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LECTURE 10
NOT-FOR-PROFIT ORGANIZATIONS
11
...
2
Objective
Objectives: the learner should be able to
1
...
2
...
3
...
4
...
11
...
The two types of non-business organizations have several
characteristics in common, as well as some differentiating features
...
Discussed in this section are the objectives of financial
reporting for Not-for-Profit organizations, the nature of governmental entities,
11
...
A non-profit (or not-for-profit)
organization is a legal and accounting entity that is operated for the benefit of society as a
whole, rather than for the benefit of an individual proprietor or a group of partners or
stockholders
...
Instead, a non-profit organization generally strives only to obtain revenues
sufficient to cover its expenses
...
According
to
Financial
Accounting
Standards
Board
(FASB),
Not-for-profit
organizations included (i) Medical Organisations (Hospitals, Nursing Homes, Homes for
old age, Voluntary Health and Welfare Organizations); (ii) Civic Organizations (Labour
Unions, (Political parties, private and community foundations, public broadcasting
station); (iii) Educational Organisations (Private Elementary and Secondary Schools,
1
Colleges and Universities, Libraries); (iv) Cultural Institutions (Cemetery Organizations,
Performing Arts Organizations, Museums, Fraternal Organizations); (v) Social
Organisations (Social and Country Clubs); (vi) Religious Organisations (Churches,
Church Choirs, Evangelical Teams, Mosques); (vii) Trade associations (Research and
Scientific
Organizations,
Professional
Associations,),
and
(vii)
Environmental
organisations (Zoological and Botanical Societies)
...
11
...
In the period 1972 to 9174, the unsettled state of accounting for
non-profit organizations was improved by the AICPA‟s issuance of three Audit and
Accounting Guides or Industry Audit Guides: “Hospital Audit Guide”, “Audits of
Colleges and Universities”, and “Audits of voluntary Health and Welfare Organizations”
...
The status of an Audit and Accounting Guide or an
Industry Audit Guide is set forth in each guide; the language in “Health Care
Organizations” is typical
...
Thus, in 1978, the AICPA issued Statement of Position 78-10,
later incorporated in “Audits of certain non-profit organizations,” which applied to at
least 18 types of non-profit organizations, ranging from cemetery societies to zoological
and botanical societies
...
The FASB resolved several of
these inconsistencies in three Statements of Financial Accounting Standards (SFAS)
...
93: “Recognition of Depreciation by Not-for-Profit Organizations,”
SFAS No
...
117: “Financial Statement of Not-for-Profit Organizations
...
”
Taken
together, the actions of the FASB and the AICPA brought order out of chaos with respect
to accounting standards for non-profit organizations
...
4 Characteristics of Non-Profit Organizations
Non-Profit Organizations are in certain respects hybrid because they have some
characteristics similar to those of governmental entities and other characteristics similar
to those of business enterprises
...
Service to society: Non-profit organizations often render services to society as a
whole
...
Similar to the
services rendered by governmental entities, the services of non-profit organizations
are of benefit to the many rather than the few
...
Not-for-Profit Motivation: Nonprofits organizations do not operate with the
objective of earning a profit
...
Governmental entities, except for
enterprise funds, have the same characteristics
...
Financing by the Citizenry: As with governmental entities, most non-profit
organizations depend on the general population for a substantial portion of their
support, because revenues from charges for their services are not intended to cover all
their operations costs
...
Whereas the citizenry‟s
contributions to government revenues are mostly involuntary taxes, their
contributions to Not-for-Profit organizations are voluntary contributions
...
Since most of the resources of a not-for-profit organisation are donated by
citizenry, the organization must account for the resources on stewardship basis similar
to those governmental entities
...
3
5
...
This is necessitated by the four preceding features above
...
Among the characteristics of Not-for-Profit organizations that resemble those of business
enterprises are the following:
1
...
In contrast, the legislative and executive branches of a governmental
entity share the responsibilities for its governance
...
Measurement of Cost Expirations: Governance by board of directors means that a
Not-for-Profit organization does not answer to a lawmaking body as does a
governmental entity
...
Allocations of expenses (including depreciation) and revenues to the
appropriate accounting period thus is a common characteristic of Not-for-Profit
organizations and business enterprises
...
Use of Accrual Basis of Accounting: Not-for-Profit organizations employ the same
accrual basis of accounting used by business enterprises
...
5
Objectives of Financial Reporting for Non-business Organizations
For many years, neither the American Institute of Certified Public Accountants
nor the Financial Accounting Standards Board gave attention to the accounting problems
of non-business organizations
...
During the 1970s,
a number of factors caused both the AICPA and FASB to consider the need for a
comprehensive body of accounting principles for non-business organizations
...
S
...
As a result of the factors described in the foregoing paragraph, the FASB added
financial reporting by non-business organizations to the scope of its conceptual
framework for financial accounting and reporting projects, which is described in
intermediate accounting textbooks
...
4: “Objectives of Financial Reporting by Non-Business Organizations,”
FASB developed the following objectives:
1
...
2
...
3
...
4
...
5
...
Periodic measurements of the changes in the amount
and nature of the net resources of a non-business organization and information about
the services efforts and accomplishments of an organization together represent the
information most useful in assessing its performance
...
Financial reporting should provide information about how organization obtains and
spends cash or other liquid resource, about its borrowing and repayment of
borrowing, and out other factors that may affect an organization‟s liquidity
...
Financial reporting should include explanations and interpretations to help users
understand financial information provided
...
However, the FASB
deferred a final decision on the matter, pending resolution of the question of how
accounting standards for state and local governmental entities should be established
...
4
...
11
...
Separate funds may be necessary to distinguish between assets that may be used as
authorized by the board of directors and assets whose use is restricted by donors
...
The unrestricted fund included all the assets of a Not-for-Profit
organization that are available for use as authorized by the board of directors and are not
restricted for specific purposes
...
Revenues and Gains of Unrestricted Fund
The revenues and gains of an unrestricted fund are derived from a number of
sources
...
A university‟s sources of unrestricted fund revenues
and gains include student income and fees; governmental grants and contracts; gifts and
private grants; unrestricted income from endowment funds; and revenue from auxiliary
activities such as student residences, food services, and intercollegiate athletics
...
Revenue may also include membership dues,
interest, dividends, and gains on disposal of investments
...
1: “Objectives of Financial
Reporting”, in which it established the following reporting objectives for state and local
governmental entities:
a) Financial reporting should assist in fulfilling government‟s duty to be publicly
accountable and should enable users to assess that accountability by:
i
...
Demonstrating whether resources were obtained and used in accordance with the
entity‟s legally adopted budget, and demonstrating compliance with other financerelated legal or contractual requirements
7
iii
...
Providing information about sources and uses of financial resources
ii
...
Providing information necessary to determine whether its financial position
improved or deteriorated as a result of the year‟s operations
c) Financial reporting should assist users in assessing the level of services that can be
provided by the governmental entity and its ability to meet its obligations as they
become due by:
i
...
Providing information about its physical and other non financial resources having
useful lives that extend beyond the current year, including information that can be
used to assess the services potential of those resources
iii
...
11
...
transactions such as
and Balance sheet
Should however maintain proper records of all financial
Cash Receipt Journal, Cash Payment Journal, Journal Proper
(General Journal), Register of Assets, Register of Minutes for members as well
...
11
...
1 Receipt and Payment Account
This is a Real Account where actual receipts of cash (whether relating to current
proceeding or future period or of capital or revenue nature), are all are debited to the
account
...
Ideally, the account is a
8
summary of cash book
...
It is often
prepared by not-for-profit organizations
...
This account does not require any adjustments except for correction of
errors
...
7
...
In other words, it records revenue items only
...
We debit such to the account
...
These would include subscriptions, earnings, collections from events, etc
...
Please notice that, if the two sides are compared, we a get a difference which
could be an excess of incomes over expenditure (SURPLUS) or a shortfall of income
over expenditure (DEFICIT)
...
There is no
opening balance on the account, but closing balance is what will constitute surplus or a
deficit of income over expenditure
...
11
...
3 Receipt & Expenditure Account
This statement is meant to be prepared by professional persons and organisations
to determine professional income for a given period
...
A vocation is an innate feeling by a person to a special calling, to perform a
humanitarian duty (religious, priestly, philanthropic etc) with a sole aim of providing
service to society
...
This
service is performed for no gain as a primary objective
...
These are (i) medical profession,
which endeavours to relieve human beings from physical ailments, pain and sufferings
...
Whether or not current professional are living up to this
expectation, is not a matter of discussion in this course
...
Unfortunately, the Kenyan Law
does not consider teaching as a profession, yet form antiquity; it is the oldest and mother
of all professions
...
This account is a nominal account, similar to profit and Loss account,
except that we recognise actual incomes received on the income side
...
Imagine a pastor who has a congregation of three members whose monthly income is Shs
600,000
...
Assume further that the total be Shs 120,000
...
The pastor cannot prepare an income statement and
reflect a receivable of Shs 105,000
...
But he will be careful to reflect all the
accrued expenses the church shall be owing its creditor (accrual basis on the expenditure
side), hence a Receipt and Expenditure Account for professionals
...
Payments
Cash system of accounting
No adjustments required to be
made at the end of the year
Both capital and revenue items
are shown
No closing balance
The balancing figures is either surplus
or deficit
Dr expenditure or payments and Cr
Income (Receipts)
Mercantile/Accrual basis/system of
accounting
Adjustments are made to match the
receipts and expenses for the year
Only revenue items are shown
(considered capital items are excluded
and treated in the balance sheet
Only current period items of income
and expenditure are treated
...
11
...
1 PECULIAR ITEMS TO NON-TRADING CONCERNS
Legacy
Legacy is any gift whose title passes to the beneficiary upon the death of the giver
of the gift, following the deceased will
...
Upon receipt of a legacy by a Not-for-profit concern, the following will
be observed
...
Dr Receipt and Payment A/c
XX
Cr
...
The relevant accounting entry
will be as shown below:
i
...
Capital A/c or Reserves A/c
XX
XX
11
If there is no clear state guidance (i
...
when there are no instructions attached to
the legacy and the amount of the legacy is neither material nor immaterial, and then
treatment is left with the accountant
...
A note must accompany the treatment
...
Donations may be general or specifics
...
Such donations can be
applied to any project the management of the not-for- profit concerns deems fit
...
(i)
General Donations
Dr Receipt & Payment A/c
XX
Cr
...
Capital a/c/reserve a/c – if large
XX
(Remember to make a note on the treatment adapted to a company the solution to the Q
in a case of ambiguity
...
Such would be for construction of a room, dormitory etc
...
”
Dr Receipt and Payment A/c
Cr
...
The amount is meant to be spread over a reasonable period-income
(i)
(ii)
(iii)
Upon receipt of the amount,
Dr Receipt and Payment a/c
Cr
...
Balance as a Liability Receivable A/c
XX
XX
XX
Where the fee is received in small amounts annually, the relevant entry will be
credit income & expenditure and
Dr Receipt and Payments a/c
XX
Cr Income and Expenditure A/c
XX
When fee is expensed
12
(iv)
Dr Receipt and Payment a/c
XX
Cr
...
)
(d)
Annual Subscription:
This amount is required to be paid annually
...
Income and Expenditure a/c
XX
(e)
Sale of Assets
Dr Receipt and Payment a/c
XX
Cr
...
e
...
When what is disposed off constitute
major items the following entries are made with Profit/Loss on Disposal account, Income
and Expenditure a/c In general, the total amount received from the sale is debited in the
Receipt and Payment a/c and credited in the Asset Disposal account at the book value
...
Disposal A/c (at book value)
Cr
...
Asset Disposal A/c (at book value)
(f)
XX
XX
XX
XX
XX
XX
Honorarium
This is fees paid to persons invited to perform a theatrical art, or give a lecturer
...
A Receipt and Payment account would be a proper
alternative
...
9
EDUCATIONAL ORGANISATION
Educational institutions are meant to be non-profit making
...
They too should prepare final
financial statements
...
Consequently it will have to show revenues and expenses as shown below
...
(e) Donation from the public
(agencies, etc), (f) Cash received from you for specific projects, (g) medical fees
...
(f) water and
Electricity, (g) transport, (h) games, entertainments etc activity charges, (i) examination
expenses, (j) equipments etc
...
The
balance sheet should disclose all the financing, liabilities and surplus fund as determined
by the income and expenditure account
...
50
9,000
187
...
a
5% p
...
a
The market value of general investment on 31
...
1993 was Shs 65,000, but you are not
required to bring down the book value at this level
...
Suggested Solution
Bika Educational Trust
Income & Expenditure Account year ending 31
...
1994
Expenditure
Shs
Shs
Income
Shs
Salary
Add outstanding
Printing & Stationary
Taxes & insurance
Less: Prepaid
Examination Expenses
Subscription to Periodicals
General expenses
Depreciation:
Library
Furniture & fittings
Buildings
Excess of income
5,100
900
400
250
1,635
3,925
1,375
Subscription Received
6,000 Add: Outstanding
500
Less: Received in Adv
...
5
Shs
10,000
2,250
12,250
250 12,000
7,600
1,200
250
2,250
225 2,475
3,250
300
16,435
...
A
trial balance for the year ended 31/12/1996 was as follows:
Dr
...
Shs
Shs
Furniture and fittings
235,500
Library books
262,500
Additional to library during the year
64,500
General investments
2,250,00
Investment reserve fund
225,000
Buildings
4,125,000
Admission fees
228,000
Examination fees
36,000
Certificate fees
7,500
Subscriptions
300,000
Debtors and creditors
75,000
217,500
Salaries
153,00
Printing and stationary
15,000
Taxes and insurance
12,000
Hire of society hall
97,500
Interest on investments
82,500
Sundry receipts
9,000
Examination expenses
9,000
Periodical subscriptions
18,000
Prize trust investment
240,000
Prize trust income
237,000
Prizes trust income
9,750
Prizes given out
6,750
Prize fund bank balance
4,125
Donations (to be capitalised)
407,250
General expenses
5,625
Capital fund
5,700,000
Bank balance
80,000
Cash in hand
7,000
7,560,000 7,560,000
Additional Notes
1
...
Shs
67,500
7,500
6,750
27,000
7,500
Depreciation is to be provided as follows:
17
Library books
Furniture and fittings
Buildings
2
...
1,500,000, but you are not
required to adjust the book value to this level
...
Required:
(a)
Income and expenditure account foe Butali Teachers College for the year end
ended 31
...
1996
...
12
...
Suggested Solution
BUTALI TEACHERS COLLEGE
Preliminary Workings
W
...
2
Salaries:
Paid
Add: accrued
153,000
27,000
180,000
W
...
5
W
...
4
82,500
6,750
89,250
240,000
9,750
249,750
6,750
243,000
Depreciation:
(i)
12,000
7,500
4,500
Library Books:
= (262,500 + 64,500) x 20%
18
= Shs 327,000 x 20%
= Shs 65,400
(ii)
Furniture & fittings:
= Shs 235,500 x 10%
= Shs 23,550
(iii)
Buildings:
= Shs 4,125,000 x 2
...
2)
Printing and stationary & adv
...
3)
Exam expenses
Periodical expenses
General expenses
Depreciation: (W4)
Library
Furniture & fittings
Buildings
Surplus income
Non-Current Assets
Buildings
Furniture and fittings
Library books
180,000
15,000
4,500
9,000
18,000
5,625
65,400
23,550
103,125
403,050
65,400
827,250
Subscription (W-1)
Admission fees
Examination fees
Certificate fees
Hire of hall
Interest on investment (W)
Sundry/other receipt
BUTALI TEACHERS COLLEGE
Balance sheet as at 31
...
1996
Cost
Shs
4,125,000
235,500
327,000
360,000
228,000
36,000
7,500
97,500
89,250
9,000
827,250
Depr
Shs
103,125
23,550
65,400
Investment (market value Shs
...
6)
Donation (Capitalised)
252,000
232,875
6,978,300
570,000
403,050
225,000
243,000
407,250
6,978,300
11
...
They are meant to prepare a Receipt and Payment Account, Income and Expenditure
Account and Balance Sheet
...
20
Illustration
The following are particulars relating to Baraka Mission Hospital for the year ended 3112-1994
...
1
...
0 Medicines
15,295
...
0 Doctors Honorarium
4,500
...
0 Salaries
13,750
...
0 Petty expenses
230
...
0 Equipment
7,500
...
12
...
5
43,538
43,538
Additional notes:
30-12-Yr 3
Shs ‘000’
Value of Buildings
20,000
Medicine
4,405
Equipment
10,600
Subscriptions Due
120
Subscriptions Received in Advance
32
31-12-Yr 4
Shs ‘000’
19,000
4,870
15,800
140
50
Required:
You are required to prepare Income and Expenditure Account for the year ended 1994
and Balance Sheet as on 31-12-1994
...
Solution
Preliminary Workings
1
...
Depreciation on Equipment:
Equipment 1
...
1994
Add: Purchases
Less Equipment 31
...
1994
Depreciation for the year
3
...
1
...
1
...
5
...
3,500,000
Therefore value of investment
=
3,500 X 100 = Shs
...
12
...
1
...
94
32
24,170
Less: Subscription Outstanding on 1
...
94
(120)
Received in Advance 31
...
94
(50)
Subscription for the year
24,000
Expenditure
Income and Expenditure Account year ended
Shs‟000‟
Income
Medicine consumed
Doctors Honorarium
Salaries
Petty expenses
Depreciation
Expense on Charity show
Depreciation on building (w)
Surplus Expenditure
Assets
Building
Equipment (iv)
Investment(5)
Subscription Due
Stock of Medicine
Cash
14,830
...
0
13,750
...
5
2,300
...
0
1,000
...
5
39,975
...
0
7,250
...
0
5,225
...
0
Balance Sheet
Shs ‘000’
Liabilities
Shs ‘000’
19,000
...
0
15,800
...
5
50,000
...
0
140
...
0
1,887
...
5
91,697
...
12
...
12
...
1
...
12
...
12
...
12
...
1 Medicine:
Opening stock
Add: purchases
Less closing stock
Medicine consumed
W
...
1
...
12
...
3 Subscription:
Subscription received
Add: subscription due at 31
...
1996
Subscription prepaid 1
...
1996
Shs000
23,170
140
32
24,170
Less
Subscription prepaid 31/12/1996
Subscription due
Subscription
W
...
1
...
figure)
32 Building
88,658 Equipment
Investment
Subscription due
Stock of medicine
Cash
88,690
Income and Expenditure Account Yr ended 31/12
Shs „000‟
Medicine used (W-1)
14,830 Subscription (W
...
Depr Building(200 – 19,000)
1,000
Expenses income
375
39,975
Shs ‘000‟
20,000
10,600
50,000
120
4,405
3,565
88,690
Shs „000‟
24,000
7,250
3,500
5,225
2,990
39,975
24
Activity
Dr Wangai commenced practice as a general medical practitioner
investing Shs
...
1
...
The receipt and
payment account for the year was as follows:
Fees
200,000
Miscellaneous receipts
400
Equipment sold
8,000
Rent
Salaries to
Arts
Journals
Library books
Equipment bought
Drawings
Bank
Cash on hand
208,400
12,000
30,000
4,000
12,000
16,000
48,000
86,000
400
208,400
Notes:
1
...
6,000 as fees was still outstanding
...
Equipment were sold and purchased on October 1990, cost of
equipment sold was Shs
...
3
...
4
...
4,000
...
11
...
They are lawyers who are certified to represent members of the general
public in various matters ranging from litigation to, representation
...
Accounts serve as a link between client his/her advocate
...
Collectively, this provides a record of all transactions which occur between the client and
the advocate
...
It is under this section that the
Subsidiary legislation titled “Advocates (Accounts) Rules” are stipulated
...
25
11
...
2
Unique Accounts for Legal Firms
Let us now examine the unique accounts which the advocate is required to
maintain for his/her practice
...
This is an
account therefore which record the transactions between the client and the advocate
...
b)
Office Cash Account
The office is expected to maintain an office cash account which records all office
financial transactions
...
The Act and the practice allow maintaining a double column cash book, in which
one column is for the office monies while the other column is for clients, monies and
dealing
...
c)
Client Personal Account
When individual clients deposit money with the advocate, which money is not
payment for any liability owed to the advocate, this becomes a liability to the firm
...
It shows that the advocates
firm owes such money to the client M/s X
...
At all
times this account will have a credit balance
...
d)
Office Personal Account
Office Personal Account (Debtors A/c) arises because of two possible reasons, (i)
when payment is made by the office on behalf of the client, thus causing the client to
become indebted to the office
...
This account
26
remains as a receivable in the balance sheet
...
e)
Bill of Cost Journal
This is a journal that is maintained by solicitors
...
Costs refer to all costs and expenses incurred on account
of a specified item
...
f)
Bill of Costs Rendered Account (Profit Cost Account)
this is an account which is drawn from the bill of cost journal
...
This account is a (nominal) revenue account,
similar to sales account for trading concerns
...
The account closes down to Income Summery at the closure of
the year
...
Procedure for book keeping
Accounts kept
1) When money is received from a client or on behalf of a client,
Dr
...
Client‟s personal account
XX
2) When money is paid to, or on behalf of a client (Not excess of client‟s account)
...
Office Personal Account
XX
Cr
...
Office Personal Account
XX
Cr
...
4) When a bill of cost is charged to the client,
Dr
Office Personal Account
Cr
...
At the
end of each month, they make appropriate transfers from “Client‟s Cash Account” to
“Office Cash Account”
...
Company
1,250
B Ltd
...
Jan 3: The firm received from Client E Ltd
...
This bill of costs had been raised on January 1st
...
Jan 5: The firm aid Shs 225,000 for repairs of a leased plant held by X Ltd under B
Ltd
...
Jan 10: The firm paid Shs 225,000 for advertisements on behalf of D Ltd Company
...
Company
...
company
...
company trust
...
Jan 18: Received from F Ltd
...
Jan 18: At the request of G Ltd
...
Jan 19: The firm received Shs 2,475,000 being debt collected for H Ltd
...
Jan 20: The firm paid H Ltd
...
Jan 21: The firm received Shs 1,125,000 from T & co being debt due to D Ltd
...
28
Jan 23: The firm received from A Ltd
...
Jan 31: The firm paid salaries, Shs 6,000,000 and drew petty cash Shs 500,000
...
(b)
Draw a client account for the amount due to office account on 31/1/Yr 5
...
)
125
Client B Ltd Client Personal A/c
Client Cash A/c
(Being payment for repairs on plant held by X
Ltd under B Ltd trust)
5
Dr
225
Client D Ltd
...
)
Dr
125
225
225
225
Client B Ltd
...
Office Personal A/c
Bill of Costs Rendered A/c
(Being bill of costs raised on client D Ltd
...
Client Personal A/c
(Being rent collected for client B Ltd
...
Client Personal A/c
(Being clients money lodged with the firm)
21
1,100
Dr
2,500
2,500
Dr
Client Cash
Client H Ltd Client Personal A/c
(Being debt collected for Client H Ltd )
Dr
25
25
2,475
2,475
Client H Ltd Client Personal A/c
Dr
Bill of Costs Rendered A/c
Client Cash A/c
(Being bill raised and the balance paid to client)
Client Cash
Client D Ltd Client Personal A/c
(Being debt collected from T Ltd for D Ltd
...
Ltd)
Office Cash A/c
Client Cash a/c
(Being legal fee drawn from Client Cash A/c)
3,000
Dr
2,475
375
2,100
375
375
1,125
1,125
30
23
Dr
Client F Ltd Office Personal A/c
Bill Of Costs Rendered A/c
(Being fee raised for services rendered)
Dr
Client F Ltd Client Personal A/c
Client F Ltd Office Personal A/c
(Being clearing legal fee on account)
31
Office Cash A/c
Client A Ltd Office Personal A/c
(Being payment of bill of costs)
850
Dr
850
3,000
3,000
2,500
2,500
2,500
Office Cash a/c
Client cash A/c
(Being legal fee drawn from Client Cash)
Office Cash A/c
Client F Ltd
...
Persnal
Client B Ltd Personl
Client D Ltd Persnal
Office Cash
Client G Ltd Personal
Client H Ltd Presnal
Office Cash
Salaries
Petty Cash
Balance c/f
Client
Shs „000‟
125
225
225
875
Office
Shs „000‟
25
2,100
375
7,875
23,025
6,000
500
24,325
33,575
31
A Ltd Personnel Account
Client
Office
Jan
Shs „000‟ Shs „000‟
2,625 1
Balance b/d
Office Cash
Client
Office
Shs‟000‟ Shs „000‟
1,250
850
B Ltd Personnel Account
Client
Office
Jan
Shs „000‟ Shs „000‟
Client Cash
225
1
Balance b/d
Bill of Costs
875 11 B Ltd Client
BLtd Office
875
16 Client Cash
Client
Office
Shs‟000‟ Shs „000‟
2,875
875
1,100
Jan
5
Jan
5
11
11
Profit Costs
C Wholesalers
Jan 1 bal
...
(This being a debit entry)
Credit disbursement book and debit respective client‟s personal accounts
Accordingly, disbursement do not appear equivalent of P & L a/c), however, the
debit balances on the clients personal account is taken to the balance sheet as
sundry debtors directly
...
Disbursement are debited on the
33
Account no
...
(Bill of costs
– claim for services rendered on his behalf)
Cost book (3 Column)
Profit Costs
Disbursement
Totals
-
Total
2,000
8,000
10,000
xxxx
xxxx Separate items in
Posted to credit of cash a/c
Posted to credit side of here will be posted to
disbursement
the debit side of
respective clients a/c
The implications are that disbursement will not be recovered until a
bill of costs is rendered to the customer (client)
The balance on disbursements account (disbursements not yet charged to
clients will appear as assets in the balance sheet
...
c) Dr receipt/expenditure a/c (profit statement) with all disbursement and
Then credit the same statement with the total, of the bills rendered to client including
(plus) disbursements
Disbursements not charged at end of the year – credit profit statement xx (as if it were
closing stock in the case of a trader)
...
Effect =
Disbursement b/d
Add disbursement in the year
Less disbursement not charged
For the year
xx
xx
xx
xx
Activity:
Waina and Company Advocates Ltd Co
...
Farah Shs 200,000, Weke Shs 300,000,
Zaina Shs 600,000 (Debit), this was Client (Zaina) Office Account
...
The following transactions took place in
the Month of January:
Jan 1 Received Shs 680,000 from Kalaba being amount due to Zaina
...
The balance outstanding on the Client (Zaina)
Office was also written off on account
...
34
Jan 2 Farah and Weke were each billed Shs 100,000
...
This
was executed on January 5th
...
Required:
Balanced and reconciled ledger accounts in the advocate‟s books of
accounts
...
The partners had the following set of balances from their books
at the end of their first business months of January 2001
...
2,500,000
(ii)
Lenis Fabricators
1,000,500
(iii)
Bishop Deya Child Power
6,000,000
(iv)
Otham Winningers Chepal
8,000,000
The firm‟s policy is to charge every new corporate client a nonrefundable fee of Shs
200,000 for purposes of preparing the necessary initial files and documentations
...
The firm deals with corporate clients only
...
A fee of Ksh 150,000 was charged on KK Ltd Company
...
Bishop
Deya‟s wife who had been arraigned in court over miracle children saga
...
(iii)
Five church elders of Otham Winningers Chapel were paid a total of Kshs
1,500,000 as an inducement so that they do not disclose to the media what usually
happens when prayers are purportedly offered behind closed doors in the
churches
...
35
(iv)
Kshs 10,000,000 and Kshs 7,000,000 were refunded to Bishop Wengilu and
Bishop Maira
...
The bishops decided to withdraw
their deposits since they did not anticipate to be probed any more
...
This was besides the initial file and
documentation fee of Kshs 200,000 on each client
...
Be sure to explain precisely the
use of each account, and the relevant accounting entries there in
...
(10 Marks)
Open relevant ledger accounts, post the entries and balance the accounts
...
(20 Marks)
36