Revision Notes
Revision Notes: Accounting for Clubs and Societies
These condensed notes cover the key concepts, definitions, formats and steps of Form 5 Chapter 6 to help you revise accounting for clubs and societies efficiently.
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Clubs and Societies: Basic Concepts
- Under the Societies Act 1966, a society (club/association) is a group of seven or more persons formed for a specific purpose and must be registered with the Registrar of Societies (ROS).
- The main purpose is to provide facilities, services or welfare to members, not to earn profit like profit-oriented entities registered with SSM.
- Main sources of finance: members' subscriptions, entrance fees, donations, grants/subsidies, activity income (sales, dinners, competitions), rent received and interest on savings.
- Compared with a business: there is no Capital or Owner's Equity but an Accumulated Fund; no drawings; surplus is not distributed to members.
- Profit-seeking activities (e.g. a canteen or sales) do not contradict the founding aim as long as the surplus is ploughed back to fund the club's activities and is not distributed to members.
Receipts and Payments Account
- Purpose: to summarise all cash/bank receipts (debit side) and cash/bank payments (credit side) during the period; it is a cash-basis record.
- It starts with the opening balance b/f (cash/bank at the start) and ends with the closing balance c/f, just like a Cash Book.
- Examples of receipts: subscriptions, entrance fees, donations, sales income, rent received and interest. Examples of payments: purchases, rent paid, wages, activity expenses and purchase of equipment.
- It records all cash flows regardless of whether they are capital or revenue, and regardless of period, including prior-year arrears and advance payments.
- Difference from a business Cash Book: the Receipts and Payments Account is prepared by a non-profit body and is only a cash summary, not part of full double-entry records.
Members' Subscriptions Account
- A subscription is a periodic payment by members to maintain membership in the club or society.
- Current subscriptions: subscriptions for the current accounting period, transferred to the Income and Expenditure Account as income.
- Bad subscriptions: overdue subscriptions written off because they are considered uncollectible, treated as an expense.
- Unearned subscriptions (in advance): subscriptions already received for a future period, treated as a current liability.
- Subscriptions in arrears (outstanding): current-period subscriptions not yet paid by members, treated as a current asset.
- How to prepare: enter opening balances (arrears as debit b/f, unearned as credit b/f), record subscriptions received on the credit side (bank), enter closing balances c/f, then balance off to obtain the current subscription transferred to the Income and Expenditure Account.
Trading Account and Periodic Activities
- A club that runs trading activities (e.g. a canteen, co-op shop, dinner) prepares a Trading Account to compute the gross profit or loss of that activity.
- The activity's gross profit is transferred as income to the Income and Expenditure Account; a gross loss is transferred as an expense.
- Profit or loss of a periodic activity = activity income (e.g. sales collection) less activity expenses (e.g. cost of goods, hall rental).
- Only the net profit or loss of the activity is entered into the Income and Expenditure Account, not the activity's gross receipts.
Income and Expenditure Account
- Purpose: equivalent to a business's Income Statement; it computes surplus or deficit on the accrual basis, not the cash basis.
- Surplus of income: income exceeds expenditure. Deficit of income: expenditure exceeds income.
- Income examples: current subscriptions, donations, activity profit, rent received, interest. Expense examples: wages, rent, depreciation, bad subscriptions, utilities, activity expenses.
- Revenue income (subscriptions, rent) is recorded here; capital income (e.g. proceeds from sale of an asset) is not. Revenue expenditure (wages, utilities) is recorded; capital expenditure (buying equipment) goes to the Statement of Financial Position.
- Why some Receipts and Payments items are not recorded here: they are capital items (buying/selling assets), arrears/advances of another period, or cash/bank balances.
- Why item values differ from the Receipts and Payments Account: accrual adjustments such as arrears, advances, depreciation and bad subscriptions make the cash amount differ from the actual income or expense amount.
Statement of Financial Position and Accumulated Fund
- The Accumulated Fund is the equivalent of Capital or Owner's Equity for a club or society; it represents members' net interest in the organisation.
- Accumulated Fund at the start of the period = total opening assets less total opening liabilities.
- Closing Accumulated Fund = opening Accumulated Fund plus surplus (or less deficit) for the period.
- The Statement of Financial Position is set out like a business's: Non-current Assets, Current Assets, Current and Non-current Liabilities, with the Accumulated Fund replacing Owner's Equity.
- Difference in components: the Accumulated Fund builds up from accumulated surpluses with no owner-invested capital or drawings, whereas Owner's Equity = Capital plus Net Profit less Drawings.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Balance b/f (subscriptions in arrears) | 300 | Balance b/f (unearned subscriptions) | 150 |
| Income & Expenditure Account | 5,000 | Bank (subscriptions received) | 5,000 |
| Balance c/f (unearned subscriptions) | 200 | Balance c/f (subscriptions in arrears) | 350 |
| 5,500 | 5,500 |
The current subscription of RM5,000 (the balancing figure) is transferred to the Income and Expenditure Account.
| Particulars | RM |
|---|---|
| Assets | |
| Equipment | 8,000 |
| Inventory of goods | 500 |
| Bank balance | 2,000 |
| Subscriptions in arrears | 300 |
| Total Assets | 10,800 |
| (less) Liabilities | |
| Unearned subscriptions | 150 |
| Creditors | 650 |
| Total Liabilities | 800 |
| Accumulated Fund (opening) | 10,000 |
Opening Accumulated Fund = total assets RM10,800 less total liabilities RM800 = RM10,000.
| Aspect | Club and Society | Profit-oriented Entity |
|---|---|---|
| Aim | Welfare and facilities for members | To earn profit |
| Registration | Registrar of Societies (ROS) | Companies Commission (SSM) |
| Capital / Fund | Accumulated Fund | Capital or Owner's Equity |
| End-of-period result | Surplus or deficit | Net profit or net loss |
| Cash summary account | Receipts and Payments Account | Cash Book |
What is the difference between a surplus of income and net profit?
The concept is the same, namely income exceeding expenditure, but the term 'surplus of income' is used for clubs and societies because their main motive is not to earn profit.
Why is the purchase of equipment not recorded in the Income and Expenditure Account?
Because it is capital expenditure (a non-current asset) recorded in the Statement of Financial Position; only the depreciation of the equipment is treated as an expense in the Income and Expenditure Account.
How is the Accumulated Fund at the start of the period calculated?
Opening Accumulated Fund = total assets at the start of the period less total liabilities at the start of the period.
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