Key Terms
Key Terms: Accounting for Clubs and Societies
This chapter introduces accounting for not-for-profit entities. Learn the terms below to tell club accounts apart from business accounts and to prepare statements accurately.
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Clubs and Societies & the Non-Profit Motive
- A club or society is a group of members joined by a common interest (sport, welfare, recreation), registered with the Registrar of Societies under the Societies Act 1966. It is not a profit-oriented entity.
- Its main purpose is to provide benefit and welfare to members, not to earn profit for owners as a business does.
- Main sources of finance: members' subscriptions, entrance fees, donations, rent, and proceeds from periodic activities such as dinners or refreshment sales.
- Memory hook: "members, not owners". Members enjoy services; there is no owner's capital and no drawings.
- Tested by: explaining the definition, comparing a club's aims and formation with a profit-oriented entity, and analysing whether seeking profit contradicts its motive (it does not, so long as any surplus is used for members' benefit).
Receipts and Payments Account
- The Receipts and Payments Account is a summary of all cash received and paid during the period. The opening balance is the opening cash/bank and the closing balance is the closing cash/bank.
- It records all cash regardless of period (including last year's or next year's subscriptions) and regardless of whether the item is revenue or capital.
- Memory hook: "cash in on the debit, cash out on the credit", just like a Cash Book.
- Difference from a business's Cash Book: the Cash Book is a book of prime entry that is also part of the double-entry system and has discount columns; the Receipts and Payments Account is only a summary of the club's cash with no discount columns.
- Tested by: stating its purpose, giving examples of receipts (subscriptions, donations) and payments (wages, rent, asset purchases), preparing it in 'T' and statement format, and distinguishing it from the Cash Book.
Members' Subscription Account & Types of Subscription
- A subscription is a periodic payment by members to remain members; it is the club's main source of revenue.
- The current subscription is the subscription for the current accounting year; this is the amount transferred as revenue to the Income and Expenditure Account.
- Subscription in arrears is the current-year subscription not yet paid by members; it is a current asset (members owe the club).
- Subscription in advance is next year's subscription paid early; it is a current liability (the club owes future service).
- A bad subscription is a subscription in arrears that can no longer be collected and is written off as an expense.
- Memory hook: "Arrears = asset (club must collect); Advance = liability (club still owes service)".
- Tested by: preparing a full Members' Subscription Account with opening and closing balances on both sides, and correctly transferring the current subscription to the Income and Expenditure Account.
Income and Expenditure Account (Surplus & Deficit)
- Its purpose parallels a business's Income Statement: recording only current-period income and expenses on the accrual basis to compute a surplus or deficit.
- A surplus of income arises when income exceeds expenditure; it is added to the Accumulated Fund.
- A deficit of income arises when expenditure exceeds income; it is deducted from the Accumulated Fund.
- Memory hook: "profit/loss becomes surplus/deficit". A club does not use the words profit or loss.
- Tested by: preparing it in 'T' and statement format; giving reasons why items in the Receipts and Payments Account (e.g. asset purchases, prior-year subscriptions) are excluded; and discussing why an item's value differs between the two accounts because of accrual adjustments such as subscriptions in arrears or accrued expenses.
Revenue vs Capital & Profit from Periodic Activities
- Revenue income is recurring income of the current period (current subscriptions, rent received) and goes into the Income and Expenditure Account.
- A capital receipt is a large or one-off receipt (a special donation to erect a building, life membership fees) and is not treated as revenue; it adds to the Accumulated Fund or goes to the Statement of Financial Position.
- Revenue expenditure is recurring spending (wages, utilities) charged as an expense of the period.
- Capital expenditure is spending to acquire non-current assets (furniture, equipment) recorded as an asset, not an expense.
- For profit-seeking periodic activities such as refreshment sales, prepare a Trading Account to work out the profit or loss; the profit is transferred as income to the Income and Expenditure Account. Memory hook: "Revenue = this period; Capital = long term".
- Tested by: interpreting and classifying items as revenue or capital, and preparing the Trading Account of a periodic activity in 'T' and statement format.
Accumulated Fund
- The Accumulated Fund is the club's capital: the accumulated surpluses of past years plus capital contributions; it is the equivalent of Owner's Equity in a business.
- The opening Accumulated Fund is computed using the accounting equation: Assets minus Liabilities at the start of the period, usually via an opening statement of affairs.
- Its movement: opening Accumulated Fund plus surplus (or minus deficit) equals the closing Accumulated Fund; capital donations may be added.
- Unlike Owner's Equity, there is no owner-invested capital and no drawings; instead it is built from members' contributions and accumulated surpluses. Memory hook: "Accumulated Fund is to a club what Equity is to a trader".
- Tested by: computing the opening Accumulated Fund, producing the Statement of Financial Position in 'T' and statement format, and summarising how its components differ from Owner's Equity.
| Feature | Receipts and Payments Account | Income and Expenditure Account |
|---|---|---|
| Basis | Cash basis | Accrual basis |
| Items recorded | All cash (revenue and capital, any period) | Current-period income and expenses only |
| Closing balance | Cash or bank balance | Surplus or deficit of income |
| Profit-entity equivalent | Cash Book | Income Statement |
| Particulars (Debit) | RM | Particulars (Credit) | RM |
|---|---|---|---|
| Balance b/d (Subscription in arrears) | 150 | Balance b/d (Subscription in advance) | 80 |
| Subscription in advance c/d | 100 | Receipts and Payments Account (cash received) | 4,670 |
| Income and Expenditure Account (current subscription) | 4,800 | Bad subscription | 100 |
| Subscription in arrears c/d | 200 | ||
| 5,050 | 5,050 |
Arrears form a debit balance (asset); advances form a credit balance (liability); the current subscription of RM4,800 is transferred to the Income and Expenditure Account.
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