METHODS OF ACCOUNTING

There are two methods of Accounting:

• Cash Basis of Accounting: An entry in the books of account is made only when cash is received or paid except for closing, opening & few adjustment entries
• Accrual Basis of Accounting: An entry in the books of account is made as the goods and services purchased/availed irrespective of the fact as to whether actual payment by cash / cheque is effected or not by the organisation. Similarly, revenues including grants are recorded at the time when they are earned or become due irrespective of the fact as to whether the amount has actually been received or not.

Accrual method is most acceptable and popular method of accounting though in the NGO sector, Cash method is more widely used

TYPES OF BOOKS OF ACCOUNTS

Books of Accounts are broadly divided into 3 categories:

• Primary Books: Cash Book, Petty Cash Book & Journal
• Subsidiary Books: Payroll records, Stock Registers, Fixed Assets Registers, Records as per FCRA, Miscellaneous Registers & Records
• Final Books: General Ledger & Sub Ledger.

FINANCIAL STATEMENTS AND REPORTING

NGO, do not have any statutory obligation towards the form and content of the financial statement. It needs to be prepared in a transparent, intelligible and user friendly manner
Below are the details of Statements and Reporting for NGO:

• Balance Sheet: There are two forms – Traditional Horizontal and Trendy Vertical.Most NGO’s prepare Balance Sheets in Horizontal form. It has right and left. Assets are shown on the right side and liabilities are shown on the left.
• Income & Expenditure Account: It is the account prepared by NGO at the end of the year showing all income & expenditure.
• Receipts & Payments Account: It is like a cash flow statement and provides detail of all the receipt and payment made during the year irrespective of nature or use. Under FCRA, the reporting is required to be made on the basis of R and P Account only. However, it is suggested that a R and P account should be prepared for the entire organisation not only for FC Contribution

Apart from the above statements, the following reports are also to be prepared

• Financial Narrative Report: It provides explanatory value to the various expenditures undertaken during a reporting period.
• Programme Report: It is equally important report to NGO and it should be structured in below manner:
  • Programme Objectives
  • Activities Undertaken
  • Comparison of Actual and Planned Activities
  • Impact Assessment both qualitative and quantitative
  • Future Activity Perspectives
• Project Variance Report: NGO, should prepare proper variance report at the end of each quarter as well at the end of year. It is noted that budgeting is a part of the planning process and budget variance analysis is a part of the monitoring process.
• Legal Compliance Report: Legal Compliance under various act and statues are compulsory in nature. Therefore, NGOs should be careful about the legal compliances during the year under various statutes.
• Legal Compliance Report: Legal Compliance under various act and statues are compulsory in nature. Therefore, NGOs should be careful about the legal compliances during the year under various statutes.
• Management Responsibility Report: NGOs generally work on grants and public resources, therefore, it is important that all such resources are used in a responsible and accountable manner. The conduct of the functionaries and staff should also be ethical and within the policy framework of the organisation. It is advisable that the management of the NGO should come out with a responsibility report at the end of the year.

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