual cash inflows (receipts) and cash outflows
(payments) and helps to determine the cash position of the organization at the end of the period.

Features of Receipts and Payments Account

1.Cash-Based: This account records only cash and bank transactions (money received and paid),
ignoring non-cash items like depreciation, accruals, or outstanding expenses.

2.Summary Nature: It summarizes all receipts and payments without categorizing them as capital or
revenue items, providing an overview of the organization’s cash movements during the year.
 3.Debit and Credit Format:

4.Debit Side: Lists all receipts (cash inflows) such as donations, membership fees, grants, and other
income.

5.Credit Side: Lists all payments (cash outflows) like salaries, rent, utilities, purchases, etc.

6.No Distinction between Capital and Revenue: Both capital and revenue receipts and payments
are recorded, regardless of their nature.

7.Opening and Closing Balances: The account starts with the opening balance of cash or bank from
the beginning of the period. The closing balance shows the cash or bank balance at the end of the
period, determined by adding all receipts and subtracting payments from the opening balance.

4). Income and Expenditure Account?

An Income and Expenditure Account is a financial statement prepared by non-trading or non-profit

organizations (such as clubs, societies, or charities) to ascertain their surplus (excess of income over
expenses) or deficit (excess of expenses over income) during an accounting period. It is similar to the
Profit and Loss Account used by businesses but is tailored for organizations that operate without a profit
motive.

Features of Income and Expenditure Account

1.Accrual Basis: It follows the accrual system of accounting, meaning it records income and
expenses for the period to which they relate, regardless of whether cash has been received or paid.

2.Revenue Items Only: It includes only revenue items (day-to-day operations) and excludes capital
items (e.g., purchase of assets or loans).

3.Debit and Credit Format:

Debit Side: Lists all expenses incurred during the period.

Credit Side: Lists all income earned during the period.

4.Focus on Surplus or Deficit:

The net result (difference between total income and total expenses) is either:

Surplus: Income > Expenses.

Deficit: Expenses > Income.

5.Prepared for a Period: It covers a specific accounting period, typically a financial year.

6.Adjustment of Non-Cash Items: Non-cash items like depreciation, provisions, and outstanding or
prepaid amounts are considered to ensure that the account reflects the true financial performance of
the organization.
 5). A). Legacy: A legacy refers to a gift of property, money, or assets bequeathed to an organization
or individual through a will after the death of the donor. In the context of non-trading organizations like
charities or societies, legacies are an important source of income and are usually received as part of
donations to support the organization’s mission.

B). Subscriptions: It is referring to regular payments made by individuals or members to gain

access to services, benefits, or privileges offered by an organization, typically non-profit entities like
clubs, societies, or professional associations. These payments are usually made periodically, such as
annually or monthly.

C). Life Membership fee: A Life Membership Fee is a one-time, lump sum payment made by an
individual to gain lifetime membership to an organization. It typically offers the same benefits as regular
annual memberships but without the need for renewal or periodic payments. Life membership fees are
common in clubs, societies, professional organizations, and charities.

D). Donations: Donations in Non-Trading Organizations refer to voluntary contributions made by

individuals, groups, or organizations to support the activities and goals of non-profit entities. Non-trading
organizations, such as charitable trusts, educational institutions, religious bodies, or social service
organizations, rely on such donations as a primary source of funding since they do not operate for profit.

Unit-2
Single Entry System

1). Statement of Affairs in the Single-Entry System?

Statement of Affairs in the Single-Entry System is a financial statement prepared to determine the financial
position (assets, liabilities, and capital) of an entity when proper double-entry accounting records are not
maintained. It is similar in format to a balance sheet but is based on incomplete records or estimates.

A). Opening statement of affairs: It is a summary of the business's financial position at a specific point in
time. It is prepared to determine the starting capital (owner’s equity) when proper accounting records are
not maintained.

Opening Capital: The difference between total assets and total liabilities (Assets - Liabilities = Capital).

b). Closing statement of affairs: summarizes the financial position of a business at the end of a
specific period. It lists the assets and liabilities to calculate the closing capital, which reflects the
owner's equity at the end of the accounting period.

Capital: The difference between total assets and total liabilities (Assets - Liabilities = Closing
Capital).

C). Profit or Loss Statement: It is prepared indirectly since complete accounting records are not
maintained. The profit or loss is determined using the Statement of Affairs method by analysing the
changes in the business's capital between two periods.

Profit or Loss=Closing Capital−Opening Capital + Drawings−Additional Capital Introduced.

2). Define or What is single-entry system?

The single-entry system is a simple method of bookkeeping in which financial transactions are
recorded using only a single entry for each transaction, typically in a cash book. Unlike the double-
entry system, which tracks both debits and credits, the single-entry system does not provide a
complete record of all financial activities.

Features of Single-Entry System:

1. Basic Record-Keeping: It mainly records cash transactions and sometimes personal accounts
of debtors and creditors.
2. No Dual Aspect: Transactions are recorded as either income or expense without tracking the
dual aspects (debit and credit).
3. Simplified Process: It requires less knowledge of accounting principles and is suitable for
small businesses or individuals.
4. Incomplete Records: It lacks comprehensive information about assets, liabilities, and equity,
making it less reliable for detailed financial analysis.
5. Non-Systematic: Often informal and unorganized, which may lead to errors or missing
transactions.

Advantages:

 Easy to implement and maintain.

 Low cost and time-effective for small businesses.
 Requires minimal accounting knowledge.

Disadvantages:

 Lacks accuracy and reliability.

 Inadequate for preparing complete financial statements.
 Difficult to detect fraud or errors.

This system is commonly used by small-scale enterprises, sole proprietors, or individuals with simple
financial transactions.

3). double-entry system?

The double-entry system is a standardized method of bookkeeping in which every financial

transaction affects at least two accounts, ensuring that the accounting equation (Assets = Liabilities
+ Equity) always remains balanced. It is based on the principle that every debit entry must have a
corresponding credit entry.

Features of Double-Entry System:

1. Dual Aspect: Each transaction is recorded with a debit in one account and a corresponding
credit in another account.
2. Systematic: Provides a comprehensive and organized record of all transactions.
3. Balancing Accounts: Ensures that total debits always equal total credits.
4. Complete Financial Picture: Tracks assets, liabilities, income, expenses, and equity.
 5. Error Detection: Trial balances and cross-checks make it easier to identify errors or
discrepancies.

4). Differences between single and double entry system?

The single-entry system and double entry system are two fundamental methods of accounting,
differing in complexity, structure, and purpose. Here's a comparison:

Definition:

Single Entry System: A simplified form of accounting that records only one aspect of a transaction,
typically focusing on cash and personal accounts.

Double Entry System: A systematic and comprehensive method that records two aspects of every
transaction, ensuring that every debit has a corresponding credit.

Aspect Single Entry Double Entry

Recording One side of the transaction Two sides (Debit & Credit)
Complexity Simple Complex
Accounts Maintained Cash & Personal All accounts
Accuracy Incomplete Complete
Error Detection Difficult Easier
Legal Acceptance Limited Widely accepted
Suitability Small businesses All businesses

Conclusion: The single-entry system is limited in scope and suitable for simple, small-scale
operations, while the double entry system is comprehensive and necessary for businesses requiring
detailed financial tracking and compliance.

5). Limitations of single-entry system?

The single-entry system of bookkeeping is a simple accounting method that records only one aspect
of a financial transaction (either debit or credit). While it is less complex and easier to manage than
the double-entry system, it has several limitations. These include:

1. Incomplete Records: It does not record both aspects of a transaction (debit and credit),
resulting in incomplete and unreliable records.

2. Lack of Accuracy: Errors and discrepancies are more likely because there is no method to
cross-verify transactions, as in the double-entry system.

3. No Trial Balance: A trial balance cannot be prepared, making it difficult to check the
mathematical accuracy of the books.
4. No Systematic Classification: Transactions are not categorized systematically, which makes
it hard to retrieve specific financial information.

5. Difficult to Ascertain Financial Position: The system does not provide a complete view of
assets, liabilities, and equity, making it challenging to determine the true financial position of the
business.

6. Inadequate for Legal and Tax Purposes: It is often not acceptable for legal or taxation
purposes because it lacks sufficient detail and auditability.

7. Unsuitable for Large Businesses: The system is impractical for large businesses due to its
lack of detailed records and inability to track complex financial activities.

8. No Profit or Loss Determination: Accurate net profit or loss cannot be determined since all
expenses and incomes may not be recorded.

9. Risk of Fraud: The absence of a proper system increases the risk of manipulation or fraud in
financial records.

10. No Comparative Analysis: It is challenging to compare financial performance over different

periods or against other businesses due to incomplete data.

Conclusion: These limitations, the single-entry system is generally used only by very small
businesses or individuals with limited transactions.

UNIT -3

Hire Purchase And Instalment Purchase system

1). What is Hire Purchase System: The Hire Purchase System is a method of acquiring goods or
assets by making an initial payment (called a down payment) and then paying the remaining balance
in regular instalments over a specified period. Ownership of the goods remains with the seller until
the final instalment is paid, at which point it transfers to the buyer. This system is widely used for
purchasing high-value items like vehicles, machinery, or appliances.

Features of Hire Purchase System:

1. Ownership Transfer: The ownership of the goods is transferred to the buyer only after the
payment of the last instalment.
2. Instalment Payments: The buyer pays for the goods in periodic instalments, which may
include interest on the outstanding amount.
3. Down Payment: A portion of the total cost is paid upfront at the time of purchase.
4. Possession Before Ownership: The buyer gets possession of the goods immediately after the
agreement is signed, but ownership is retained by the seller until all payments are made.
5. Interest Component: The instalment amount usually includes both the principal and an
interest charge for the deferred payment.
2). Features Instalment Purchase System?

The Instalment Purchase System is a method of buying goods where the buyer pays for the goods
in periodic instalments over a predetermined time. Unlike the hire purchase system, ownership of the
goods is transferred to the buyer immediately upon signing the agreement, but the seller retains a lien
or right over the goods until the final instalment is paid.

Features of Instalment Purchase System:

1. Immediate Ownership Transfer: Ownership of the goods is transferred to the buyer at the
time of purchase, even if the payment is made in instalments.
2. Periodic Payments: The total cost of the goods is divided into equal or pre-agreed
instalments, paid over a specific period.
3. Down Payment: A part of the total price is paid upfront at the time of purchase.
4. Interest on Outstanding Balance: The instalments typically include both the principal and
an interest component, which is charged on the unpaid amount.
5. Seller’s Lien: Although ownership is transferred, the seller retains the right to repossess the
goods if the buyer defaults on payments.
6. No Repossession for Completed Payments: Once all instalments are paid, the seller cannot
claim the goods, as ownership was already transferred at the start.

3). Partial Repossession of Goods?

It occurs when a seller reclaims only a portion of the goods sold under a credit arrangement (such as
the hire purchase or instalment purchase system) due to the buyer's failure to meet payment
obligations. This typically happens when the buyer defaults but has already paid for part of the goods
or when repossessing all the goods is unnecessary or impractical.

Features of Partial Repossession:

1. Retention of Some Goods: The buyer retains possession of a portion of the goods,
proportional to the payments made or as per the seller's discretion.
2. Adjustments in Accounts: The seller adjusts the value of repossessed goods against the
outstanding balance of the buyer’s account.
3. Ownership Rights: The ownership of repossessed goods reverts to the seller, while the buyer
retains ownership of the remaining goods.
4. Legal Agreement: The terms for partial repossession are typically outlined in the original
credit agreement.
5. Mutual Agreement or Legal Enforcement: Partial repossession may occur through mutual
agreement between the buyer and seller or through legal enforcement, depending on the
circumstances.
4). Differences between the Hire Purchase System and Sale:

Aspect Hire Purchase System Sale

Ownership is transferred to the
Ownership is transferred immediately upon
Ownership buyer only after the final instalment
the agreement and payment.
is paid.
Possession is given to the buyer at Possession is also given to the buyer
Possession
the time of the agreement. immediately upon sale.
The risk remains with the seller The risk is transferred to the buyer
Risk of Goods
until ownership is transferred. immediately after the sale.
In case of default, the seller cannot
Default If the buyer defaults, the seller can
repossess the goods but may sue for the
Consequences repossess the goods.
outstanding amount.
Payment is made in instalments, Payment is typically made in full at the
Nature of Payment
including the principal and interest. time of purchase or as per agreement.

5). Hire Vendor?

Hire Purchase System, a Hire Vendor refers to the person, organization, or entity that sells goods
to a buyer (called the hire purchaser) under a hire purchase agreement. The hire vendor retains
ownership of the goods until the hire purchaser pays the full price, including any agreed-upon
interest, through instalments.

Responsibilities of a Hire Vendor:

1. Ownership Retention: The hire vendor retains legal ownership of the goods until the final
instalment is paid.
2. Provision of Goods: The hire vendor provides the goods to the hire purchaser for immediate
use.
3. Agreement Terms: Drafts and enforces the terms of the hire purchase agreement, including
the payment schedule, interest rate, and default clauses.
4. Repossession Rights: the hire purchaser defaults on payment, the hire vendor has the legal
right to repossess the goods.
5. Recovery of Instalments: Collects instalments periodically from the hire purchaser as per
the agreement.