Bookkeeping for Non-Profit Organizations & Understanding the Differences Between Bookkeeping, Accounting, and Accountancy  Non-profit organizations or non-governmental organizations (NPO or NGOs) in India follow quite different set of rules and regulation for bookkeeping than those of for-profit organizations. Nonprofit organizations refer to entities whose prime objective is to provide services to the public or its members but with no intended value of profit. Here’s a guide to understanding and managing bookkeeping for NPOs in India: Here’s a guide to understanding and managing bookkeeping for NPOs in India: 
Key Aspects of Bookkeeping for Non-Profit Organizations
1. Fund Accounting: 
  • Non-profits use fund accounting to track different sources of funds separately. 
  • Funds are categorized into restricted, unrestricted, and temporarily restricted funds based on donor stipulations.
2. Financial Statements 
  • Receipts and Payments Account: Illustrates the cash flow of the organization. 
  • Income and Expenditure Account: This can be said to be similar to the profit and loss account but rather than using profit, it uses surplus or deficit. 
  • Balance Sheet: Represents the totals of assets, liabilities, and fund balances. 
3. Grants & Donations 
  • There are two kinds of donations: those which are specific to a particular cause or need and those which aren’t. 
  • Documentation of the grant information, donors, purpose, and the way the money has been used prudently. 
4. Regulatory Requirements
  • Non-profits in India must comply with the Income Tax Act, Foreign Contribution Regulation Act (FCRA), and respective state public trust or society registration acts. 
  • Regular audits and submission of financial statements to relevant authorities are mandatory. 
 
 Journal Entries for a Non-Profit Organization
Step 1: Identifying Transaction  Example – Rs.50000 for educational programs as a donation  Step 2: Determination of Accounts Involved  Bank Account (Asset): – It increases by receiving cash.  Educational Program Fund (Restricted Fund): – It increases because of donations restriction for educational use.  Step 3: Applying Debit and Credit Rules  Debit: – Bank Account (Asset).  Credit: –Funds for Educational fund.  Step 4: Recording of Journal Entry Date: May 15, 2024 
Account Titles and Explanation  Debit (₹)  Credit (₹) 
Bank Account  ₹50,000   
To Educational Program Fund  (Received Donation for educational program)    ₹50,000 
  Step 5: Post to Ledger Bank Account Ledger 
Date  Particulars  Debit (₹)  Credit (₹)  Balance 
May 15,2014  Educational Program Fund  ₹50,000    ₹50,000 
  Educational Program Fund Ledger 
Date  Particulars  Debit (₹)  Credit (₹)  Balance 
May 15,2014  Bank Account    ₹50,000  ₹50,000 
  Understanding the Differences Between Bookkeeping, Accounting, and Accountancy  Evaluating the distinctions between bookkeeping, accounting, and accountancy is vital for the proper organization of financial operations. Bookkeeping is the process of keeping and updating records of a business’s financial activities, accounting on the other hand is the process of summarizing, analyzing and presenting this financial information accounting can be further broken down to accountancy which is a broader practice that involves the management of a business’s financial systems and offering advisories on matters relating to enterprise’s finances. Each possess profound importance in preserving the fiscal stability of an organization.   
Aspect  Book-keeping  Accounting  Accountancy 
Definition  The process of recording financial transactions systematically.   The procedure for reporting, evaluating, and summarizing financial transactions  The profession or duties of an accountant, encompassing both book-keeping and accounting.  
Focus  Recording of transactions.  Analyses and interpretation financial data.  Providing financial advice and services for auditing. 
Scope  Only Limited to recording financial transactions.  Broader scope including interpretation, analysis, and reporting.  Includes both book-keeping and accounting, with some extra financial services. 
Complexity  Generally straightforward, focused on accuracy and completeness.  Involves analysis, interpretation, and decision-making based on financial data.  Highly complex, involving strategic financial planning, auditing, and regulatory compliance. 
Professional Qualification  Generally, not regulated; bookkeepers may or may not have formal training.  Often requires a degree in accounting or related field, and may require professional certification.  Typically requires a degree in accounting or finance, along with professional certification and ongoing education to maintain licensure. 
 
Questions to test your understanding
  • A not-for-profit organization (NPO) registered in India aims primarily to accomplish which of the following? 
  1. Earning profits
  2. A serving organization for the public or its members
  3. It can be again a competitive organization with the for-profit organizations
  4. To avoid paying taxes
 
  • Funds accounting in a not-for-profit organization categorizes the funds primarily in which of the following types? 
  1. Fixed, Variable, and Flexible
  2. Short-term, Long-term, and Intermediate
  3. Restricted, Unrestricted, and Temporarily Restricted
  4. Local, National, and International
 
  • In case of not-for-profit organizations compared to the for-profit ones, which of the following financial statements does not exist? 
  1. Balance Sheet
  2. Income and Expenditure Account
  3. Cash Flow Statement
  4. Profit and Loss Account
 
  • In India, which of the following legislatives has to be followed by the not-for-profit organizations? 
  1. Companies Act and GST Act
  2. Foreign Contribution Regulation Act (FCRA) and Income Tax Act
  3. SEBI Guidelines and RBI Regulations
  4. Patent Act and Copyright Act
 
  • How accounting is different from bookkeeping in terms of scope and complexity? 
  1. Functions of analysis are always involved under bookkeeping, whereas accounting involves the transaction recording function.
  2. Functions involved in accounting after recording transactions include interpretation and reporting, whereas in bookkeeping, recording of transactions is included.
  3. The scope of bookkeeping is broader and includes strategic financial planning while accounting is mainly related to transaction recording.
  4. In accounting, functions of analysis, interpretation, and decision making based on financial data is included, whereas bookkeeping is only concerned with the systematic recording of transactions.
  Conclusion  Non-profit organization accounting practices in India refer to specific procedures and guidelines that must be followed. They employ fund accounting for evaluating and recording the received funds and other specific accounts such as Receipts and Payments Account, Income and Expenditure Account, and Balance Sheet. Staying in compliance with the requirements and keeping track of the grants and donations are important for financial aspects in the organization. 
FAQ's

We use fund accounting to track different sources of funding separately. The donor’s specifications determine the categories of funds, which include restricted funds, unrestricted funds, and temporarily restricted funds.

The receipts and payments account show the flow of cash. The income and expenditure account are similar to the profit and loss account, but it uses surplus or deficit instead of profit. Balance sheet: It shows totals of assets, liabilities, and fund balances. 

There are two types of donations:
Specific: For a particular cause
General: Not tailored to a specific need Documentation of grant information, donors, purpose, and usage is necessary. 

The not-for-profit adhere to the provisions of the Income Tax Act (FCRA) and the Foreign Contribution Regulation Act (State Public Trust or Society Registration Act) at the state level, conduct regular audits, and periodically submit financial statements to the authorities. 

Fund categorization ensures that restricted funds are used for the intended purpose and that financial statement reporting is accurate in accordance with donor requirements. 

Yes, not-for-profits in India are required to undergo periodic audits and submit financial statements to the relevant authorities to maintain transparency on various fronts. 

In general, employers expect accountants to hold a degree and frequently hold professional certifications. With more complex accounting job responsibilities, some accountants must continue their education and may even need to obtain a license.