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Sale to Foreigner deposited in FC or NonFC Bank?

Example

One of the NGOs is making handicraft items and exporting it out of India. Also, sometime foreigner visits their campus and buy such articles. Where should we deposit the sale proceeds of such transactions ? FC Bank or NonFC Bank?

Solution

So, when sales made to foreigners or exporting to foreign countries, such is purely a commercial transaction. Here there is no charitable transaction. As per the Explanation 3 of Section 2(1)(h) of FCRA, 2010 while defining “Foreign Contribution”, this type of commercial transactions are clearly excluded.

“Explanation 3 ‒ Any amount received, by an person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.”

Thus whatever received from sale of product to foreigner must be treated as revenue under the NonFC Books and deposited in NonFC Bank Account

Did I miss something?

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Is it mandatory to quote Voucher Number on Each Voucher in NGO Accounting

Voucher Number

A number serially entered on any voucher is much help in the accounting system. As a Fundamental of Accounting, it is required that all vouchers must be properly numbered in the physical vouchers as well in the books of accounts.

System of Numbering

There are various methods for numbering vouchers – serially numbered – 1,2,3….., monthly numbered – Apr1, Apr2 , nature wise numbering – for Cash Payment CP1, CP2, …. etc.. However, the objective of having voucher number is more of control purpose. Once entered in the books, it prevents any change into it.

Problems of Voucher Numbers in NGO Accounting

The major problem is faced when NGO maintains accounting Project-wise. Means, for each project separate Tally, is maintained. Also, when cost-centres or cost-categories are used in Tally for Project Accounting, same kind problems are faced. Also, in NGO Accounting, vouchers and supporting come from field and if voucher numbers used serially, it creates pronblem in sequncing.

Video

Check out my below video to find out the answer.

Did I miss something?

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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5 Points to keep in mind while operating FCRA Bank Account

There are very strict rules regarding using Foreign Funds under FCRA (Foreign Contribution Regulation Act). Also, FCRA department has already cancelled licenses of many organization on the basis of non-compliance of rules and provisions of FCRA.

As per sec 17 of this Act, every NGO who has been registered under FCRA, has to open a separate Bank Account for receiving and utilizing foreign funds. Let us look at some of the 5 points you should keep in mind while operating FCRA Bank Account.

(1) Do not mix FC & NonFC Funds

Do not receive any funds other than foreign funds to your FCRA Bank Account. You can receive funds in Indian Rupees if it comes from foreign source. Utmost care should be taken while depositing cheques or giving bank account numbers to donor.

 

(2) Interest linking of FDs

You need to instruct very clearly to Bank regarding linking of FDs with your Bank Account. Care should be taken that only FDs from FC funds link with your FCRA bank account so as to receive interest in that bank account only.

 

(3) Online Donation

If you are accepting Donation online through your website or crowd funding website, your payment gateway should be capable of transferring FC money to FC Bank Account and NonFC money to NonFC Bank Account.

 

(4) Time Barred Cheques

Your accounting system should be such that at the every month, all the cheques which are time barred will be cancelled and reversed in the books of account automatically. Otherwise, what happen, in FCRA return expenses were reported, while your balance in FC bank accounts not reduced that much.

 

(5) Sub – FC (Utilization) Bank Account

If you have open a Sub-FC Bank Account for project utilization, do not accept funds directly in that bank account. You have to accept FC funds in Main FC account always and then transfer to Sub-FC Bank Account.

 

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Accounting of Grants for NGOs

Do you know how Grant is presented in your NGOs Financial Statements? As REVENUE or as LIABILITY ? This is one of the crucial question regarding accounting of Grants for NGOs. Generally, we depend on the Chartered Accountants on how our Financial Statements are prepared and presented. Sometimes presentation of Financial Statements become misleading and serve no purpose.

Today we learn how to do accounting of grants for NGOs which is more appropriate in present days.

Introduction – Accounting of Grants for NGOs

There is no clarity Inida regarding how grants should be presented. We have Indian Accounting Standard 20 which mainly dealt with  accounting of Government Grants and not grants for specific projects from Funding Agencies. However, considering Indian Accounting Standards #20 and US Statement of Financial Accounting Standard #117, we can derive following three methods of presenting Grants in the Financial Statements.

Option A – Grants treated as Revenue

Here, we consider Grants Received as Revenue of the current year whether it is related to current year or for next years. Thus, when two years project is sanctioned and total grant received in the first year only, we treat full grant as income of first year. See below image to understand presentation in Financial Statements.

 

In this method, you can see above that unspent grant of Rs 40 clubbed in Income and Expenditure Account as “Excess of Income over Expenses” . Due to this, it becomes difficult to know what funds lying in the I/E Account. Check out the Balance Sheet where I/E Account show Rs. 50 which comprise of Unspent Grants and Other Income.

Option B – Grant treated as Liability

Here, it assumes that, grants and funds received for specific project, is the liability of organization and not Income. Thus whatever grant received, whether for current year or next years taken to Balance Sheet and considered as Liability. Expense from such grant then deducted from the liability and net amount shown in the Balance Sheet. Checkout below how Financial Statements look if we treat Grant as Liability.

In this method, Balance Sheet present correct financial position. However, Income and Expenditure does not show much revenue except income earned by NGOs like Non Specific Donations and Interest Income.

Option C – Best of the above Two

Due to limitations of both the above method, we should presented financial statements as per this hybrid method using best of both the above methods. In this method, we consider that much revenue for current year which actually spent during the year and remaining balance transfer to next year as “Unspent or Unutilized Grant”. Lets have a look, how the financial Statements presented under this method.

In this method, Income Expenditure Account and Balance Sheet showing correct information and in self explanatory manner.

Conclusion

In India, there is no such proforma available in any Act regarding presentation of Financial Statements of NGOs. Thus as per my opinion it is advisable to follow accounting of grants for ngos as per option C – Hybrid method, which is self explanatory and showing correct information.

Note – In all the above three methods, presentation of Receipts and Payment Accounts would not change.

For any questions or query hit the below comment section.

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FCRA New Rules 2015

From 14th December 2015, FCRA new rules comes into force. Ministry of Home Affairs, FCRA department has issued this notification. The first and major impact of such notification is to file FCRA renewal form again. Read this blog for more details.

Here we are trying to understand the changes in Rule,2015 through some graphical presentations.

1. First Change is Change in Forms

FCRA_New_Rules_1_2015

Forms nomenclature and details has been change in New Rules 2015. Kindly go to this link and click on “Sample Forms”. You can download all the forms from there for your reference. However, filling of forms in paper format or offline mode is not allowed.

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FCRA Dos and Don’ts

FCRA Dos and Don’ts

As a crucial Act, an organization should take utmost care regarding FCRA. However, many myths prevails regarding what should be “Dos” and “Donts” regarding FCRA. Ministry of Home Affairs have clearly issued advisory in regard to this. You can download PDF from here. We try to make it simple and in Graphical Format. Lets Start with “Donts”

1. Do Not Mix Foreign Contribution with Domestic Receipts

Dont's1

Our Interpretation*

  1. Bank accounts must be separate (obviously)
  2. Do not Transfer funds from FC Bank to NonFC (even Direct Bank Transfer)
  3. Books of Accounts must be separate.
  4. Keep Separate Cash Box (it shows good cash control system)
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FCRA and Administrative Expenses

Excess Administrative Expenses – one of the reason to cancel FCRA Registration

FCRA department may cancel your organization registration if you have excessive Administrative and Salary Expenses. Last month, FCRA Department has cancelled registration of SABRANG Trust. In the order regarding cancellation, one of the findings is, administrative expenses were excessive than permitted  by FCRA and no approval was taken. See para 5 of this order.

How much Administrative Expenses Allowed in FCRA?

As per Section 8 (1) (b) of the FCRA, 2010

“shall not defray as far as possible such sum, not exceeding fifty per cent. of such contribution, received in a financial year, to meet administrative expenses:”

So as per FCRA, limit for administrative expenses are 50%.

What is considered as Administrative Expenses?

Definition of Administrative Expenses is given in the Rule 5 of  FCR Rules, 2011. You can read it from here.

Let us interpret this rule.

 

  • As per Rule
  • (i) salaries, wages, travel expenses or any remuneration realized by the Members of the Executive Committee or Governing Council of the person;

     

     

     

  • (ii) all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel;
  • (iii) all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment;
  • iv) cost of accounting for and administering funds

     

  • (vi) cost of writing and filing reports;

     

     

  • (vii) legal and professional charges;

     

  • viii) rent of premises, repairs to premises and expenses on other utilities:

     

     

     

  • * This interpretation is Author’s own view and kindly take expert opinion before taking any decisions based on this interpretation
  • Our Interpretation *
  • Any payments to Governing Board Members, Trustees, Exe committee members whether in the form of consultancy, remuneration, honorarium, wages, travel should include in the Administrative Expenses. However, program staff salary and travel is to be considered as project expenses.

  • Any payments to managers or co-ordinators, coordinating activities and persons of the organization should be considered as administrative expenses.

  • All the expenses related to Functioning office are considered as administrative expense. However, expenses related to the premise specifically and exclusively used for the project activities, like Training Centers, Library etc.. are not considered in the administrative expenses.

     

  • Salary of accountant or office support staff and travel and other expenses of them should be considered as administrative expenses.
  • Any expenses related to documentation whether it is consultancy, salary, wages, travel etc.. should considered as administrative expenses.
  • Audit Fees, Advocate Fees, Legal fees should considered as administrative expenses.
  • Rent, Rates and taxes of Admin office and field office should considered as administrative expenses.However, expenses related to the premise specifically and exclusively used for the project activities, like Training Centers, Library etc.. are not considered in the administrative expenses.
  • * This interpretation is Author’s own view and kindly take expert opinion before taking any decisions based on this interpretation

 

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How to configure Tally ERP9 for NGOs – Cost Category

Series – How to Configure Tally ERP9 for NGOs

Topic – Using Cost Category for Three Di-mention Reports

Do you need to provide different reports to different funding agencies in different format ? Are you using EXCEL as main tool to get report ? Do you need to take figures from Tally and present it in different formats ??? If, so than read this blog to configure Tally ERP9 in such a way to get almost all the reports from it.

What is the Problem ?

NGO need to report to different agencies / people in different formats. Like funding agencies wants  to know “Expenditure as per budget Head”, Trustees or Program Head wants to know about Project wise / Area wise / Activity wise expenditures and Auditor wants to know expenditure in standard format like nature wise expenses and so on…

What is the solution ?

To Create such an accounting system so that expenditures are entered once but get the reports from different Di-mentions. Tally ERP9 is capable of doing this by using Cost Category features. Lets take a look how we do it.

Step 1 – Configure General Settings

Gateway → F11 Features → Accounting Features → Cost/Profit Centers Management → Maintain Cost Center → Yes → More than once Cost Category → Yes

Step1_TallyERP9_CostCategory

Step 2 – Create Cost Category

Gateway → Account Info → Cost Categories → Create

I have Created two categories

1) Project wise Expenses – For entering expenses as per Budget Head of the Project

2) Nature wise Expenses – For entering expenses as per Nature like standard expenses i.e Telephone Exp etc..

Step2_TallyERP9_CostCategory

Step 3 – Create Cost Centers (Project Name)

Gateway → Account Info → Cost Centers → Create

I have Created three Projects – Project A, Project B and Project C expenses under Cost Category “Project wise expenditure”

Step3_TallyERP9_CostCategory

Step 4 – Create Ledger Account  (Budget Head)

Gateway → Account Info → Ledgers → Create

Create Ledger Account same as per Budget Head of the Funding Agencies under Project Name as group (Indirect Expenses) .  See below image – I have created Ledger “Communication – Field (PA) under “Project A Expenses” under “Indirect Expenses”

Step4_TallyERP9_CostCategory

Step 5 – Cost Center (Standard Expenses)

Gateway → Account Info → Cost Centers → Create

Now create Standard Expenditures under theses second type of Cost Category “Nature wise Expenditures”. I have Created Telephone Expenses and such other Standard expenses – see below image.

Step5_TallyERP9_CostCategory

Step 6 – Voucher Entry

Now whenever voucher entry is made you have to select two components i) Project wise and ii) Nature wise.- see below image.

Step6_TallyERP9_CostCategory

Step 7 – Reports

Gateway → Display → Statement of Accounts → Cost Centers → Category Summary

From this Report, you can get total expenses bifurcated in both way Nature wise Expenses and Project wise Expenses. Have a look.

Step7_TallyERP9_CostCategory

Step 7 – Reports (Continue…)

Gateway → Display → Statement of Accounts → Cost Centers → Cost Center Breakup

From this Report, you can get total expenses Project wise. Have a look.

Step7.1_TallyERP9_CostCategory

Conclusion – Use your creativity

By using cost category and your creativity, you can fulfill any requirements and have wonderful reports.

I have created Area wise expenditure to know exactly how much expenses in Rural Area and Urban Area or Filed office Expenses and Head office Expenses. Have a look….

Step7.2_TallyERP9_CostCategory

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How to prepare Chart of Accounts in NGO

The new Financial Year is at the doorstep. There are some steps to be taken in the beginning of the year, so that the whole financial year will pass smoothly. One of such step is to prepare Standard Chart of Accounts in NGO.

What is Chart of Accounts in general?

In common terms, chart of accounts means, ledger accounts and group accounts shown in books of accounts. For different types of business activity and entity, chart of accounts is different. To maintain uniformity throughout the financial year, it is advisable to have standard chart of accounts. These charts will also help you to know how your seis tax relief investment scheme works.

Chart of Accounts in NGO

Why Chart of Accounts require in NGO ? As we know, there is vast difference in ledger accounts of corporate world and ledger accounts of NGO, specifically ledger accounts of Income and Expenses Group. When it comes to leading a business, some of the most important decisions you will make are about how you organize this list of GL accounts so that you, as the CEO, can create reports. In Corporate World, common ledger accounts are Sales Account, Service Income Accounts, Purchases, Salary Account, Telephone Expenses, Office Expenses, Stationary Expenses etc… However in NGO, apart from above, we have to take care of Budget line items of particular funding agency, so mainly ledger accounts are equal to line item of budget. Here an NGO grouping is made according to projects. Thus it is one of important exercise accountant has to do is preparing Standard Chart of Account in NGO at the beginning of the year. For those of you who are new to this task, you can work alongside other future CEOs at Search Fund Accelerator while taking advantage of the firm’s best practices and technologies in this and any other field.

Steps to prepare Chart of Accounts in NGO

 

Step 1 : Identify all continuing projects and its ledger accounts

Al l the ledger accounts of the projects, which are continue as on 1st April, are to be identified and put on paper or prepare an excel sheet with grouping.

Step 2: Identify other common Income and Expenditure Accounts

Apart from Projects, if NGO is doing other activities, like income generation, production, consultancy assignments etc… then, one hast to identify this type of common income and expenditure accounts and add in to that excel sheet.

Step 3 : Balance Sheet Items

Chart of Accounts also includes even balance sheet items. There are mainly two types of Balance Sheet items, some of which are same from year to year like Trust Fund Account or Corpus Fund Account or Building Reserve Fund Account, Name of Bank Accounts etc …. and others are changing in nature like Salary Payable Account, Audit Fees Payable Account etc.. One has to incorporate both these type of balance sheet items in the list.

Step 4 : Grouping

After finalizing all ledger accounts, next step is to give group name to it. We can give grouping according to project name like Bal Vikas Shiksha Group Expenses or Mahila Suraksha Project Expenses. Also, for Balance Sheet items, group  name is given like Grant Unutilized, Receivable Grant etc…

Step 5 : Enter Chart of Accounts in Accounting Software

Once exhaustive list of accounts are prepared, it should enter into Accounting Software maintained by NGO. Either you have to enter chart of accounts manually in the software or you can import excel into accounting software if such facility is there. In Tally ERP9, you can easily import chart of account from excel sheet.

Example of Standard Chart of Accounts

Please check out below an example of Chart of Accounts prepared by me. This is standard example, you have to prepare according to your NGO’s project and expenditures.

chart-of-accounts-ngo

Summary

Chart of Accounts in NGO is to be prepared every year, because every year some projects are closed and some new projects are implemented by NGO. Looking to benefits of preparing chart of accounts, it is highly recommended that one has to spare some time right at the beginning of financial year to prepare chart of accounts in NGO.

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Year-end 5 points to consider for NGO

As 31st March approaching near, books of accounts has to be reviewed. In this post, we try to answer following questions. Why one has to review its books of accounts get closed? In NGO, who has to review accounts? And Which are main five points to look into while reviewing accounts before 31st March?

Reason for year-end review

Precaution is better than Cure

After year end, any changes to books of accounts may lead to look like postmortem. Accounting is an ongoing activity and whenever books of accounts get changed back dated, auditor can easily smell it.

Responsibility of year-end review

Is it whole and sole responsibility of Accountant? NO. I would rather suggest that, Project Coordinator has also to look into the specific areas, like all the activities, which has to be completed before 31st March, must reflect in the books of accounts. Thus its a joint work of Accountant-Project Coordinator and Top Management.

5 Points one should look

1. Negative Cash

Go to Cash Book maintain in the accounting software and get daily balance. Even a single day negative cash balance cause you trouble. There are many reasons for cash going negative on particular day and also number of ways to solve it. Though there are many ways to solve it, once books of accounts get close and audit is started, it is difficult to rectify.

2. Advance Grant

Check, grant received in advance for programs after 31st March is not taken as current year income, specially when project period is not in consistent with our financial year. Suppose Project Period is from 1/7/2013 to 30/06/2014 and full grant already received before 31/03/2014, then amount equals to estimated expenditure from 1/4/2014 to 30/06/2014 transfer to next year as advance grant. See below image showing extract of Income and Expenditure account :

advance grant

3. Completed Projects

Projects, which are completed during current year, has to look for any over expenditure or savings of funds even of smaller amounts. It is not possible that every total amount spent is exactly same as grant received for particular project. Sometime, there is over expenditure of smaller amount or savings from project. There may be contribution from communities or contribution of NGO. All these transactions are properly accounted for before 31st March.

4. Fixed Assets

In many of NGOs, it it never ending problem, that Fixed Assets mentioned in Audited Report is not matched with Physical Fixed Assets. Though every NGO maintains Fixed Assets registers, they do not have habit of review it before year-end. At the year-end Fixed Assets in physical form, Fixed Assets mentioned in Books of Accounts and Fixed Assets Register must be tallied.

5. Fund Balance

This is most important point. It is best practice that fund balance in books of accounts at any point of time is to be matched with cash and bank balance. For this before year-end, a receipt and payment accounts is to be prepared showing Opening Balance of Cash and Bank, receipts during the year, spent during the year and closing cash and bank balance.

There may me many other points according to situations and scope of your NGO. However above points are crucial to look into before financial year ends.

 

For any inquiry or query. Click Here  or you can chat with us.

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