SBSIRCommerce Present
Here are 25 Short Answer Questions (SAQs) with appropriate answers from the "Non-Trading Organizations" chapter of Accountancy:
1. **What is a non-trading organization?**
*A non-trading organization is an entity that is established not for profit, but for social, cultural, educational, or charitable purposes, such as clubs, schools, hospitals, and charitable trusts.*
2. **What are the main objectives of non-trading organizations?**
*The main objectives of non-trading organizations are to provide services to its members or the public and promote welfare activities rather than earning profits.*
3. **What financial statements are prepared by non-trading organizations?**
*Non-trading organizations prepare three financial statements: Receipts and Payments Account, Income and Expenditure Account, and Balance Sheet.*
4. **What is a Receipts and Payments Account?**
*A Receipts and Payments Account is a summary of cash and bank transactions during a particular period, showing the opening and closing balances of cash and bank accounts.*
5. **What is the nature of a Receipts and Payments Account?**
*A Receipts and Payments Account is a real account, similar to a cash book, and records both capital and revenue items irrespective of the period to which they relate.*
6. **What is an Income and Expenditure Account?**
*An Income and Expenditure Account is a summary of the revenue incomes and revenue expenses of a non-trading organization for a particular accounting period, prepared on an accrual basis.*
7. **What is the purpose of an Income and Expenditure Account?**
*The purpose of an Income and Expenditure Account is to ascertain the surplus or deficit for the accounting period, which is similar to profit or loss in a trading organization.*
8. **What is a Balance Sheet in a non-trading organization?**
*A Balance Sheet in a non-trading organization is a statement showing its financial position at the end of an accounting period, listing its assets, liabilities, and capital fund.*
9. **What is a capital fund in a non-trading organization?**
*The capital fund (or general fund) in a non-trading organization represents the accumulated surplus of the organization over time. It is the difference between assets and liabilities.*
10. **What are subscriptions in the context of a non-trading organization?**
*Subscriptions are the amounts paid by members periodically, typically annually, to maintain their membership and support the activities of the organization.*
11. **How are subscriptions treated in the financial statements of a non-trading organization?**
*Subscriptions received are treated as revenue income and shown in the Income and Expenditure Account. Outstanding subscriptions are shown as assets, while advance subscriptions are shown as liabilities in the Balance Sheet.*
12. **What is the difference between a Receipts and Payments Account and an Income and Expenditure Account?**
*A Receipts and Payments Account records all cash and bank transactions, including both capital and revenue items, on a cash basis, while an Income and Expenditure Account records only revenue items on an accrual basis.*
13. **What is the treatment of donations in non-trading organizations?**
*Donations for general purposes are treated as revenue income and shown in the Income and Expenditure Account. Specific donations are treated as capital receipts and shown in the Balance Sheet.*
14. **What are legacies in non-trading organizations?**
*Legacies are amounts received as per the will of a deceased person. They are treated as capital receipts and shown in the Balance Sheet unless specified for a specific purpose.*
15. **What are endowment funds?**
*Endowment funds are donations or contributions received with a specific instruction that the principal amount is to be kept intact, and only the income generated from it can be used for the organization’s activities.*
16. **What is the treatment of life membership fees?**
*Life membership fees are treated as capital receipts and are added to the capital fund in the Balance Sheet, as they are non-recurring in nature.*
17. **What are the characteristics of a non-trading organization?**
*The characteristics of a non-trading organization include a service motive, no profit objective, funds generated from subscriptions, donations, and grants, and the preparation of Receipts and Payments Account and Income and Expenditure Account.*
18. **What is the difference between capital expenditure and revenue expenditure in non-trading organizations?**
*Capital expenditure results in the acquisition of long-term assets and is shown in the Balance Sheet, while revenue expenditure relates to the day-to-day operations and is recorded in the Income and Expenditure Account.*
19. **How are entrance fees treated in non-trading organizations?**
*Entrance fees may be treated as either capital or revenue receipts, depending on the policy of the organization. If treated as capital, they are added to the capital fund in the Balance Sheet; if treated as revenue, they are shown in the Income and Expenditure Account.*
20. **What is an accrual basis of accounting?**
*The accrual basis of accounting means that incomes and expenses are recorded in the financial statements in the period to which they relate, regardless of whether the cash has been received or paid.*
21. **What is a specific fund in a non-trading organization?**
*A specific fund is a fund created for a particular purpose, such as a building fund or sports fund, and is treated separately in the Balance Sheet. The income and expenses related to the specific fund are also shown separately.*
22. **What are grants in non-trading organizations?**
*Grants are financial assistance received from government bodies or other institutions. General grants are treated as revenue income, while specific grants are treated as capital receipts.*
23. **What is the treatment of honorarium in non-trading organizations?**
*An honorarium is an amount paid to a person for voluntary services rendered. It is treated as revenue expenditure and recorded in the Income and Expenditure Account.*
24. **What is the meaning of surplus and deficit in a non-trading organization?**
*Surplus refers to the excess of income over expenditure, and deficit refers to the excess of expenditure over income in a non-trading organization.*
25. **What is a fixed asset in the context of non-trading organizations?**
*A fixed asset is a long-term asset, such as buildings, equipment, or furniture, used by a non-trading organization for
its activities. Fixed assets are shown on the asset side of the Balance Sheet.*
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