Clubs and Societies Accounts PDF

Clubs and Societies Accounts Non-profit organizations: Non-profit is a type of organization that does not earn profits for its owners. Typically, non-profit organizations charities or other types of public service organizations. Not for profit organizations exist to provide facilities for their mem...

Clubs and Societies Accounts Non-profit organizations: Non-profit is a type of organization that does not earn profits for its owners. Typically, non-profit organizations charities or other types of public service organizations. Not for profit organizations exist to provide facilities for their members. Examples include: sports club, social club, drama society, music club, etc. Making profit is not their main purpose, although many such organizations carry out fundraising activities to provide more and better facilities for the members. The organization is owned by all its members and not just one person or a partnership. Records of money received and spent are usually kept by a club member who is often not a trained bookkeeper/accountant. Terms in non-profit / non-trading business: Trading Business Non-trading business Capital Accumulated funds Cash book Receipts and payments Trading account (Gross profit) Activity trading Income statement Income and Expenditure Account Statement of Financial Position Statement of Financial Position Profit for the year Surplus (Income > Expenditure) Loss for the year Deficit (Expenditure > Income) Trade receivables Subscriptions in arrears Trade payables Subscriptions in advance  Income and Expenditure Account: It is the account prepared to determine if the non-profit organization has made a surplus/deficit. It is the equivalents of the SOPL.  Surplus of income over expenditure: It is the equivalent of the profit for the year which occurs when the income is higher than the expenditure.  Deficit of expenditure over income: It is the equivalent of the loss for the year which occurs when the expenditure is higher than the income.  Accumulated fund: It is the equivalent of capital for non-profit organization.  Receipts and Payments Account: It is the bank account of the non-profit organization.   Subscriptions: It is the amount paid by members to be a part of the club/society. It is the main source of income for non-profit organization and is the equivalent of sales for a profit-making organization. Important Terms: Donation: Donations are the life blood of non-profit organizations that help them survive and fulfil their missions. It is the money given freely to the organization. Donations are received in two ways: a. Specific donation: An amount donated by members or any other person for a specific purpose. It is a capital receipt and are shown in the SOFP under the accumulated fund. This amount should be placed in a separate bank account to ensure that it is not spent on other things. Example: donation for library, donation for school building, etc. b. General donation: An amount donated by members or any other person without any specific purpose. Its amount is comparatively smaller than the specific donation. It is a revenue receipt and shown in Income and Expenditure Account. Legacy: It is the amount received by the organization as per the ‘will’ of ‘donor’. It appears on the receipts side of Receipts and Payments Account. It should not be considered as an income but should be treated as capital receipt i.e. it is credited to the capital account and appears on the Statement of Financial Position. Life membership: It is the amount paid by a member of the club which entitled them to be member of the club for their lifetime. The amount received should be credited to a separate lifetime membership account and credit to the Income and Expenditure Account in equal annual installments over a period determined by the club committee. Generally, the members are required to make the payment in a lump sum only once which enables them to become the members for their entire life. Life members are not required to pay for the annual membership fees. As ‘life membership fees’ is a substitution for ‘annual membership fees’, it is desirable that life membership fees should be treated as a capital and fair proportion should be treated as income in the subsequent year. If there is no instruction as to what proportion to be treated as income, then the whole of it should be treated as capital. Entrance fees: This is found in the receipt side of the Receipt and Payment Account. There are arguments that it should be treated as capital receipt because entrance fees are paid by every member only once which means that it is non-recurring (non-repeating) in nature. But another argument is that since the members are to be enrolled every year and receipts of entrance fees is a regular item, it should be treated as income. In the absence of instructions, any one of the treatments may be followed by writing a note that justifies their treatment. Subscriptions: It is the amount paid by the members usually in an annual basis for the facilities provided by the club or society. It is treated as revenue receipt which is recorded in the Receipt and Payment Account. However, in order to post it to the Income and Expenditure Account, some adjustments (advance and outstanding) have to be made to the subscription as only the subscription pertaining (belonging) to that particular year is recorded in I/E account. Calculation of subscription for the year: $ Total subscription received during the year xxx (+) opening subscription in advance xxx (+) closing subscription in arrears xxx (-) opening subscription in arrears (xxx) (-) closing subscription in advance (xxx) Subscription for the year xxx Ledger for Subscription account: $ $ Balance b/d (outstanding / arrears) xxx Balance b/d (prepaid) xxx Income and Expenditure Account xxx Bank (Receipts/Payments account) xxx Irrecoverable debts xxx Balance c/d (prepaid) xxx Balance c/d (arrears) xxx xxx xxx Balance b/d (arrears) xxx Balance b/d (prepaid) xxx Examples: Q. The following information relates to the annual membership subscriptions of a cricket club for the year ended 31 December: 1 January $ 31 December $ Subscription in arrears 7200 7800 Subscription in advance 2800 4200 Cash received during the year for subscriptions totaled $81000.Which amount should be shown in the Income and Expenditure Account for membership subscription?  $ Total subscription received during the year 81000 (+) opening subscription in advance 2800 (+) closing subscription in arrears 7800 (-) opening subscription in arrears (7200) (-) closing subscription in advance (4200) Subscription for the year 80200 Q. The information relates to the subscriptions of a club. Advance $ Arrears $ Start of the year 50 75 End of the year 150 120 Cash received during the year was $3750. What was the subscription income for the year? Subscription income for the year = 3750 + 50 – 150 – 75 + 120 = $3695 Sale of old assets: It is a non-recurring event. It cannot be taken to I/E account. It leads in a reduction of assets. Therefore, it is shown by way of deduction from the concerned assets. It is important to note that it is the NBV that is to be deducted from assets. Profit and loss in such a case is taken to Income and Expenditure account. Where the net book value of assets is nil (0), the entire proceeds of sale is to be treated as profit or income. Honorarium: People may be invited to deliver lectures or artists may be invited to give performance to the members by a club. Any money paid to those invitees (artists, lecturers) is termed as honorarium, and not salary. Such honorarium represents expenditure which should be presented in Income and Expenditure account. Shop profit / Bar profit / Refreshment profit: Shop Trading Account $ $ Shop sales xxx (-) Cost of sales Opening shop inventory xxx (+) Purchases xxx (-) Closing shop inventory (xxx) xxx Gross profit xxx (-) Shop related expenses (xxx) Shop profit xxx In some cases, shop purchases inventory on credit so suppliers opening and closing balances will be provided in question. Then purchase will be calculated as: Credit purchase = payment to suppliers – opening payables + closing payables Receipts and Payments Account:  The receipts and payments account are used as a summary of all of the cash transactions for a period of time, in a similar manner to a cash book.  It shows opening and closing bank balances.  It aids preparation of financial statements. Format: Receipts and Payments Account For the year ended … Dr. Cr. Receipts $ Payments $ Balance b/d xxx All cash payments xxx All cash receipts xxx Balance c/d xxx xxx xxx Balance b/d xxx Income and Expenditure Account:  Calculates the subscriptions earned.  Calculates the entrance fees and life membership subscription fees for the year.  Calculates the net income from other activities (dinner / dance / competitions).  Calculates the expenses incurred by preparing ledger accounts for expenses.  Calculates the depreciation. Format: Income and Expenditures Account For the year ended … $ $ Incomes: Subscriptions for the year xxx Shop profit xxx Profit on disposal xxx Income from social events xxx Any other incomes xxx xxx Expenditures: Loss on disposal xxx  Shop loss xxx Wages and salaries xxx Club rent xxx Club insurance xxx Depreciation xxx Other expenditures xxx (xxx) Surplus / Deficit xxx Differences between Receipts and Payments (R/P) Account and Income and Expenditure (I/E) Account: R/P Account I/E Account It is like a cash book. It is like an income statement. Closing balance is carried forward to the next Closing balance is merged into accumulated fund. period. Closing balance represents cash at hand and at Closing balance represents either surplus or deficit. bank. It includes both capital and revenue items. It includes revenue items only. It ignores outstanding items. It records outstanding items. It ignores credit sales and credit purchases. It records credit sales and credit purchases. It includes prepaid items. It excludes prepaid items. It begins with an opening balance. It does not begin with an opening balance. It ignores non-cash items such as depreciation, bad It records non-cash items like depreciation, bad debts, etc. debts, etc. Accumulated fund: Accumulated fund is also the difference of assets and liabilities. Assets = capital + liabilities Capital = Assets – Liabilities Accumulated fund = Assets – Liabilities Accumulated fund arises from accumulated surplus in previous years. Format: $ Balance at start xxx (+) Surplus xxx (-) Deficit (xxx) Balance at the end of the year xxx Statement of Financial Position Format: Statement of Financial Position At the year ended … $ $ Non-current assets: Land and building xxx Machinery xxx Fixtures and fittings xxx Motor vehicles xxx xxx Current assets: Shop closing inventory xxx Subscriptions in arrears xxx Other receivables xxx Bank (R/P) xxx xxx Total assets xxx Accumulated fund: Opening balance xxx (+) Surplus xxx (-) Deficit (xxx) xxx Life membership fee xxx Donations xxx Non-current liabilities: Long term loan xxx Current liabilities: Subscriptions in advance xxx Trade payables xxx Other payables xxx xxx Total accumulated fund and liabilities xxx