• Primary objective is to provide services, not to earn profits
• Sources of income include subscriptions, donations, and government grants
• Surplus (rather than profit) is generated and reinvested into the organization's activities
• Accumulated fund (capital fund) represents the organization's net worth
• Financial statements must be prepared to inform members, donors, and regulators

Understanding how specific items are treated is essential for preparing accurate financial statements.

1. Subscriptions

Subscriptions are regular payments made by members, usually annually. They are the primary source of income for many NFPOs.

• Treatment: Revenue income
• Recording: Credited to Income and Expenditure Account
• Adjustment: Outstanding subscriptions (owing) are added; subscriptions received in advance are deducted

2. Donations

Donations are voluntary contributions from individuals or organizations.

3. Admission (Entrance) Fees

One-time payments collected when new members join.

• Can be treated as revenue income (if regular and small)
• Or as capital receipt (if large and non-recurring)

4. Life Membership Fees

A lump-sum payment for lifetime membership.

• Treatment: Capital receipt
• Recording: Credited directly to the Accumulated Fund in the Balance Sheet

5. Government Grants

Financial support from government to support social welfare activities.

6. Endowment Fund

A donation received for a specific purpose that must be maintained permanently.

• Treatment: Capital receipt
• Recording: Shown on the liabilities side of the Balance Sheet under "Specific Purpose Fund"

7. Honorarium

Payment to a professional or expert for special services (e.g., a performer at a club event).

• Treatment: Revenue expense
• Recording: Debited to Income and Expenditure Account

8. Sale of Fixed Assets

When an organization sells equipment, furniture, or property:

• Proceeds recorded in Receipts and Payments Account
• Profit or loss on sale is transferred to Income and Expenditure Account

9. Stationery Expenses

• Normally debited to Income and Expenditure Account
• If stock of stationery is given, calculate: Opening Stock + Purchases – Closing Stock = Expense

Tanzania Youth Sports Club Receipts and Payments Account for the year ending 31 December 2023

Additional Information (31 Dec 2023):

• Subscriptions owing by members: TSh 40,000
• Stationery in stock: TSh 5,000

Required: Prepare the Income and Expenditure Account for the year.

Solution:

Income and Expenditure Account for the year ended 31 December 2023

Key Adjustments Made:

1. Subscriptions: Included 2023 subscriptions (TSh 800,000) + arrears from 2022 (TSh 50,000) – advance received for 2024 (TSh 30,000) + amount owing at year-end (TSh 40,000) = TSh 860,000

2. Stationery: Adjusted for closing stock (TSh 5,000) to get the actual expense: TSh 45,000 – TSh 5,000 = TSh 40,000

3. Life Membership Fees: TSh 80,000 is a capital receipt and goes to the Accumulated Fund in the Balance Sheet, not the Income and Expenditure Account.

• Not-for-profit organizations use Accumulated Fund instead of Capital Account
• Receipts and Payments Account records all cash transactions (including capital items)
• Income and Expenditure Account follows accrual basis and shows surplus/deficit
• Distinguish between revenue and capital items
• General donations and subscriptions are revenue income
• Specific donations, life membership fees, and endowment funds are capital receipts

In Tanzania, many community organizations such as local * chama cha wazawa* (residents' associations), sports clubs like Simba SC or Young Africans, and religious groups like mosques and churches must keep proper accounting records. When a student from Mwanza joins their local youth sports club, the subscription they pay, any donation they make, and how the club records the purchase of new football equipment all follow the accounting principles for Not-For-Profit Organizations covered in this topic.