It is a sort of gift in cash or property received from some person or organization. It appears on the receipts side of the Receipts and Payments Account. Donation can be for specific purposes or for general purposes.
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Specific Donations
If donation received is to be utilized to achieve specified purpose, it is called Specific Donation. The specific purpose can be an extension of the existing building, construction of new computer laboratory, creation of a book bank, etc. Such donation is to be capitalized and shown on the liabilities side of the Balance Sheet irrespective of the fact whether the amount is big or small. The intention is to utilize the amount for the specified purpose only.
General Donations
Such donations are to be utilized to promote the general purpose of the organization. These are treated as revenue receipts as it is a regular source of income hence; it is taken to the income side of the Income and Expenditure Account of the current year.