Balance sheet explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A club, society or trust does not earn profit for owners, so its accounts speak of income and expenditure, surplus and deficit, and funds. Three questions come up in nearly every set of accounts: how much subscription belongs to the year, what to do with a donation that has a purpose attached, and how funds are shown in the balance sheet. This guide answers each with the Technical Guide on Accounting for NPOs, which is recommendatory ICAI guidance, and then works one invented association through the year. For the registration side, see our 12A, 80G and CSR registration service.
Subscription income for the year is cash received plus closing arrears and opening advances, less opening arrears and closing advances. A donation or grant with a purpose attached is a restricted fund, credited to a separate fund account and released to income as it is used; for an asset it is released in proportion to depreciation (paragraphs 110 and 49). The balance sheet is one integrated statement, with funds shown separately and no set-off of assets against liabilities (paragraph 103).
Income heads
| Item | Treatment | Where it appears |
|---|---|---|
| Subscriptions | Accrual: belongs to the year it relates to, whenever paid | Income; arrears are an asset, advances a liability |
| Donations without conditions | Unrestricted: income of the year | Income and expenditure account |
| Donations for a purpose | Restricted: credited to a fund when received | Fund in the balance sheet |
| Entrance fees | Capital or revenue as the organisation's policy decides; apply consistently and disclose | General fund or income |
| Life membership fees | Commonly a fund, with a fixed part taken to income each year under the stated policy | Fund, with annual transfer |
| Interest on investments | Time-proportion basis (paragraph 44) | Income, or the fund, as the terms say |
The Technical Guide says principles for grants apply equally to donations (paragraph 49(h)) and that a grant is recognised only when there is reasonable assurance that conditions will be met and that it will be received (paragraphs 47 and 48). For revenue recognition generally, see AS 9 on revenue and for government grants AS 12.
Funds in the Technical Guide
Paragraph 106 sorts funds into unrestricted (corpus, designated funds and the general fund) and restricted (where the donor or the law limits the use), including endowment funds. Paragraph 107 says a designated fund is created by appropriating surplus and is released when the spending happens. Paragraph 110 says a restricted fund is credited to its own account on receipt. When spent on revenue items, an equal amount moves from the fund to the income and expenditure account. When spent on an asset, the asset is depreciated as per AS 10 and the fund is treated as deferred income, released in proportion to the depreciation. The unreleased balance stays part of the fund. The statements are presented as set out in paragraph 103: a single balance sheet for the whole NPO. Our article on receipts and payments and income and expenditure accounts explains the earlier step. The disclosure paragraphs (113 to 133) cover accounting policies and notes; consult the guide for the full list.
Worked example: Riverside Sports Association
The entity and all figures in this example are invented for illustration.
Opening balance sheet, 1 April 2025
| Funds and liabilities | Amount | Assets | Amount |
|---|---|---|---|
| General fund | 2,23,000 | Cash and bank | 1,20,000 |
| Building fund | 1,00,000 | Subscription arrears | 8,000 |
| Subscriptions received in advance | 5,000 | Sports equipment | 1,00,000 |
| Fixed deposit (building fund) | 1,00,000 | ||
| Total | 3,28,000 | Total | 3,28,000 |
Cash receipts in the year. Subscriptions 2,60,000; donations for the building fund 50,000; general donations 25,000; entrance fees 15,000; life membership fees 30,000; ground hire 40,000. Total 4,20,000.
Cash payments. Honorarium and salaries 1,10,000; ground maintenance 45,000; match expenses 32,000; construction of a pavilion 90,000. Total 2,77,000. Closing cash and bank: 1,20,000 + 4,20,000 - 2,77,000 = 2,63,000.
Year-end information.
- Subscription arrears at the end: 12,000; advances received at the end: 7,000.
- Honorarium outstanding: 6,000.
- Depreciation: sports equipment 10 per cent of 1,00,000 = 10,000; pavilion 5 per cent of 90,000 = 4,500 (both assumed rates, for arithmetic only).
- Policy: entrance fees go to the general fund as a capital receipt. Life membership fees go to a life membership fund, with one-tenth taken to income each year; the first year's transfer is 3,000.
Step 1 – subscription account.
| Particulars | Debit | Particulars | Credit |
|---|---|---|---|
| To Balance b/d (arrears) | 8,000 | By Balance b/d (advance) | 5,000 |
| To Income and expenditure (balancing figure) | 2,62,000 | By Cash received | 2,60,000 |
| To Balance c/d (advance) | 7,000 | By Balance c/d (arrears) | 12,000 |
| Total | 2,77,000 | Total | 2,77,000 |
Income = 2,60,000 + 12,000 + 5,000 - 8,000 - 7,000 = 2,62,000. Check: 8,000 + 2,62,000 + 7,000 = 2,77,000 = 5,000 + 2,60,000 + 12,000.
Step 2 – building fund account. The donation is a restricted fund. The pavilion cost 90,000, so it is treated as deferred income, released in proportion to the depreciation of 4,500.
| Particulars | Debit | Particulars | Credit |
|---|---|---|---|
| To Income and expenditure (release equal to depreciation) | 4,500 | By Balance b/d | 1,00,000 |
| To Balance c/d | 1,45,500 | By Donation received | 50,000 |
| Total | 1,50,000 | Total | 1,50,000 |
The closing fund of 1,45,500 is made up of 85,500 of deferred income (90,000 - 4,500) and 60,000 of unspent contributions (1,50,000 - 90,000).
Step 3 – income and expenditure account for the year ended 31 March 2026.
| Expenditure | Amount | Income | Amount |
|---|---|---|---|
| To Honorarium and salaries (1,10,000 + 6,000) | 1,16,000 | By Subscriptions | 2,62,000 |
| To Ground maintenance | 45,000 | By General donations | 25,000 |
| To Match expenses | 32,000 | By Ground hire | 40,000 |
| To Depreciation: sports equipment | 10,000 | By Life membership fees (one-tenth) | 3,000 |
| To Depreciation: pavilion | 4,500 | By Release from building fund | 4,500 |
| To Surplus (to general fund) | 1,27,000 | ||
| Total | 3,34,500 | Total | 3,34,500 |
Working: expenditure 1,16,000 + 45,000 + 32,000 + 10,000 + 4,500 = 2,07,500; income 2,62,000 + 25,000 + 40,000 + 3,000 + 4,500 = 3,34,500; surplus 3,34,500 - 2,07,500 = 1,27,000. The pavilion purchase, entrance fees and the building fund donation are capital or fund items and are not in this account.
Step 4 – closing balance sheet as at 31 March 2026.
| Funds and liabilities | Amount | Assets | Amount |
|---|---|---|---|
| General fund: opening 2,23,000 + entrance fees 15,000 + surplus 1,27,000 | 3,65,000 | Sports equipment (1,00,000 - 10,000) | 90,000 |
| Building fund | 1,45,500 | Pavilion (90,000 - 4,500) | 85,500 |
| Life membership fund (30,000 - 3,000) | 27,000 | Fixed deposit | 1,00,000 |
| Subscriptions received in advance | 7,000 | Subscription arrears | 12,000 |
| Honorarium outstanding | 6,000 | Cash and bank | 2,63,000 |
| Total | 5,50,500 | Total | 5,50,500 |
Check: funds and liabilities 3,65,000 + 1,45,500 + 27,000 + 7,000 + 6,000 = 5,50,500; assets 90,000 + 85,500 + 1,00,000 + 12,000 + 2,63,000 = 5,50,500. The balance sheet totals agree, and the cash figure ties to the cash movement in the year.
Common mistakes
- Taking the cash received as income: subscription arrears and advances must be adjusted.
- Crediting a purpose donation to income at once: it is a restricted fund.
- Writing off the pavilion as expense: it is an asset, and the fund is released with depreciation.
- Setting off assets and liabilities of the same project; paragraph 103 asks for separate disclosure.
- Changing the policy for entrance fees without disclosure.
Need help with the accounts of a trust, club or society?
If your organisation holds restricted donations, life membership money or a building fund, we can set up the fund accounts and prepare the statements. Our 12A, 80G and CSR registration team also advises on the compliance steps a trust or society must take.
Key takeaways
- Subscription income is an accrual figure adjusted for arrears and advances at both ends.
- A purpose donation is a restricted fund, released as it is spent or in proportion to depreciation.
- The balance sheet is one integrated statement, with funds shown separately and no set-off.
- Entrance fee and life membership policies must be stated and applied consistently.
- The surplus goes to the general fund.
Read next
- Receipts and payments v income and expenditure account
- Accounts from incomplete records
- AS 12 Accounting for Government Grants
- AS 9 Revenue Recognition
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.