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Meaning of Charitable and Religious Organisation

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Meaning of Charitable and Religious Organisation

In the society charitable and religious organisation plays an important role. Income of these organisations are exempt from tax subject fulfilment of some terms and condition.

These organisations are not meant to make profit. Therefore, such type of organisations are known as NPOs i.e. Non Profit Making Organisation.

These are also known as NGO i.e. Non-Government Organisation because such type of organization do the work which ought to have been done by the government.

NPOs or NGOs play a critical role in the development of society, communities, and promoting citizen participation.

Among the wide variety of roles that NGOs play, some of the important roles are as follows:

  • Development of Infrastructure and operation in the society.
  • Facilitating Communication: NGOs can facilitate communication from public to the government and from government to the public.
  • Advocating for and with the poor
  • Technical support and training to the human being.
  • Overall Development of society
Type of NGOs:

There are two types of NGOs that usually function in a society:

  1. Non-Registered NGOs
  2. Registered NGOs : Click to know more about registered NGOs
Advantages Of Registering An NGO:

Some of the main advantages of registered NGOs as compared to non-registered NGOs are under:  

  • Systematic functioning of NGOs due to the legal obligations required of a registered NGO.
  • Registered NGOs obtain legal status.
  • Members represent the organisation
  • A registered NGO can open a bank account in the name of the organisation
  • A registered NGO can seek tax exemption.
  • The legal framework also provides limited liability for membership, particularly those who founded it and helped set it up in the beginning
Where should an NGO register?

In India there are three forms of registration, which are as under:

  1. Companies Act, 2013
  2. Society Registration Act, 1860
  3. Indian Registration Act, 1908

Indian Trust Act, 1882 for private trusts but is used as reference statute for public charitable trust also: General law is applied for public trusts except in a few states such as Gujarat and Maharashtra, which have their own state laws.

ACCOUNTING FOR PRIVATE INDIVIDUALS

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ACCOUNTING FOR PRIVATE INDIVIDUALS

Most of the persons or private individuals do not keep accounts. Some of the people think as it is a waste of time and some other think keeping private financial records are useless or unnecessary for them.

Nobody can remember all his private financial transactions for a long period. Therefore, for personal use or for legal use it become very necessary to maintain records for personal financial transactions like payment of house tax, Payment for Life Insurance, Payment of health insurance premium etc.

I am going to discuss with you a very simple method by which you any normal person keep records without any expense. In a simple diary or in an old notebook you can maintain records of private financial transactions. For maintaining records, you just need to do following two things.

Left Hand Side Page                                    Treat as Receipt Side

Right Hand Side Page                                 Treat as Payment Side

Format of Left-Hand Side Page

RECIEPT

DATEPARTICULARAMOUNT
02/04/2020To Opening Balance 
02/04/2020To Receipt form Salary 
02/04/2020To Sale of Scrap 
02/04/2020To Sale of News Paper 
02/05/2020To Interest Received 
 Total 

Format of Right-Hand Side Page

PAYMENT

DATEPARTICULARAMOUNT
02/04/2020By House Tax 
02/04/2020By Water Tax 
02/04/2020By Insurance Premium 
02/04/2020By Health Insurance Premium 
02/05/2020By Electricity Bill 
02/04/2020By Balance c/d to Next Day 
   
 Total=

Left Hand Side Page: Write down all the private receipts like Receipt of Salary, Receipts for sale of scrape, Sale of old News Paper.

Right Hand Side Page: Write down all the payments like Payment for House Tax, Water Tax, Electricity Bill, Purchase of Furniture.

In the end of Month, you may summaries all the noted transaction into following manner:

SUMMARY OF CASH BOOK

RECEIPTAMOUNTPAYMENTAMOUNT
To Balance b/d By House Tax 
To Salary By Water Tax 
To Sale of Scrap By Life Insurance Premium 
To Sale of Old News Paper By Health Insurance Premium 
To Bank Interest By Electricity Bill 
    
  By Balance c/d 
TOTAL=TOTAL=

Even if you are not able to summarize the transaction you can say I have accounting records and maintained on cash basis, and this is my cash book. In the end I want say and assure you your rough notebooks will work as cash book and in case of need any professional accountant like CA, CS can summarize for you and prepare Balance Sheet and Profit and Loss for you.

Managerial Remuneration

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Managerial Remuneration

Section 197 of the Companies Act, 2013 prescribed the maximum ceiling for payment of managerial remuneration by a public company to its managing director, whole-time director and manager which shall not exceed 11% of the net profit of the company in that financial year. [Profit Computed in accordance with section 198]

The payment beyond the said limit of 11% can be made by passing an Ordinary Resolution in the General Meeting of the Company.

Points to Note:

  1. Remuneration payable to any one MD/WTD/Manager shall not exceed 5% of Net profit.
  2. If there is more than one MD/WTD/Manager, remuneration shall not exceed 10% of Net profit.
  3. Remuneration payable to directors who are not MD and WTD shall not exceed.
    • 1% of net profit, if there is MD/WTD/Manager.
    • 3% of net profit in any other case.

For payment of remuneration exceeding the threshold limits of 5% & 10% to MD/WTD/Manager and 1% & 3% to other directors, the approval of shareholders through a Special Resolution shall be required.

The companies who have defaulted in payment of dues to any Bank/PFl/Non-Convertible Debenture holder or any other secured creditor, prior approval shall be taken from them before obtaining the approval in the general meeting for payment in excess of the threshold limits.

If the director receives remuneration in excess of the threshold limit without obtaining approval required in this section, he shall refund such sum to the Co. and shall hold it in trust of the Company, until refunded.

MEANING of CONTRACT

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MEANING of CONTRACT

All the agreements are contract if they are made by free consent of parties competent to contract for lawful consideration and with a lawful object and are not hereby expressly declared to be void.

ESSENTIAL OF VALID A CONTRACT

  • Proper offer
  • Proper acceptance thereto with intention to create legal relationship
  • Lawful consideration
  • Capacity to enter in contract.
  • Free Consent
  • Lawful agreement

Important Definition as Per Law

Contract [Sec- 2 (h)]:  Contract is an agreement enforceable by law.

Agreement [ Sec- 2 (e)]: Every promise and every set of promises, forming the consideration for each other.

Promise [Sec – 2 (b)]: When the person to whom the proposal is made signifies his consent thereto, the proposal said to be accepted. Proposal when accepted, become a promise.

Proposal: An unaccepted promise.

Important Points of Contract

  • There must be an offer and its acceptance
  • There must be mutual consent of the parties. They must agree upon same thing and in the same sense.
  • There must be legal obligation i.e. the obligation should be enforceable by law.
  • There must be free consent of the parties. The consent is not free when it is obtained by coercion, undue influence, fraud, misrepresentation of the facts.
  • The parties must be competent to contract: The Minors or persons of unsound mind are not competent to contract.
  • The agreement must be supported by lawful consideration
  • The object of agreement must be lawful.
  • The agreement must not be declared to be void.
  • The agreement must be certain.
  • The performance of object of agreement must not be impossible

Financial Statement Analysis & Interpretation

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Financial Statement Includes:

  1. Trading & Profit & Loss Account: which gives the result of year’s working.
  2. Profit & Loss Appropriation Account: which gives details about the disposal of the retained earning.
  3. Balance Sheet: which gives the financial position of the undertaking as on the accounting date.
  4.  Cash Flow Statements : Which gives the movement of money into and out of a business under various form like purchase of goods, expenses and sales.

“The most important function of financial statements is to serve those who control and direct the business and may be answered the questions, how efficiently the capital of the business is being utilized, how well credit standards are being observed, and whether the financial condition is being improved.”

The Meaning of Analysis and Interpretation

The financial statements are of much interest to number of groups of persons. Apart from the management there are other interested parties like shareholders, debenture holders, potential investors, bankers, trade creditors and legislature.

**Interpret means to put the meaning of a statement into simple terms for the benefit of a person.
** Analysis comprise resolving the statements by breaking them into simpler statements by a process or rearranging, regrouping and the calculation of ratios, interpretation is the mental process of understanding the terms of such statements and forming opinions or inferences about the financial health, profitability, efficiency and such other aspects of the understanding.

Objectives of Analysis and Interpretation

  • To evaluate the financial health of the understanding.
  • To evaluate the earning performance of the undertaking.
  • To evaluate the ability of the undertaking to pay interest, amortized debt and other outside liability.
  • To evaluate the solvency of the undertaking. By the understating of solvency of the undertaking above points can be well understand.
    • Whether current assets are sufficient to pay off the current liabilities.
    • Proportion of liquid assets (cash and book debts) to current assets.
    • Whether the debenture holders are secured by a floating charge of the currents assets.
    • Future growth of undertaking and earning.

Example: Bankers who provide short term working capital loan and medium term credit they generally look into the following matter:

  • The purpose of loan.
  • The manner in which the borrower proposes to repay the loan.
  • The capacity of company to repay as evaluated by trends of profits.
  • Banker’s position in the event of forced liquidation.
  • The quality of management.
  • History of accounts in the history.

Types of Analysis:

  1. Trend Analysis: which is made by analyzing the financial statements over a period of years. This indicates of such variable, as sales cost of production profits, assets and liabilities. For this it is better to prepare financial statements horizontally.
  2. Structural Analysis: which is made by analysis of single set of financial statements as are prepared on a particular date. Under this analysis relationship between different accounting variables is studied as for example, the ratio of net profit on sales or the ratio of current assets over current liabilities.

Tools of Financial Analysis:

  1. Comparative Balance Sheet and Income Statements
  2. Common Size Percentage: it is used for big balance sheet when it is very difficult to understand the figures. Generally Income Statement is converted into % statement on some common base. Sales figures assumed 100 and other figures are analysed on % of sales. In case of balance sheet total of assets and liabilities considered as 100 and all other figures are expressed as % of total.
  3. Trend Ratios
  4. Ratio Analysis:
    • Balance Sheet Ratio:
      • Current Ratio or Working Capital Ratio
      • Liquid Ratio or Acid Test Ratio
      • Proprietary Ratio
      • Assets Proprietorship Ratio.
    • Profit & Loss Statement Ratio
      • Gross Profit Ratio
      • Operating Ratio
      • Expenses Ratio
      • Net Profit Ratio
      • Stock Turnover Ratio
    • Balance Sheet and Profit & Loss Statement Ratio
      • Return on total resources
      • Return on Own Funds
      • Turnover of Fixed Assets
      • Turnover of Debenture
      • Earning Per Share

TDS on PURCHASE of GOOD

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TDS on PURCHASE of GOOD
194Q. Deduction of tax at source on payment of certain sum for purchase of goods.

Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.

Important points in definition:
ApplicableTOAny person (buyer)
Who is responsible for paying to any
resident seller; for
ApplicableONPurchase of any GOODS
ApplicableWHENValue (aggregate)
exceeding Rs. 50 lakh in P.Y.
ApplicableTIMEEarlier OF
Credit into the account of the seller
or
Payment (by any mode)
ApplicableRATE0.10% (if no pan 5%)
exceeding Rs. 50 Lakh
ApplicableEXCEPTIONSection shall not apply to-
-TDS is deductible under any other section under Income Tax Act
-TCS is collectible u/s 206C except 206(1H)

Meaning of Buyer : Only for this section:

A person whose total sales, gross receipts or turnover from the business exceed Rs. 10 Crore During preceding Financial Year immediately preceding the financial year in which the purchase of good is carried out.

In Case of Difficulty : Arises in giving effect to this section

Board may, with the previous approval of the Central Govt issue guidelines for removing the difficulty.

Time of Payment:

Date of Payment of TDS : April to February – 7th of next Month

for the month of March- 30th April

Non-Compliance    PENALTY      :           30% Disallowance of value of transaction

FAQ:

Transaction Before   01/07/21      :           194Q – not apply on any sum credited or paid.

Threshold Limit                               :           shall be computed from 1st April 2021.

Not Apply on                                   :           transaction at stock exchange

                                                                        GST adjustment allowed.

Letter of Credit

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A letter issued by a bank to another bank as a guarantee for payments under the specified contract between the buyers and the sellers.

The issuing bank guarantees that the buyer receiving the payment from the seller in exchange for goods or services will be on time and for the correct amount.

If the seller is not able to make payment against the purchase, the bank will cover the payment amount.

Thus, the real purpose behind issue of letter of credit is to ensure successful business transactions between sellers and buyers. It is an instrument facilitating ease of doing business.

Types of Letter of Credit

There are various types of letter of credit (LC) in the trade transactions viz.

  • Commercial Letter of Credit,
  • Transferable and Non-Transferable LC,
  • Revocable and Irrevocable, Stand-by LC,
  • Confirmed  & Unconfirmed LC,
  • Revolving Letter of Credit,
  • Back to Back Letter of Credit,
  • Red Clause Letter of Credit,
  • Green Clause Letter of Credit,
  • At Sight Letter of Credit,
  • Deferred Payment Letter of Credit,

Parties to a letter of credit

  • Applicant (Purchaser/ importer)
  • Issuing bank i.e. importer’s bank which issues the LC
  • Beneficiary /Seller exporter

Simple Credit Journal Entries

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Credit transaction means any transaction by the terms of which the payment for business transaction is to be made at a future date.

For credit transaction we directly debit or credit in the name of person or company

Credit journal entries refer to a transaction in which the amount payable or receivable will be paid or received at a later date. E.g. Credit sales and Credit purchases.

List of Journal Entries in Video

  1. Capital introduced
  2. Withdrawal from business
  3. Purchase of Material
  4. Sale of Material
  5. Salary Payment
  6. Interest Income

2.1.  Mr. Bharat introduced Rs. 20,000/- is the business as capital

PARTICULARSDRCR
Cash A/c             
To Mr. Bharat’s Capital A/c
(Capital Introduced)		20,000.00

  20,000.00

2.2. Mr. Bharat withdrawn Rs. 1,200/- for his personal use

PARTICULARSDRCR
Drawing  A/c             
To Cash  A/c
(Amount withdrawn for personal use)		1,200.00

  1,200.00

2.3. Mr. Bharat purchased goods of Rs 10,000.00 from Ramesh on credit.

PARTICULARSDRCR
Purchase  A/c             
To Ramesh A/c
(Material purchased )		10,000.00

  10,000.00

2.4. Goods of Rs. 12,000 sold to Mr. Shyam on credit.

PARTICULARSDRCR
Shyam,s A/c             
To Sales A/c
(Material purchased )		12,000.00

  12,000.00

2.5. Salary for last month of the year of Rs. 800 paid in the next financial year.

PARTICULARSDRCR
Salary  A/c             
To Salary Payable A/c
(Salary paid )		800.00

  800.00

2.6. Interest amount of Rs. 600 for the last month of year received in next financial year.

PARTICULARSDRCR
Interest Receivable  A/c             
To interest A/c
(Salary paid )		600.00

  600.00

Simple Journal Entries

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Journal Entry

In the age of manual accounting system, business transactions are first noted in a Journal Book. The journal entries are punched in a journal in order by date and are then posted into the proper accounts in General Ledger.

Journal will contain of the following:

  • Date of transaction
  • Amount & account that will be debited in journal
  • amount & account that will be credited in journal
  • a short description /narration

Under computerised accounting system environment software will automatically punched business transactions into the general ledger.

List of Journal Entries in Video

  • 1. Capital introduced
  • 2. Withdrawal from Business
  • 3. Purchase of Material
  • 4. Sale of Material
  • 5. Salary Payment
  • 6. Interest Income

1.1.  Mr. Modi introduced Rs. 10000/- is the business as capital

PARTICULARSDRCR
Cash A/c             
To Mr. Modi Capital Capital A/c
(Capital Introduced)		10000.00  10000.00

1.2. Mr. Modi withdraw Rs. 600/- for his personal use

PARTICULARSDRCR
Drawing  A/c             
To Cash  A/c
(Amount withdrawn for personal use)		600.00  600.00

1.3. Mr. Modi Purchased goods for Rs. 5000/-

PARTICULARSDRCR
Purchase  A/c             
To Cash  A/c
(Material purchased )		5000.00  5000.00

1.4. Mr Modi sold material for Rs. 6000/-

PARTICULARSDRCR
Cash A/c             
To Sales A/c
(Material purchased )		6000.00  6000.00

1.5. Mr Modi paid salary of Rs. 400/- against Salary

PARTICULARSDRCR
Salary  A/c             
To Cash  A/c
(Salary paid )		400.00  400.00

1.6. Interest received Rs. 300/-

PARTICULARSDRCR
Cash  A/c             
To interest A/c
(Salary paid )		300.00  300.00

Thumb Rule for DEBIT CREDIT

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Firstly, you need to identify number of accounts involve in the particular transaction. After identifying account involve in business transaction, you must debit one account and must credit other account.

Any (+) Increase in Assets, Drawing, Expenses i.e. increase in [ADE] always DEBIT

Any (+) Increase in Liabilities, Capital, Income i.e. increase in [LCI] always Credit

DR. and CR. are used as short form of debit and credit.

To debit an account means to enter an amount on the left side of the journal.

To credit an account means to enter an amount on the right side of journal book.

DateParticularL.F.Amount
Dr		Amount
Cr

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