Question

Identify the steps in preparation of final accounts of not for profit organization (NPO)
A. Prepare Balance Sheet of NPO 
B. Prepare Income and Expenditure Account from Receipts and payment Account 
C. Prepare Receipts and payment Account 
D. Adjust outstanding/prepaid expenditure/Income and determine surplus/ Deficit E. Prepare cash book 
Choose the correct answer from the options given below:

• A. E, C, B, D, A
• B. D. E, A, B, D
• C. A, B, C, D, E
• D. E, C, A, B, D

Answer 1

The Correct Option is A

Step 1: Prepare the Cash Book (Option E)

The cash book is the starting point, where all cash transactions (receipts and payments) are recorded chronologically. This provides the raw data for further accounts.

Step 2: Prepare Receipts and Payments Account (Option C)

Using the cash book, the Receipts and Payments Account is prepared. This account summarizes all cash inflows (receipts) and outflows (payments) during the period, regardless of whether they relate to the current period or not.

Step 3: Prepare Income and Expenditure Account (Option B)

The Income and Expenditure Account is derived from the Receipts and Payments Account. It adjusts for non-cash items (like depreciation) and accruals to determine the surplus or deficit for the period, similar to a profit and loss statement.

Step 4: Adjust Outstanding/Prepaid Items and Determine Surplus/Deficit (Option D)

Adjustments for outstanding or prepaid expenses/income are made to ensure the Income and Expenditure Account reflects the correct financial result. The surplus or deficit is then calculated.

Step 5: Prepare the Balance Sheet (Option A)

Finally, the Balance Sheet is prepared to show the NPO’s financial position at the end of the period, incorporating the surplus/deficit and any other adjustments.

Correct Sequence

The logical sequence of steps is: E → C → B → D → A.

Final Answer

The correct option is Option 1: E, C, B, D, A.