10.6. Adjustments in Non-Trading Organisations

● Subscriptions received in advance or accrued should be adjusted in the Income and Expenditure Account. ○ For example, if ₹1,000 is received in advance for the next year, it should be deducted from the current year's income and added to the liability for the next year.

Subscription adjustments ensure that the financial statements accurately reflect the income earned in the current period. If a subscription for the following year is received in advance, it cannot be counted as current income because the service for which the subscription is paid has not yet been provided. Thus, this amount is deducted from the income of the current year and recorded as a liability for the next year.

Imagine you pay a gym membership for the upcoming year in December. While the gym has your money in advance, you haven’t actually used any services in December. Therefore, in the gym’s financial records for December, they should show that this payment isn't part of that month's income but rather as a promise of future service, thus a liability until you start utilizing the membership.

● Depreciation must be charged on fixed assets in the Income and Expenditure Account to reflect the reduction in the value of the assets.

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. As fixed assets like equipment, buildings, or vehicles are used over time, they lose value. Charging depreciation allows non-trading organisations to spread out the cost of the asset, providing a more accurate representation of their financial position in the Income and Expenditure Account. This ensures that expenses correctly match income earned during the periods in which the assets are utilized.

Think of buying a laptop for your organization. If you buy it for ₹50,000 and expect it to last 5 years, instead of writing off the entire cost in one year, you would distribute that ₹50,000 over 5 years (₹10,000 per year). Each year, you acknowledge the costs associated with using the laptop, making your financial picture clearer.

● If income has been earned but not yet received (such as accrued interest), it should be added to the income for the year.

Accrued income refers to income that has been earned but not yet received in cash. This must be included in the income statement to reflect all income earned during the accounting period. For instance, if an organization has earned interest on investments that it has not yet received at year-end, this earned, but unreceived, interest is added to the income for that year. This process ensures that the financial records are accurately aligned with the organization’s actual performance.

Consider a scenario where you lend money to a friend and agree they will pay you interest. If they are due to pay you interest in January but year-end is December, you know you’ve earned that interest even if you don’t have it yet. So, you'd still record that income in your accounts for December, ensuring your records reflect your true financial situation.

● Any expenses that have been incurred but not yet paid (e.g., salaries) should be accounted for in the Income and Expenditure Account.

Outstanding expenses are obligations that the organization has recognized on its books but has not yet paid by the end of the accounting period. Recording these expenses in the Income and Expenditure Account for that period ensures that the expenses align with the income generated, giving a more accurate picture of financial performance. For instance, if salaries are due to be paid in January for work done in December, these salaries need to be recorded as expenses in December's accounts.

Think of it like a bill you’ve received but haven’t paid yet, such as for electricity. If you used the electricity during December but will only pay the bill in January, you need to recognize that cost in your December accounting. This way, you understand that you had that expense even if you haven’t yet paid it.

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