KASNEB · FoundationFinancial AccountingBETA — flag if wrong

Non-Profit Organisations and Manufacturing Accounts

Receipts and payments accounts, income and expenditure accounts, accumulated fund, and manufacturing accounts (prime cost, factory overheads, cost of production).

4objectives

4revision lessons

12practice questions

What you’ll learn

Aligned to the KASNEB Financial Accounting syllabus.

CF11.11.a Distinguish between receipts and payments and income and expenditure accounts
CF11.11.b Compute the accumulated fund of a non-profit organisation
CF11.11.c Prepare a manufacturing account showing prime cost and cost of production
CF11.11.d Account for transfer of finished goods at cost or with a manufacturing profit margin

Distinguishing Receipts and Payments from Income and Expenditure Accounts

BETA — flag if wrongAI 94

In financial accounting for non-profit organisations, it's crucial to differentiate between receipts and payments and income and expenditure accounts.

Receipts and Payments Account: This account is a summary of cash transactions over a specific period. It records all cash inflows (receipts) and outflows (payments) without considering the timing of when the income was earned or expenses incurred. It is a simple cash-based account and does not follow accrual accounting principles. For example, if a donation is received in December but is intended for the following year, it still appears in the current year’s receipts.

Income and Expenditure Account: This account reflects the organisation's financial performance over a period, similar to a profit and loss account. It includes all income earned and expenses incurred during the period, regardless of cash transactions. This account follows the accrual basis of accounting, meaning that income is recognized when earned, and expenses are recognized when incurred. For instance, if a service is provided in December but payment is received in January, the income is recorded in December's income and expenditure account.

Understanding these distinctions is vital for accurate financial reporting and compliance with the International Financial Reporting Standards (IFRS). Non-profit organisations must ensure they maintain clear records to reflect their financial health accurately.

Key points

Receipts & Payments: Cash transactions, no accruals.
Income & Expenditure: Reflects earned income and incurred expenses.
Receipts account does not follow accrual principles.
Income & Expenditure follows IFRS accrual basis.
Clear records ensure accurate financial reporting.

Worked example

Receipts and Payments Account

| Date | Particulars | KES | |------------|------------------------|--------| | 2026-01-01 | Opening Balance | 50,000 | | 2026-01-15 | Donations Received | 20,000 | | 2026-01-20 | Membership Fees | 5,000 | | 2026-01-25 | Rent Paid | | 10,000 | | 2026-01-30 | Utilities Paid | | 2,000 | | | Closing Balance | 63,000 |

Income and Expenditure Account

| Date | Particulars | KES | |------------|------------------------|--------| | 2026-01-01 | Income from Donations | 20,000 | | 2026-01-01 | Membership Fees | 5,000 | | 2026-01-01 | Expenditure - Rent | | 10,000 | | 2026-01-01 | Expenditure - Utilities | | 2,000 | | | Net Surplus | 13,000 |

More on this topic

CF11.11.b Computing the accumulated fund of a non-profit organisationBETA — flag if wrongAI 95

The accumulated fund of a non-profit organisation represents the net assets available for its operations. It is calculated as the difference between total income and total expenses over a period. This fund reflects the financial health of the organisation and is crucial for planning future activities.

To compute the accumulated fund, follow these steps:
1. Identify Total Income: Include all sources of income such as donations, grants, and fundraising activities.
2. Identify Total Expenses: Include all operational costs, including salaries, utilities, and program expenses.
3. Calculate Net Income: Subtract total expenses from total income.
4. Adjust for Previous Accumulated Fund: Add the net income to the previous accumulated fund to determine the current accumulated fund.

In Kenya, non-profit organisations must adhere to the Companies Act 2015 and relevant regulations from the NGO Coordination Board. Transparency in financial reporting is essential for maintaining donor trust and compliance with statutory requirements.

CF11.11.c Preparing a Manufacturing Account for Non-Profit OrganisationsBETA — flag if wrongAI 100

In financial accounting, a manufacturing account is essential for determining the cost of goods manufactured. This is particularly relevant for non-profit organisations that engage in production activities, such as community-based projects. The manufacturing account provides insights into the prime cost and cost of production, which are crucial for budgeting and financial reporting.

Prime Cost includes direct costs associated with production: direct materials, direct labor, and direct expenses. Cost of Production adds the opening work-in-progress (WIP) inventory to the prime cost and subtracts the closing WIP inventory. This calculation helps assess the total costs incurred in producing goods during a specific period.

To prepare a manufacturing account, follow these steps:
1. Calculate total direct materials used.
2. Add direct labor costs.
3. Include any direct expenses.
4. Compute the prime cost.
5. Adjust for opening and closing WIP to find the cost of production.

This structured approach ensures that all relevant costs are accounted for, providing a clear picture of the financial performance of the manufacturing activities.

CF11.11.d Accounting for Finished Goods Transfers in Non-ProfitsBETA — flag if wrongAI 100

Non-profit organizations may engage in manufacturing activities, necessitating accurate accounting for finished goods transfers. When transferring finished goods, organizations can record the transaction at cost or include a manufacturing profit margin.

According to IAS 2 (Inventories), finished goods should be valued at the lower of cost and net realizable value. The cost includes all expenses directly attributable to bringing the goods to their present location and condition.

When transferring goods, if the organization opts to include a profit margin, it must determine the appropriate markup based on the cost. This profit margin should reflect the organization's pricing policy, ensuring it aligns with the objectives of the non-profit.

In Kenya, non-profits must also adhere to the Companies Act 2015, ensuring transparency in their financial reporting. Proper documentation of the transfer is crucial for accountability and compliance with the International Financial Reporting Standards (IFRS).

To maintain accurate records, the organization should update its inventory records and reflect the transfer in its financial statements accordingly.

Sample KASNEB-style questions

3 of 12 questions. Beta-flagged questions are AI-drafted and pending CPA review — flag anything that looks wrong.

Q1 · SHORT ANSWER · easyBETA — flag if wrongAI 100

Identify two key differences between receipts and payments in a non-profit organisation. (2 marks)

Q2 · SHORT ANSWER · easyBETA — flag if wrongAI 100

State the main purpose of an income and expenditure account in a charity organisation. (2 marks)

Q3 · SHORT ANSWER · easyBETA — flag if wrongAI 100

Explain how payments differ from expenses in the context of a manufacturing account. (3 marks)

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Common questions

Distinguish between receipts and payments and income and expenditure accounts

Receipts & Payments: Cash transactions, no accruals.

Compute the accumulated fund of a non-profit organisation

Accumulated fund = Total Income - Total Expenses

Prepare a manufacturing account showing prime cost and cost of production

Prime cost includes direct materials, labor, and expenses.

Account for transfer of finished goods at cost or with a manufacturing profit margin

Transfer finished goods at cost or with a profit margin.