Clubs And Societies (Copy)

3.1.3 Clubs and Societies – Cheat Sheet

Distinction Between Receipts and Payments Account & Income and Expenditure Account

1. Receipts and Payments Account
   • Purpose: A summary of cash inflows and outflows over a period.
   • Nature: Cash-based, records only actual receipts and payments (ignores accruals).
   • Format:
     • Receipts: All money received (e.g., subscriptions, donations, grants).
     • Payments: All money paid out (e.g., expenses, purchases).
   • Used by: Non-profit organizations to show the flow of cash during a period.
2. Income and Expenditure Account
   • Purpose: Measures the surplus or deficit of the club or society for the period, considering both cash and non-cash items.
   • Nature: Accrual-based, includes income earned and expenses incurred, not just cash transactions.
   • Format:
     • Income: Revenue from activities (e.g., subscriptions, donations, sales).
     • Expenditure: Costs of running the organization (e.g., salaries, rent).
   • Used by: Clubs and societies to show the actual financial performance.

Accumulated Fund

• Definition: The total accumulated surplus (or deficit) of the club or society since its inception.
• Calculation: The accumulated fund is the balance of retained earnings from the income and expenditure account, transferred to the statement of financial position.

Formula:

• Accumulated Fund = Opening Fund + Surplus (Deficit) – Transfers to Fund

Key Accounts for Clubs and Societies

1. Receipts and Payments Account
   • Format:
     • Receipts: Subscriptions, donations, grants, fundraising, etc.
     • Payments: Expenses, purchases, salaries, etc.
   • Used to track: Cash inflows and outflows during the period.
2. Trading and Revenue-Generating Activities
   • Purpose: Accounts for activities that generate income for the club (e.g., sales of merchandise, ticket sales).
   • Key components: Sales revenue, cost of goods sold, gross profit.
3. Subscriptions Account
   • Purpose: Tracks membership subscriptions received.
   • Example: If subscriptions are paid for the following year, it must be recorded as unearned revenue or income in advance.
4. Income and Expenditure Account
   • Purpose: To calculate the net surplus or deficit of the club or society over the period.
   • Includes:
     • Income: Subscriptions, donations, fundraising, interest.
     • Expenditure: Salaries, rent, utilities, equipment maintenance, etc.
5. Statement of Financial Position (Balance Sheet)
   • Purpose: Shows the financial position of the club or society at a particular point in time.
   • Components:
     • Assets: Cash, equipment, investments, etc.
     • Liabilities: Loans, creditors, etc.
     • Equity: Accumulated fund (Net worth of the club).

Accounting for Other Receipts

1. Life Memberships
   • Treatment: Life membership fees are often recorded as deferred income or capital and recognized as income over the life of the membership.
   • Example: A life member pays a large sum for lifetime membership, which is spread over several years.
2. Donations
   • Treatment: Donations are recorded as income in the receipts and payments account. If specific donations are for capital purposes, they may be recorded separately under the capital fund.

Adjustments to Financial Statements (1.5.1)

• Accruals and Prepayments: Adjust for income or expenses that are accrued or prepaid in the current year but belong to the next accounting period. This ensures financial statements reflect income and expenses when they are earned or incurred, not just when cash changes hands.
  • Example: Subscription income received for the next period should be treated as income in advance.
• Irrecoverable Debts: If any debts (e.g., subscriptions or donations) are considered irrecoverable, they should be written off and deducted from the income.
  • Example: Unpaid membership fees from members who have left should be written off as bad debts.
• Depreciation: Non-current assets (e.g., buildings, equipment) should be depreciated annually. The depreciation expense is recorded in the income and expenditure account, and the accumulated depreciation is reflected in the statement of financial position.
  • Example: Depreciation on equipment should be adjusted to reflect the asset’s value reduction over time.

Sources of Finance and Fundraising

1. Fundraising Activities: Clubs and societies often rely on events or activities to raise funds.
   • Examples: Charity events, auctions, sports tournaments, etc.
2. Grants and Donations: Clubs and societies can receive funds from:
   • Government grants or subsidies.
   • Private donations or sponsorships.
3. Loans: If needed, clubs may take out loans to finance specific projects (e.g., building a new facility). However, this must be carefully managed as it could create future liabilities.
4. Membership Fees and Subscriptions: Regular payments by members contribute to the ongoing operations and funding of the organization.

Summary

1. Receipts and Payments Account tracks cash flows, while the Income and Expenditure Account measures the financial performance of the organization on an accrual basis.
2. Accumulated fund represents the surplus or deficit from previous periods, which is carried forward.
3. Clubs and societies also need to account for non-cash transactions like life memberships, donations, and adjustments for prepayments and accruals.
4. Proper fundraising strategies and sources of finance (such as grants, loans, and member contributions) are crucial for the ongoing success of non-profit organizations.