Content Standard 15.1

Clubs and Societies

Kelab dan Persatuan

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Explanation

Clubs and societies are a form of non-profit organisation set up by a group of people who share a common interest, aim or purpose. Examples include sports clubs, recreational societies, hobby clubs, residents' associations and welfare clubs. Under this Content Standard, students must understand the definition of clubs and societies according to the Societies Act 1966, distinguish their purpose of establishment from that of a profit entity, and identify the sources of finance that support their activities. This is the foundation for the accounting records covered later in the chapter, such as the Receipts and Payments Account and the Income and Expenditure Account.

Under the Societies Act 1966, a society is defined as any club, company, partnership or association of seven (7) or more persons, whatever its purpose. Every club or society that meets this definition must be registered with the Registrar of Societies (ROS). This registration gives the organisation legal standing to carry out activities, open a bank account in the organisation's name and collect fees from members. Clubs and societies are not businesses: they are made up of members, administered by a committee elected at a general meeting, and are answerable to their members rather than to owners or shareholders.

The most important difference to stress is why a club or society is set up, compared with a profit entity (such as a sole proprietorship, partnership or company). The main aim of a club or society is to provide facilities, services and benefits to members and to fulfil a shared interest, not to maximise profit. Any surplus obtained is not distributed to members as profit; instead, the surplus is ploughed back to improve the club's facilities and activities for the members' benefit. In contrast, a profit entity is established specifically to generate profit that can be enjoyed by owners or shared among shareholders. Because of this difference in purpose, the accounting terminology also differs: a club prepares an Income and Expenditure Account (not an Income Statement), its result is called a surplus or deficit (not net profit or net loss), and the owner's capital is replaced by an Accumulated Fund.

Clubs and societies need money to finance activities, rent premises, buy equipment and pay administrative expenses. The main sources of finance include the annual membership fee (subscription) paid by members each year, the entrance fee paid once by new members when they join, and donations and contributions from members or the public. In addition, clubs earn income from special activities such as profit from selling drinks at a canteen, proceeds from selling tickets to an annual dinner, collections from sports competitions, hall rental income, dividends or interest on investments, and proceeds from fund-raising activities. Life members pay a life membership fee in one lump sum for permanent membership.

Understanding the sources of finance matters because each source is treated differently in club accounting in the next part of the chapter. For example, the annual subscription is treated as income and recognised in the Income and Expenditure Account on the accruals basis, with adjustments for subscriptions in arrears and subscriptions in advance. Entrance fees are usually treated as income in the year received. A large donation for a specific purpose may be capitalised (added to the Accumulated Fund) while an ordinary small donation is treated as income. By clearly understanding the definition, purpose and sources of finance, students can distinguish club accounting from business accounting and are ready to record the club's transactions correctly.

Worked examples

Distinguishing purpose: Seri Melur Recreation Club vs Aisya Boutique

Seri Melur Recreation Club was set up by 40 residents to provide a gym, a swimming pool and fitness activities for members. At year end the club earned a surplus of RM3,500. This surplus was NOT distributed to members; instead the committee decided to buy new gym equipment. This shows the club's aim is member benefit, not profit.

In contrast, Aisya Boutique (a sole proprietorship) was set up by Mrs Aisya to sell clothes and make a profit. In the same year the boutique earned a net profit of RM3,500 which Mrs Aisya may withdraw as drawings for personal use. This comparison makes clear that a profit entity exists to give a return to the owner, whereas a club exists to serve its members.

Recording sources of finance received by Cahaya Badminton Club

Cahaya Badminton Club received various sources of finance in January. When the club received annual subscriptions of RM1,200 in cash from members: Debit Cash/Bank RM1,200; Credit Subscription RM1,200.

When five new members each paid an entrance fee of RM50 (total RM250) by bank: Debit Bank RM250; Credit Entrance Fee RM250. When the club received a cash donation of RM300 from the public for ordinary activities: Debit Cash RM300; Credit Donation RM300. All these credited accounts are club income that supports the expenses of its activities.

Treatment of a life membership fee at Harmoni Welfare Club

Mr Farid became a life member of Harmoni Welfare Club by paying a life membership fee of RM2,000 by bank. The basic entry: Debit Bank RM2,000; Credit Life Membership Fee RM2,000.

Because this fee provides membership benefits over the long term, the club may choose to capitalise it (add it to the Accumulated Fund) or spread it as income over several years according to club policy. This example shows that some sources of finance are capital in nature, not merely current-year income.

Practice

State the definition of a society under the Societies Act 1966 and explain a club's registration obligation.

Answer: Under the Societies Act 1966, a society is defined as any club, company, partnership or association of seven (7) or more persons, whatever its purpose. A club or society meeting this definition must be registered with the Registrar of Societies (ROS). Registration gives legal standing, allowing the club to open a bank account in the organisation's name, collect fees from members and carry out its activities officially. The club is administered by a committee elected at a general meeting and is answerable to its members.

Explain three ways in which clubs and societies differ from a profit entity, in terms of purpose and accounting terminology.

Answer: First, in terms of purpose: clubs and societies are set up to provide facilities and benefits to members, whereas a profit entity is set up to generate profit for owners or shareholders. Second, in terms of how the surplus is used: a club's surplus is not distributed to members but ploughed back for their benefit, while a business entity's profit may be enjoyed by or shared among owners. Third, in terms of accounting terminology: a club prepares an Income and Expenditure Account (not an Income Statement), its result is called a surplus or deficit (not net profit or net loss), and capital is replaced by an Accumulated Fund.

List five (5) sources of finance for a club or society.

Answer: Five sources of finance for a club or society are: (1) annual subscriptions paid by members each year; (2) entrance fees paid once by new members; (3) donations and contributions from members or the public; (4) income from special activities such as canteen profit, sale of annual dinner tickets or fund-raising activities; and (5) hall/facility rental income together with interest or dividends on investments. A life membership fee is also a source of finance.

Perdana Sports Club received annual subscriptions of RM2,400 in cash and entrance fees of RM400 from new members by bank. Give the double entry for both transactions and state the type of account credited.

Answer: For the annual subscription: Debit Cash RM2,400; Credit Subscription RM2,400. For the entrance fee: Debit Bank RM400; Credit Entrance Fee RM400. Both the Subscription and Entrance Fee accounts credited are income accounts of the club. This income will be recognised in the club's Income and Expenditure Account at the end of the accounting period, with the subscription adjusted on the accruals basis for subscriptions in arrears and in advance.

Exam tips

Key terms

Clubs and Societies: A non-profit organisation of members who share a common interest or aim, administered by a committee.
Societies Act 1966: The law that defines a society as a group of seven or more persons and requires registration with the Registrar of Societies.
Subscription: The annual membership fee paid by members each year; the club's main source of income.
Entrance Fee: A one-time payment made by new members when joining a club or society.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 5

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