Clubs And Societies (Copy)

Chapter 23: Non-Profit Making Organisations (Clubs and Societies)

Introduction to Non-Profit Making Organisations

• Definition: Non-profit organisations exist primarily to serve members or causes rather than to generate profit.
• Examples include charities (Oxfam, WWF) and local clubs (sports clubs, social groups, community organizations).
• Objectives:
  • Provide services and activities for members.
  • Generate sufficient funds to maintain operations.
  • Ensure financial transparency to prevent mismanagement.

23.1 Special Features of Non-Profit Organisation Accounts

• Key Differences from Trading Businesses:
  • Use Income and Expenditure Account instead of a Profit or Loss Account.
  • Instead of “profit,” they report a surplus of income over expenditure.
  • Instead of “loss,” they report an excess of expenditure over income.
  • Use Accumulated Fund instead of a Capital Account.
  • Receipts and Payments Account functions like a bank account.
  • Subscriptions (membership fees) replace traditional revenue.

23.2 Receipts and Payments Account

• Definition: A summary of cash received and cash paid during a financial period.
• Structure:

  Receipts:
  - Subscriptions
  - Donations
  - Event Income
  - Grants Received
  Payments:
  - Rent and Utilities
  - Equipment Purchases
  - Salaries and Wages
  - Administrative Costs
  

• Key Features:
  • Only records cash movements, not accrual-based income/expenses.
  • Cannot determine surplus or deficit since it ignores outstanding liabilities and prepaid income.

23.3 Income and Expenditure Account

• Similar to a Profit and Loss Account but used by non-profit entities.
• Prepared on an accrual basis, recognizing income when earned and expenses when incurred.
• Format:

  Income:
  - Subscriptions (adjusted for arrears and advances)
  - Donations
  - Event Income
  - Shop/Bar Profit
  - Grants
  Expenses:
  - Rent & Utilities
  - Staff Salaries
  - Depreciation
  - Equipment Maintenance
  Surplus/Deficit = Total Income - Total Expenses
  

• Example Calculation:

  Subscriptions Earned = Subscriptions Received + Arrears at Year Start - Arrears at Year End - Prepaid at Year Start + Prepaid at Year End
  

23.4 Accumulated Fund and Statement of Financial Position

• Equivalent to the capital account in trading businesses.
• Opening Accumulated Fund Calculation:

  Accumulated Fund = Assets - Liabilities (from previous year)
  

• Statement of Financial Position Format:

  Assets:
    - Cash and Bank
    - Equipment (after depreciation)
    - Receivables (subscriptions in arrears)
  Liabilities:
    - Payables (expenses due)
    - Subscriptions received in advance
  Accumulated Fund:
    - Opening Fund
    - Add: Surplus from Income and Expenditure
    - Less: Deficit from Income and Expenditure
  

23.5 Subscriptions Account

• Definition: Records membership fees, whether paid in advance, overdue, or current.
• Worked Example:
  • Subscription Fee: $50 per member.
  • Members at Start: 100
  • Members in Arrears: 5
  • Members Paid in Advance: 10
  • New Members: 20
  • Subscriptions Received: $6,500
  • Calculation:

    Subscriptions Earned = Subscriptions Received + Arrears at Start - Arrears at End - Prepaid at Start + Prepaid at End
    

23.6 Life Memberships and Entry Fees

• Life Memberships:
  • Paid as a lump sum but recognized over multiple years (e.g., spread over 10 years).
  • Journal Entry:

    Debit: Bank (Cash Received)
    Credit: Life Membership Account (Liability)
    

    • Each year, a portion is transferred to the Income and Expenditure Account.

    Debit: Life Membership Account
    Credit: Income and Expenditure Account
    

• Entry Fees:
  • One-time fees paid by new members.
  • Can be recognized fully in the year received or spread over multiple years.

23.7 Specific Donations and Fundraising Events

• Types of Donations:
  • General Donations – Added to general income.
  • Specific Donations – Reserved for a particular purpose (e.g., building renovations).
• Treatment in Accounts:
  • General donations recorded in the Income and Expenditure Account.
  • Specific donations placed in a restricted account and transferred when used.
• Event Income:
  • Clubs may organize social events (dinners, quizzes) as fundraising activities.
  • The profit/loss from these activities is included in the Income and Expenditure Account.

23.8 Bar, Shop, and Trading Accounts for Clubs

• Some clubs operate bars, shops, or cafeterias.
• Separate Trading Account is required:

  Revenue (Sales)
  - Cost of Sales (Opening Inventory + Purchases - Closing Inventory)
  --------------------
  Gross Profit
  - Expenses (Salaries, Rent, Utilities)
  --------------------
  Net Profit (Transferred to Income and Expenditure Account)
  

23.9 Worked Example – Complete Financial Statements

• Given:
  • Subscriptions Received: $5,000
  • Subscriptions in Arrears (Start): $200
  • Subscriptions in Arrears (End): $300
  • Subscriptions in Advance (Start): $150
  • Subscriptions in Advance (End): $250
  • Total Expenses: $4,500
• Income and Expenditure Account Calculation:

  Subscription Income = 5,000 + 200 - 300 - 150 + 250 = $5,000
  

  Surplus = 5,000 - 4,500 = $500
  

Conclusion

• Non-profit organisations require different accounting treatment due to their unique structure.
• Receipts and Payments Accounts track cash flow, while Income and Expenditure Accounts determine financial performance.
• Accumulated Fund functions as capital, ensuring sustainability.
• Clubs must maintain accurate records of subscriptions, donations, and trading activities to support financial transparency and decision-making.