Balance Sheet of a Not-for-Profit Organisation

The Balance Sheet of a not-for-profit organisation looks simple only after you understand what it is really trying to show.

It is not trying to show profit.

It is not trying to repeat every receipt and payment.

It is trying to show the financial position of the organisation on a particular date.

That means one very practical question:

What does the organisation own, and what does it owe, on this date?

Once this question becomes clear, the opening and closing Balance Sheet method becomes much easier. The opening Balance Sheet helps you find the opening capital fund when it is missing. The closing Balance Sheet shows the final financial position after all current-year adjustments are made.

This one line can save a lot of confusion.

What a Not-for-Profit Balance Sheet Shows

A not-for-profit organisation may be a club, society, school association, sports association, cultural group, charitable trust, or similar body.

It does not prepare accounts mainly to show profit earned for owners. Still, it owns assets, has liabilities, receives income, pays expenses, and may have special funds.

So it needs a Balance Sheet.

A Balance Sheet shows:

Side	What it contains
Liabilities side	Capital fund, specific funds, outstanding expenses, income received in advance, loans, creditors
Assets side	Cash, bank, fixed assets, investments, stock, prepaid expenses, income due but not received

The basic equation is:

Formula	Meaning
Assets = Liabilities + Capital Fund	The organisation’s resources are financed by its obligations and accumulated fund
Capital Fund = Assets - Liabilities	The accumulated fund belongs to the organisation itself

In many school questions, the term “capital fund” may also be called “general fund” or “accumulated fund”. Treat them as the same idea unless the question gives a special instruction.

Why We Prepare an Opening Balance Sheet

Many questions do not directly give the opening capital fund.

Instead, they give opening assets and opening liabilities.

In that case, you prepare an opening Balance Sheet at the beginning of the year. The missing figure on the liabilities side becomes the opening capital fund.

The purpose is simple:

What you know	What you find
Opening assets	Total resources at the start
Opening liabilities	Amount owed at the start
Difference	Opening capital fund

The opening Balance Sheet is not prepared to show the answer to the whole question. It is prepared to find the starting point.

Think of it like the first page of a notebook. If you do not know where the organisation started, you cannot correctly explain where it ended.

Opening Balance Sheet Format

Here is the usual opening Balance Sheet format:

Liabilities	Amount	Assets	Amount
Outstanding expenses		Cash in hand
Creditors		Cash at bank
Income received in advance		Subscription outstanding
Specific funds		Prepaid expenses
Loans		Fixed assets
Capital fund, balancing figure		Investments

The balancing figure is calculated like this:

Particular	Amount
Total opening assets
Less: Total opening liabilities other than capital fund
Opening capital fund

Do not overthink this step. The capital fund is not guessed. It is calculated.

What Goes Into the Opening Balance Sheet

The opening Balance Sheet includes items that existed at the beginning of the year.

Common opening assets include:

• Cash in hand.
• Bank balance.
• Furniture.
• Library books.
• Sports equipment.
• Investments.
• Stock of stationery.
• Outstanding subscription at the beginning.
• Prepaid insurance at the beginning.
• Accrued interest at the beginning.

Common opening liabilities include:

• Outstanding salary.
• Outstanding rent.
• Creditors.
• Subscription received in advance at the beginning.
• Loan.
• Building fund.
• Prize fund.
• Tournament fund.

The words “at the beginning” matter. If the question says “subscription outstanding on 1 April”, it belongs to the opening Balance Sheet. If it says “subscription outstanding on 31 March”, it belongs to the closing Balance Sheet.

Why We Prepare a Closing Balance Sheet

The closing Balance Sheet is prepared at the end of the year.

It shows the final financial position after the year’s work is complete.

To prepare it properly, you usually need information from:

• Receipts and Payments Account.
• Income and Expenditure Account.
• Additional adjustments.
• Opening Balance Sheet.

The closing Balance Sheet answers this question:

After recording the surplus or deficit and all adjustments, what are the organisation’s assets and liabilities at the end of the year?

The closing capital fund is usually found like this:

Particular	Effect on capital fund
Opening capital fund	Add
Surplus for the year	Add
Deficit for the year	Less
Capital receipts transferred to capital fund	Add
Capital losses or adjustments charged to capital fund	Less

In many questions, the most common adjustment is:

Opening capital fund

Add surplus

or

Less deficit

Then show the final figure in the closing Balance Sheet.

The Link Between Income and Expenditure Account and Balance Sheet

The Income and Expenditure Account shows the result of the year.

If income is more than expenditure, there is surplus.

If expenditure is more than income, there is deficit.

The Balance Sheet does not show the full Income and Expenditure Account again. It shows only the effect of that result through capital fund.

Result	Treatment in closing Balance Sheet
Surplus	Add to capital fund
Deficit	Deduct from capital fund

This is one of the cleanest ways to connect the two final accounts.

The Step-by-Step Method

Use this order in exam questions.

1. Read the full question once.
2. Mark the opening date and closing date.
3. List opening assets.
4. List opening liabilities.
5. Prepare opening Balance Sheet and find opening capital fund.
6. Prepare or use the Income and Expenditure Account to find surplus or deficit.
7. Adjust capital fund for surplus or deficit.
8. Calculate closing values of fixed assets.
9. Record closing current assets and current liabilities.
10. Adjust specific funds separately.
11. Prepare the closing Balance Sheet.
12. Check that both sides agree.

This order keeps the rough work under control.

Most mistakes happen because students rush into the final format without finishing the working notes.

How to Calculate Closing Capital Fund

Closing capital fund is usually the most important working note.

Use this format:

Particular	Amount
Opening capital fund	Rs. …
Add: Surplus for the year	Rs. …
Less: Deficit for the year	Rs. …
Add: Capital receipts transferred to capital fund, if any	Rs. …
Closing capital fund	Rs. …

Only use the lines that apply to the question.

If there is surplus, add it.

If there is deficit, deduct it.

If the question says life membership fees should be capitalised, add them to capital fund.

If the question says a donation is for a specific purpose, do not casually add it to capital fund. It may belong to a separate fund.

How to Treat Fixed Assets

Fixed assets do not stay at the opening value automatically.

You may need to adjust them for:

• Purchases during the year.
• Sale during the year.
• Depreciation.
• Loss on sale, if asked.
• Appreciation, if specifically given.

The usual working note is:

Particular	Amount
Opening value of asset	Add
Add: Purchases during the year	Add
Less: Book value of asset sold	Less
Less: Depreciation	Less
Closing value of asset	Final figure

For example, if furniture was Rs. 60,000 at the beginning, new furniture of Rs. 20,000 was bought, and depreciation is Rs. 8,000:

Particular	Amount
Opening furniture	Rs. 60,000
Add: Furniture purchased	Rs. 20,000
Less: Depreciation	Rs. 8,000
Closing furniture	Rs. 72,000

So Rs. 72,000 appears on the assets side of the closing Balance Sheet.

How to Treat Outstanding and Prepaid Items

This chapter becomes much easier when you place outstanding and prepaid items correctly.

Item	Balance Sheet treatment
Outstanding expense	Liability
Expense paid in advance	Asset
Income due but not received	Asset
Income received in advance	Liability

Why?

An outstanding expense is an amount the organisation still owes.

A prepaid expense is a benefit already paid for, but not yet used.

Income due but not received is an amount the organisation has earned, but still has to receive.

Income received in advance is money received for a future period, so the organisation still owes the service or membership benefit.

This rule appears again and again in not-for-profit accounts.

How to Treat Specific Funds

Specific funds need special care.

Examples include:

• Building fund.
• Prize fund.
• Tournament fund.
• Sports fund.
• Scholarship fund.

If money is received for a specific purpose, it is not usually treated like ordinary income. It is shown on the liabilities side as a fund because the organisation must use it for that purpose.

A specific fund may be adjusted like this:

Particular	Effect
Opening fund balance	Add
Donation or receipt for that fund	Add
Income from fund investment	Add, if connected to the fund
Expense for that fund	Less
Closing fund balance	Show on liabilities side

For example, if Prize Fund is Rs. 20,000, prize donation is Rs. 10,000, interest on prize fund investment is Rs. 2,000, and prizes paid are Rs. 6,000:

Particular	Amount
Opening Prize Fund	Rs. 20,000
Add: Prize donation	Rs. 10,000
Add: Interest on Prize Fund investment	Rs. 2,000
Less: Prizes paid	Rs. 6,000
Closing Prize Fund	Rs. 26,000

So Rs. 26,000 appears on the liabilities side of the closing Balance Sheet.

Opening Balance Sheet vs Closing Balance Sheet

Students often mix up the two formats. Keep this difference clear.

Point	Opening Balance Sheet	Closing Balance Sheet
Prepared on	First day of the year	Last day of the year
Main purpose	To find opening capital fund if missing	To show final financial position
Uses	Opening assets and liabilities	Closing assets and liabilities
Capital fund	Usually balancing figure	Opening capital fund adjusted by surplus or deficit
Depends on current-year result	No	Yes

The opening Balance Sheet is the starting line.

The closing Balance Sheet is the finishing line.

A Solved Example

Let us prepare both Balance Sheets using a small example.

The Friends Cultural Club gives the following opening balances on 1 April 2025:

Item	Amount
Cash in hand	Rs. 5,000
Cash at bank	Rs. 25,000
Furniture	Rs. 60,000
Library books	Rs. 40,000
Subscription outstanding	Rs. 4,000
Prepaid insurance	Rs. 2,000
Outstanding rent	Rs. 3,000
Subscription received in advance	Rs. 6,000
Prize Fund	Rs. 20,000

During the year ended 31 March 2026:

• The Income and Expenditure Account shows a surplus of Rs. 18,000.
• Life membership fees of Rs. 12,000 are to be capitalised.
• Furniture purchased during the year was Rs. 20,000.
• Depreciation on furniture was Rs. 8,000.
• Library books purchased during the year were Rs. 10,000.
• Depreciation on library books was Rs. 4,000.
• Prize donation received was Rs. 10,000.
• Interest on Prize Fund investment was Rs. 2,000.
• Prizes paid were Rs. 6,000.
• Closing cash in hand was Rs. 7,000.
• Closing cash at bank was Rs. 38,000.
• Closing subscription outstanding was Rs. 7,000.
• Closing prepaid insurance was Rs. 5,000.
• Closing outstanding rent was Rs. 4,000.
• Closing subscription received in advance was Rs. 8,000.

Step 1: Prepare the Opening Balance Sheet

First total the opening assets.

Opening assets	Amount
Cash in hand	Rs. 5,000
Cash at bank	Rs. 25,000
Furniture	Rs. 60,000
Library books	Rs. 40,000
Subscription outstanding	Rs. 4,000
Prepaid insurance	Rs. 2,000
Total opening assets	Rs. 1,36,000

Now total the opening liabilities other than capital fund.

Opening liabilities	Amount
Outstanding rent	Rs. 3,000
Subscription received in advance	Rs. 6,000
Prize Fund	Rs. 20,000
Total opening liabilities	Rs. 29,000

Opening capital fund:

Particular	Amount
Total opening assets	Rs. 1,36,000
Less: Opening liabilities	Rs. 29,000
Opening capital fund	Rs. 1,07,000

So the opening Balance Sheet will be:

Liabilities	Amount	Assets	Amount
Outstanding rent	Rs. 3,000	Cash in hand	Rs. 5,000
Subscription received in advance	Rs. 6,000	Cash at bank	Rs. 25,000
Prize Fund	Rs. 20,000	Furniture	Rs. 60,000
Capital Fund	Rs. 1,07,000	Library books	Rs. 40,000
		Subscription outstanding	Rs. 4,000
		Prepaid insurance	Rs. 2,000
Total	Rs. 1,36,000	Total	Rs. 1,36,000

Step 2: Calculate Closing Capital Fund

Particular	Amount
Opening capital fund	Rs. 1,07,000
Add: Surplus for the year	Rs. 18,000
Add: Life membership fees capitalised	Rs. 12,000
Closing capital fund	Rs. 1,37,000

Step 3: Calculate Closing Fixed Assets

Furniture:

Particular	Amount
Opening furniture	Rs. 60,000
Add: Furniture purchased	Rs. 20,000
Less: Depreciation	Rs. 8,000
Closing furniture	Rs. 72,000

Library books:

Particular	Amount
Opening library books	Rs. 40,000
Add: Books purchased	Rs. 10,000
Less: Depreciation	Rs. 4,000
Closing library books	Rs. 46,000

Step 4: Calculate Closing Prize Fund

Particular	Amount
Opening Prize Fund	Rs. 20,000
Add: Prize donation	Rs. 10,000
Add: Interest on Prize Fund investment	Rs. 2,000
Less: Prizes paid	Rs. 6,000
Closing Prize Fund	Rs. 26,000

Step 5: Prepare the Closing Balance Sheet

Now place the closing figures in the final Balance Sheet.

Liabilities	Amount	Assets	Amount
Capital Fund	Rs. 1,37,000	Cash in hand	Rs. 7,000
Prize Fund	Rs. 26,000	Cash at bank	Rs. 38,000
Outstanding rent	Rs. 4,000	Furniture	Rs. 72,000
Subscription received in advance	Rs. 8,000	Library books	Rs. 46,000
		Subscription outstanding	Rs. 7,000
		Prepaid insurance	Rs. 5,000
Total	Rs. 1,75,000	Total	Rs. 1,75,000

The Balance Sheet agrees. That means the opening capital fund, surplus adjustment, fund adjustment, asset values, and closing liabilities have all been placed properly.

Common Mistakes to Avoid

The first mistake is treating capital fund like a normal liability owed to an outside person. It is shown on the liabilities side, but it represents the organisation’s accumulated fund.

The second mistake is putting opening cash or opening bank balance in the closing Balance Sheet. The closing Balance Sheet needs closing cash and closing bank balance.

The third mistake is forgetting that surplus increases capital fund and deficit reduces capital fund.

The fourth mistake is showing a specific fund receipt as ordinary income when the question clearly says it is for a specific fund.

The fifth mistake is ignoring depreciation because no cash was paid. Depreciation still reduces the value of the fixed asset.

The sixth mistake is mixing outstanding subscription and subscription received in advance. Outstanding subscription is an asset. Subscription received in advance is a liability.

Quick Revision Table

Item	Treatment
Opening capital fund missing	Prepare opening Balance Sheet
Capital fund	Assets minus outside liabilities
Surplus	Add to capital fund
Deficit	Deduct from capital fund
Outstanding expense	Liability
Prepaid expense	Asset
Income outstanding	Asset
Income received in advance	Liability
Fixed asset purchased	Add to asset
Depreciation	Deduct from asset
Specific fund balance	Liabilities side
Expense related to specific fund	Deduct from that fund if instructed

Keep this table in mind while practising. It helps you decide the side quickly without memorising every possible adjustment separately.

Frequently Asked Questions

What is the Balance Sheet of a not-for-profit organisation?

It is a statement that shows the assets, liabilities, specific funds, and capital fund of a not-for-profit organisation on a particular date.

Why is capital fund shown on the liabilities side?

Capital fund is shown on the liabilities side because the Balance Sheet follows the equation assets equal liabilities plus capital fund. It represents the accumulated resources of the organisation, not an outside loan.

How do you find opening capital fund?

Prepare an opening Balance Sheet using opening assets and opening liabilities. The difference between total assets and known liabilities is the opening capital fund.

What is the formula for capital fund?

Capital fund equals total assets minus outside liabilities. For closing capital fund, start with opening capital fund, add surplus, deduct deficit, and adjust any capital receipts or capital losses given in the question.

Is surplus shown on the assets side?

No. Surplus is added to capital fund on the liabilities side of the closing Balance Sheet.

Where is deficit shown?

Deficit is deducted from capital fund. It reduces the accumulated fund of the organisation.

Is subscription outstanding an asset or liability?

Subscription outstanding is an asset because the amount is due to be received by the organisation.

Is subscription received in advance an asset or liability?

Subscription received in advance is a liability because the organisation has received money for a future period.

How are specific funds shown in the Balance Sheet?

Specific funds such as building fund, prize fund, or tournament fund are usually shown on the liabilities side. Receipts for that fund are added, and expenses related to that fund are deducted if the question asks for that treatment.

Why do both sides of the closing Balance Sheet not agree sometimes?

Usually, one adjustment has been missed or placed on the wrong side. Recheck capital fund, surplus or deficit, depreciation, outstanding items, prepaid items, and specific funds.

What is the easiest way to solve this type of question?

Find opening capital fund first, adjust it for surplus or deficit, prepare working notes for fixed assets and funds, then write the closing Balance Sheet. This sequence keeps the answer organised.