Improving the Financial Management of Harmoni Jaya Sports Club

Accounting for Clubs and Societies

Skill: Create

Stimulus

Question

(a) Based on the figures in the table, identify TWO financial management problems faced by the club and explain the effect of each problem on the club's true financial position.

(b) As the new treasurer, propose THREE improvements to the club's record-keeping and financial management. For each proposal, explain how it improves the accuracy of the financial statements or the financial position of the club.

(c) Draft a short action plan to recover the RM3,600 subscription arrears and increase the club's cash balance without raising the subscription rate. Justify why your plan is suitable for a non-profit club.

Thinking steps

1. Compare subscriptions due (RM12,000) with cash received (RM8,400) to see that RM3,600 is still in arrears, showing that the real income is not fully collected.
2. Recognise that a Receipts and Payments Account records cash only; it ignores arrears, advances and depreciation, so it does not show the true surplus/deficit.
3. Link the very low cash balance (RM520 + RM60) to the outstanding loan of RM8,000: the club is nearly out of liquid funds for daily operations.
4. For each problem, think of an improvement that fixes its cause: open a Subscriptions Account, record arrears, and charge depreciation so statements are accurate.
5. Draft a plan to recover arrears (written reminders, instalments, fund-raising) suitable for a non-profit club, without raising fees or chasing profit.
6. Justify each proposal by linking cause and effect: complete records → accurate statements → better committee decisions → stronger financial position.

Model answer

(a) Problems: (1) The RM3,600 arrears are not collected and not recorded separately; the club's true income is therefore higher than the cash received, and the Receipts and Payments Account gives a misleading picture of income. (2) Depreciation on the equipment (cost RM15,000) has never been charged; as a result, the asset value is overstated and the Income and Expenditure Account fails to bear the cost of using the asset, so the surplus/deficit is inaccurate. The very low cash balance (RM520 + RM60 = RM580) against an RM8,000 loan also shows a liquidity problem.

(b) Improvements: (1) Open a Subscriptions Account that records subscriptions due, arrears (a current asset) and advances (a current liability); this transfers the correct income (RM12,000) to the Income and Expenditure Account on the accruals basis rather than the cash basis. (2) Charge depreciation on the equipment each year (e.g. straight-line); this reduces the asset's book value to a reasonable figure and bears the cost of use, so the surplus/deficit and Statement of Financial Position show true figures. (3) Prepare a full Income and Expenditure Account and Statement of Financial Position (not just a Receipts and Payments Account); this lets the committee see the real position, including the Accumulated Fund and the loan liability.

(c) Action plan to recover arrears without raising fees: (i) send written reminders/messages to members who owe, with a clear arrears list drawn from the Subscriptions Account; (ii) allow payment by monthly instalments so members can afford to settle; (iii) hold fund-raising activities such as a drinks stall or an internal sports tournament to build cash; (iv) limit non-essential spending until the cash balance recovers. This plan suits a non-profit club because it strengthens liquidity and fairness among members without burdening them with higher fees and without pursuing profit; the aim is the ability to keep running activities, not to maximise profit.