Entrance Fees, Donations, Legacy, and Life Membership Fees in NPO Accounts

Entrance fees, donations, legacy, and life membership fees look like simple receipts in not-for-profit organisation accounts.

The difficulty starts when students ask one question:

Should this amount go to the Income and Expenditure Account or to the Balance Sheet?

That question matters because not all receipts are income for the year. Some receipts help run the organisation during the current year. Some receipts strengthen the organisation for many years. Some are tied to a specific purpose, such as a building fund, prize fund, sports fund, or library fund.

In not-for-profit accounts, the real skill is not memorising a list. The real skill is reading the nature of the receipt.

Once this line is clear, these special items become much easier.

The First Rule: Cash Record Is Not Final Treatment

A Receipts and Payments Account is a summary of cash and bank transactions.

It records money received and money paid during the year. It does not decide whether the receipt is capital, revenue, current year income, or a special fund item.

That decision happens when you prepare the Income and Expenditure Account and Balance Sheet.

Think of it like this:

Account or statement	What it shows
Receipts and Payments Account	All cash and bank receipts and payments during the year
Income and Expenditure Account	Revenue income and revenue expenses related to the current year
Balance Sheet	Assets, liabilities, capital fund, and special funds at the end of the year

So if an NPO receives Rs. 50,000 as building donation, the cash receipt is recorded in the Receipts and Payments Account. But the final treatment is not ordinary income. Since it is meant for a building, it is shown as a specific fund in the Balance Sheet.

This is why students should not decide treatment only by looking at the word “received”.

The Simple Test for Special Receipts

Whenever you see entrance fees, donation, legacy, or life membership fees, ask these four questions:

1. Is it a regular income of the current year?
2. Is it a one-time or capital receipt?
3. Is it meant for a specific purpose?
4. Has the question given a clear instruction about treatment?

The fourth question is very important.

In school-level accounts, the question often tells you exactly what to do:

• “Entrance fees are to be capitalised.”
• “50 percent of entrance fees is to be treated as income.”
• “Donation received for building fund.”
• “Life membership fees are to be transferred to Capital Fund.”
• “One-fifth of life membership fees is to be credited to Income and Expenditure Account each year.”

When such an instruction is given, follow it carefully. Do not use a default rule against the question.

Quick Treatment Chart

Here is the clean overview before we study each item in detail.

Receipt	Basic meaning	Usual final treatment
Entrance fees	Amount received from new members at the time of joining	Treat according to instruction. Often capital if treated as one-time admission money, revenue if treated as regular income
General donation	Donation received without a specific purpose	Usually Income and Expenditure Account if ordinary and recurring
Specific donation	Donation received for a particular fund or asset	Balance Sheet as a specific fund or capital receipt
Legacy	Amount received through the will of a deceased person	Usually capital receipt, shown in Balance Sheet
Life membership fees	One-time amount paid for lifetime membership	Usually capital receipt or Life Membership Fund, unless a part is transferred to income

This chart is useful, but do not stop here. The same word can change treatment when the question gives extra detail.

Entrance Fees in NPO Accounts

Entrance fees are paid by a person when they become a member of the organisation.

For example, a club may charge a one-time admission fee when a new member joins. This is different from annual subscription, which is paid again and again for membership during a particular year.

Entrance fees are recorded on the receipts side of the Receipts and Payments Account because cash has come in.

The final treatment depends on the instruction in the question.

When Entrance Fees Are Treated as Capital

If entrance fees are treated as capital receipts, they are not shown as income for the year. They are added to Capital Fund or shown in the Balance Sheet as instructed.

This treatment is common when entrance fees are considered one-time joining money that strengthens the organisation permanently.

Example:

Entrance fees received: Rs. 30,000
Instruction: Entrance fees are to be capitalised.

Treatment:

Item	Treatment
Receipts and Payments Account	Show Rs. 30,000 on receipts side
Income and Expenditure Account	Do not show as income
Balance Sheet	Add Rs. 30,000 to Capital Fund

When Entrance Fees Are Treated as Revenue

If the question says entrance fees are to be treated as revenue income, show them on the income side of the Income and Expenditure Account.

Some organisations may treat entrance fees as normal income, especially when the amount is small or received regularly.

Example:

Entrance fees received: Rs. 12,000
Instruction: Treat entrance fees as revenue income.

Treatment:

Item	Treatment
Receipts and Payments Account	Show Rs. 12,000 on receipts side
Income and Expenditure Account	Show Rs. 12,000 as income
Balance Sheet	No separate capital treatment

When Entrance Fees Are Partly Capital and Partly Revenue

Sometimes the question gives a split.

Example:

Entrance fees received: Rs. 40,000
Instruction: 60 percent of entrance fees is to be capitalised.

Calculation:

Capital portion = Rs. 40,000 x 60 percent = Rs. 24,000
Revenue portion = Rs. 40,000 - Rs. 24,000 = Rs. 16,000

Treatment:

Part	Amount	Treatment
Capital portion	Rs. 24,000	Add to Capital Fund or show in Balance Sheet
Revenue portion	Rs. 16,000	Credit to Income and Expenditure Account

Donations in NPO Accounts

Donation means money or property received from a donor.

The treatment of donation depends mainly on whether it is general or specific.

This is one of the most important distinctions in not-for-profit organisation accounts.

General Donations

A general donation is not given for any particular purpose.

For example:

Donation received: Rs. 10,000

If the question does not say that the donation is for a building, prize, tournament, library, scholarship, or any other specific purpose, it may be treated as general donation.

Ordinary general donations are usually treated as revenue income and credited to the Income and Expenditure Account.

Treatment:

Item	Treatment
Receipts and Payments Account	Show on receipts side
Income and Expenditure Account	Show as income, if ordinary general donation
Balance Sheet	No separate fund, unless the question says it is capital

Specific Donations

A specific donation is received for a particular purpose.

Examples:

• donation for building fund
• donation for library
• donation for prize fund
• donation for sports fund
• donation for tournament
• donation for scholarships

Specific donations are not ordinary income of the year. They are shown in the Balance Sheet as a specific fund or added to the related fund.

Example:

Donation received for building fund: Rs. 1,00,000

Treatment:

Item	Treatment
Receipts and Payments Account	Show Rs. 1,00,000 on receipts side
Income and Expenditure Account	Do not show as ordinary income
Balance Sheet	Show under Building Fund or add to Building Fund

If the organisation spends money for the same specific purpose, that expense may be adjusted against the related fund, depending on the question.

Large Donations and Capital Donations

Sometimes a donation is large, unusual, or clearly capital in nature.

If the question says it is a capital donation, add it to Capital Fund or show it in the Balance Sheet. Do not treat it as current year income.

The key is to read the wording:

Wording in question	Likely treatment
General donation	Income and Expenditure Account, unless stated otherwise
Donation for building	Building Fund in Balance Sheet
Donation for library	Library Fund or capital treatment
Capital donation	Capital Fund or Balance Sheet
Donation received for a specific purpose	Specific fund in Balance Sheet

Legacy in NPO Accounts

Legacy means an amount received by an organisation under the will of a person who has passed away.

For example, a person may leave Rs. 2,00,000 to a charitable trust through their will.

Legacy is usually non-recurring. It does not arise from the normal yearly activities of the organisation. Because of this, it is normally treated as a capital receipt.

Treatment:

Item	Treatment
Receipts and Payments Account	Show on receipts side when cash is received
Income and Expenditure Account	Usually not shown as income
Balance Sheet	Add to Capital Fund or show as instructed

If the legacy is received for a specific purpose, show it under that specific fund.

Example:

Legacy received for scholarship fund: Rs. 75,000

Treatment:

Item	Treatment
Receipts and Payments Account	Show Rs. 75,000 on receipts side
Income and Expenditure Account	Do not show as ordinary income
Balance Sheet	Show under Scholarship Fund

Life Membership Fees in NPO Accounts

Life membership fees are paid by a person to become a member for life.

This is not the same as annual subscription. Annual subscription normally relates to one accounting year. Life membership fee gives membership benefit for many years.

Because it is a one-time receipt for a long period, life membership fees are usually treated as capital receipts.

Common treatment:

Item	Treatment
Receipts and Payments Account	Show on receipts side
Income and Expenditure Account	Usually not shown fully as current year income
Balance Sheet	Show as Life Membership Fund or add to Capital Fund

If the Whole Amount Is Treated as Capital

Example:

Life membership fees received: Rs. 60,000
Instruction: Transfer life membership fees to Capital Fund.

Treatment:

Account or statement	Treatment
Receipts and Payments Account	Show Rs. 60,000 on receipts side
Income and Expenditure Account	No income shown
Balance Sheet	Add Rs. 60,000 to Capital Fund

If a Part Is Treated as Income Every Year

Sometimes the question says that only a part of life membership fees should be credited to the Income and Expenditure Account every year.

Example:

Life membership fees received: Rs. 1,20,000
Instruction: One-fifth is to be credited to Income and Expenditure Account.

Calculation:

Amount credited to Income and Expenditure Account = Rs. 1,20,000 x 1/5 = Rs. 24,000
Balance carried forward = Rs. 1,20,000 - Rs. 24,000 = Rs. 96,000

Treatment:

Part	Amount	Treatment
Current year income	Rs. 24,000	Credit to Income and Expenditure Account
Balance	Rs. 96,000	Show as Life Membership Fund in Balance Sheet

One Full Solved Example

Here is a simple example to connect everything.

Receipts and Payments Account shows the following receipts:

Receipt	Amount
Entrance fees	Rs. 40,000
General donation	Rs. 15,000
Donation for building fund	Rs. 1,50,000
Legacy	Rs. 80,000
Life membership fees	Rs. 60,000

Additional information:

• 50 percent of entrance fees is to be capitalised
• life membership fees are to be transferred to Capital Fund

Now prepare the treatment for Income and Expenditure Account and Balance Sheet.

Step 1: Entrance Fees

Entrance fees are Rs. 40,000.

50 percent is capitalised:

Capital portion = Rs. 40,000 x 50 percent = Rs. 20,000
Revenue portion = Rs. 40,000 - Rs. 20,000 = Rs. 20,000

Treatment:

• Rs. 20,000 to Income and Expenditure Account
• Rs. 20,000 to Capital Fund in Balance Sheet

Step 2: General Donation

General donation is Rs. 15,000.

No specific purpose is given.

Treatment:

• Rs. 15,000 to Income and Expenditure Account

Step 3: Donation for Building Fund

Building fund donation is specific.

Treatment:

• Rs. 1,50,000 to Building Fund in Balance Sheet
• not ordinary income in Income and Expenditure Account

Step 4: Legacy

Legacy is usually a capital receipt.

Treatment:

• Rs. 80,000 to Capital Fund in Balance Sheet
• not ordinary income in Income and Expenditure Account

Step 5: Life Membership Fees

Life membership fees are to be transferred to Capital Fund.

Treatment:

• Rs. 60,000 to Capital Fund in Balance Sheet
• not annual subscription income

Final summary:

Item	Income and Expenditure Account	Balance Sheet
Entrance fees	Rs. 20,000	Rs. 20,000 to Capital Fund
General donation	Rs. 15,000	-
Building fund donation	-	Rs. 1,50,000 to Building Fund
Legacy	-	Rs. 80,000 to Capital Fund
Life membership fees	-	Rs. 60,000 to Capital Fund

This example shows the main logic: not every receipt becomes income.

Common Mistakes Students Make

Mistake 1: Putting Every Receipt in Income and Expenditure Account

This is the most common error.

The Income and Expenditure Account is not a copy of the receipts side. It includes revenue items related to the current year.

Specific donations, legacy, and life membership fees often belong in the Balance Sheet, not in the Income and Expenditure Account.

Mistake 2: Ignoring the Purpose of Donation

“Donation” alone and “donation for building fund” are not the same.

A general donation may be income. A building fund donation is specific and should be shown under the related fund.

Mistake 3: Treating Life Membership Fees as Annual Subscription

Subscription usually relates to a period. Life membership fee relates to long-term membership.

So do not adjust life membership fees like outstanding subscription or subscription received in advance unless the question gives a special instruction.

Mistake 4: Missing the Split Instruction

Some questions split entrance fees or life membership fees between income and capital.

If you miss one line of additional information, your Income and Expenditure Account and Balance Sheet can both become wrong.

Mistake 5: Thinking Balance Sheet Treatment Means It Was Not Received

If an item is shown in the Balance Sheet, students sometimes think it should not appear in Receipts and Payments Account.

That is incorrect.

If cash was received during the year, it appears in Receipts and Payments Account. The Balance Sheet simply shows its final nature at year-end.

A Simple Memory Method

Use this phrase:

Purpose decides placement.

If the receipt is for the current year’s normal activities, it goes to Income and Expenditure Account.

If it is one-time, long-term, capital, or meant for a specific purpose, it usually goes to the Balance Sheet.

Here is a quick checklist:

Ask this	If the answer is yes
Is it general income for the year?	Income and Expenditure Account
Is it for a specific fund?	Balance Sheet under that fund
Is it a one-time capital receipt?	Capital Fund or Balance Sheet
Does the question give a split?	Split between income and capital
Does the question give a direct instruction?	Follow the instruction

This method is more reliable than blind memorisation because it works even when the question changes the wording.

Frequently Asked Questions

1. Are entrance fees shown in the Income and Expenditure Account?

Entrance fees are shown in the Income and Expenditure Account only when they are treated as revenue income, or when the question says that a portion should be treated as income.

If entrance fees are to be capitalised, they are added to Capital Fund or shown in the Balance Sheet.

2. Where are donations shown in NPO accounts?

General donations are usually shown as income in the Income and Expenditure Account if they are ordinary and not tied to any purpose.

Specific donations, such as donation for building fund or prize fund, are shown in the Balance Sheet under the related fund.

3. Is legacy a capital receipt or revenue receipt?

Legacy is usually treated as a capital receipt because it is non-recurring and received through the will of a person.

It is generally added to Capital Fund or shown in the Balance Sheet. If it is received for a specific purpose, it is shown under that specific fund.

4. Are life membership fees treated as subscription?

No. Life membership fees are not the same as annual subscription.

Annual subscription usually relates to one accounting year. Life membership fees are received once for lifetime membership, so they are usually treated as capital receipts or shown as Life Membership Fund.

5. What happens if a part of life membership fees is treated as income?

If the question says that a part should be credited to the Income and Expenditure Account, only that part is treated as income for the year.

The remaining amount is shown in the Balance Sheet as Life Membership Fund or transferred to Capital Fund, depending on the instruction.

6. Should specific donations be shown in the Income and Expenditure Account?

Usually no.

Specific donations are meant for a particular purpose. They are shown in the Balance Sheet as a specific fund. Related expenses may be adjusted against that fund if the question requires it.

7. Why does the same receipt appear in Receipts and Payments Account and Balance Sheet?

The Receipts and Payments Account records cash movement. The Balance Sheet shows the final position of capital, funds, assets, and liabilities.

So a capital receipt can appear in the Receipts and Payments Account when received and also appear in the Balance Sheet as a fund or capital addition.

8. What is the safest way to handle these items in an exam question?

First record cash receipts in the Receipts and Payments Account if you are preparing it.

Then read the wording carefully. If the receipt is general and revenue in nature, take it to the Income and Expenditure Account. If it is capital, specific, long-term, or one-time, show it in the Balance Sheet. If the question gives an instruction, follow that instruction first.