Home Notes Papers

Clubs and societies

Paper 1 – Multiple ChoicePaper 2 – Structured Written Paper

This section is examined in Paper 1 and Paper 2.

The Non-Profit Context
Clubs and societies are not-for-profit organizations. Their primary goal is to provide services to members, not to generate profit for owners. Therefore, they do not produce a 'Profit or Loss' account. Instead, they use an Income and Expenditure Account to show the surplus (excess of income over expenditure) or deficit for the year.

This topic connects to Sole Trader accounts because clubs often have revenue-generating activities (like a café or refreshment stall) that must be accounted for separately from the main club funds. Building on the concept of double-entry bookkeeping, we use specific accounts to track cash flows and accruals.

Receipts and Payments Account

A Receipts and Payments Account is a summary of the cash book for the year. It records all money received (receipts) and all money paid out (payments), regardless of whether the cash relates to the current accounting period or not.

  • Nature: It is essentially a Balance Sheet item at its core (Cash/Bank), but presented as an income statement format for summary purposes.
  • Basis: Cash basis. It ignores accruals and prepayments.
  • Includes: Opening bank balance, all cash inflows/outflows, closing bank balance.
Preparing the Receipts and Payments Account (LO 2)

To prepare this account, you extract data directly from the Trial Balance or List of Transactions. Follow these steps:

  1. Identify Cash/Bank Items: Look for any item involving 'Cash', 'Bank', 'Cheque', or 'Loan' (if it involves cash movement). Ignore non-cash items like depreciation.
  2. Ignore Accruals/Prepayments: Do not adjust for amounts owed but not yet paid, or paid in advance. If rent was paid for next year, record the full payment here.
  3. Classify Receipts (Debit Side):
    • Opening Bank Balance (if any).
    • Subscriptions received.
    • Entrance fees received.
    • Proceeds from sale of assets.
    • Income from revenue-generating activities (e.g., café sales).
  4. Classify Payments (Credit Side):
    • Expenses paid (rent, insurance, wages).
    • Purchase of non-current assets (equipment, furniture).
    • Loan repayments.
  5. Balance the Account: The difference between total receipts and total payments is the Closing Bank Balance. This figure must match the bank balance in the Statement of Financial Position.
Example: Preparing Receipts and Payments Account
Scenario: The Greenfield Tennis Club has the following transactions for the year ended 31 December 2024:

  • Bank balance at 1 Jan 2024: 500</li> <li>Subscriptions received:2,000
  • Rent paid (including 200 for next year):800
  • Insurance paid: 300</li> <li>Purchase of new rackets:600
  • Entrance fees received: 100</li> </ul> <p><strong>Preparation:</strong></p> <table> <thead> <tr> <th style="text-align:left">Receipts and Payments Account for the year ended 31 Dec 2024</th> <th style="text-align:left"> </th> </tr> </thead> <tbody> <tr> <td style="text-align:left"><strong>Receipts (Debit Side)</strong></td> <td style="text-align:left"></td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Bank balance b/d</td> <td style="text-align:left">500</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Subscriptions received</td> <td style="text-align:left">2,000</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Entrance fees received</td> <td style="text-align:left">100</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left"><strong>Total Receipts</strong></td> <td style="text-align:left"></td> <td style="text-align:left"><strong>2,600</strong></td> </tr> <tr> <td style="text-align:left"><strong>Payments (Credit Side)</strong></td> <td style="text-align:left"></td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Rent paid</td> <td style="text-align:left">800</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Insurance paid</td> <td style="text-align:left">300</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Purchase of rackets (Non-current asset)</td> <td style="text-align:left">600</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Bank balance c/d (Balancing figure)</td> <td style="text-align:left">900</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left"><strong>Total Payments</strong></td> <td style="text-align:left"></td> <td style="text-align:left"><strong>2,600</strong></td> </tr> </tbody> </table> <p><em>Note: The full800 rent is paid here. The $200 prepaid portion is adjusted later in the Income and Expenditure Account.
⚠︎ Receipts and Payments Errors
Mistake 1: Including Non-Cash Items. Students often include depreciation or irrecoverable debts in the Receipts and Payments Account. These are accounting adjustments, not cash movements, so they must be excluded.

Mistake 2: Incorrect Classification of Asset Purchases. When a club buys equipment (e.g., computers), students sometimes list it as an 'Expense' on the payments side. While it is a payment, it is crucial to label it clearly as 'Purchase of Non-Current Assets' or 'Equipment' so the examiner knows you understand it is a capital expenditure, not a revenue expense.

Mistake 3: Ignoring Opening Balance. If the club had money in the bank at the start of the year, it must be included on the Receipts side. Forgetting this leads to an incorrect closing balance.

Income and Expenditure Account

The Income and Expenditure Account is the equivalent of the Profit or Loss Account for a sole trader. It records income and expenses on an accruals basis (matching principle) to determine the surplus or deficit for the year.

  • Income Side: Records income earned in the current year, regardless of when cash was received.
  • Expenditure Side: Records expenses incurred in the current year, regardless of when cash was paid.
  • Result: If Income > Expenditure = Surplus. If Expenditure > Income = Deficit.
Adjusting Subscriptions (LO 1 & 5)
Subscriptions are the main income source for clubs. To find the correct amount for the Income and Expenditure Account, you must adjust the cash received using accruals and prepayments.

The Logic:

  • Accrued Subscriptions (Arrears): Money owed by members for the current year but not yet paid. This is Income earned but not received. Add to cash received.
  • Prepaid Subscriptions (Advance): Money paid by members for next year. This is Cash received but not earned. Subtract from cash received.

Formula:
\text{Income for I&E} = \text{Subscriptions Received} + \text{Opening Accruals} - \text{Closing Accruals} + \text{Closing Advance} - \text{Opening Advance}

Note: Opening Accruals are added because they were received in cash last year but relate to this year. Closing Advances are added because they are paid in cash this year but relate to next year.

Example: Subscriptions Account and I&E Adjustment

Scenario:

  • Subscriptions received during 2024: 5,000</li> <li>Accrued subscriptions at 1 Jan 2024 (owed from 2023):200
  • Prepaid subscriptions at 1 Jan 2024 (paid in advance for 2024): 100</li> <li>Accrued subscriptions at 31 Dec 2024 (owed for 2024):300
  • Prepaid subscriptions at 31 Dec 2024 (paid for 2025): 150</li> </ul> <p><strong>Step 1: Prepare the Subscriptions Ledger Account</strong></p> <table> <thead> <tr> <th style="text-align:left">Subscriptions Account</th> <th style="text-align:left"> </th> </tr> </thead> <tbody> <tr> <td style="text-align:left">Jan 1 Balance b/d (Op Accrual)</td> <td style="text-align:left">200</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Bank (Cash Received)</td> <td style="text-align:left">5,000</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Dec 31 Income & Expenditure (Plug figure)</td> <td style="text-align:left"><strong>4,950</strong></td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left">Dec 31 Balance c/d (Cl Advance)</td> <td style="text-align:left">150</td> <td style="text-align:left"></td> </tr> <tr> <td style="text-align:left"><strong>Total</strong></td> <td style="text-align:left"><strong>5,350</strong></td> <td style="text-align:left"><strong>5,350</strong></td> </tr> </tbody> </table> <p><em>Calculation of Plug Figure:</em> Total Debits =5,200. Total Credits must be 5,200. We credit the Closing Advance (150) because it is a liability (money owed to members for future service). The remaining balance is transferred to I&E.

    Step 2: Impact on Financial Statements

    • Income and Expenditure Account: Shows 4,950 as Income.</li> <li><strong>Statement of Financial Position (Current Assets):</strong> Accrued subscriptions (300) are listed under Current Assets.
    • Statement of Financial Position (Current Liabilities): Prepaid subscriptions ($150) are listed under Current Liabilities.
Handling Revenue-Generating Activities (LO 3)
Context: Clubs often run side businesses like refreshment stalls, cafés, or raffles. These are treated as separate Surplus Accounts.

Examiner Expectation: When asked to prepare the account for a revenue-generating activity (e.g., 'Prepare the Refreshments Account'), you must calculate the Gross Profit of that specific activity, not just list income and expenses.

Correct Usage:

  1. Calculate Cost of Sales: \text{Opening Inventory} + \text{Purchases} - \text{Closing Inventory}.
  2. Deduct Cost of Sales from Revenue to get Gross Profit.
  3. Deduct direct expenses (e.g., wages for the stall) to get the Surplus.

Why this is accepted: Examiners look for the calculation of Gross Profit to ensure you understand that inventory adjustments are critical for trading accounts, even within a non-profit context. Failing to deduct closing inventory from purchases is a common error that inflates costs and reduces the surplus incorrectly.

Adjusting Expenses (LO 5)

Expenses in the Income and Expenditure Account must be adjusted for accruals and prepayments.

1. Accrued Expenses (Outstanding):

  • Expense incurred but not yet paid.
  • Action: Add to the expense in I&E. List as a Current Liability in SOFP.

2. Prepaid Expenses:

  • Expense paid in advance for next year.
  • Action: Deduct from the expense in I&E. List as a Current Asset in SOFP.

3. Depreciation:

  • Non-cash expense. It is never in the Receipts and Payments Account.
  • Action: Record in I&E. Deduct from the asset value in SOFP (or use Accumulated Depreciation).
Accumulated Fund

The Accumulated Fund is the equivalent of 'Capital' or 'Owner's Equity' in a sole trader business. It represents the total net assets of the club at any given time.

  • Definition: The total of all past surpluses less all past deficits accumulated over the life of the club.
  • Formula (SOFP): \text{Accumulated Fund} = \text{Total Assets} - \text{Total Liabilities}.
  • Movement:
    • Opening Accumulated Fund
    • Add: Surplus for the year (from I&E Account)
    • Less: Deficit for the year (from I&E Account)
    • Equals: Closing Accumulated Fund
Example: Preparing the Statement of Financial Position

Scenario:

  • Opening Accumulated Fund: 10,000</li> <li>Surplus for the year (from I&E):2,500
  • Non-Current Assets (Equipment): 8,000</li> <li>Current Assets: Inventory500, Accrued Income 200, Bank1,300
  • Current Liabilities: Accrued Expenses 400, Prepaid Income100

Preparation:

Statement of Financial Position as at 31 Dec 2024 </th> <th style="text-align:left">
Non-Current Assets
Equipment 8,000
Current Assets
Inventory 500
Accrued Income 200
Bank 1,300
Total Current Assets 2,000
Total Assets 10,000
Equity and Liabilities
Accumulated Fund
Balance b/d 10,000
Add: Surplus for the year 2,500
Balance c/d 12,500
Current Liabilities
Accrued Expenses 400
Prepaid Income (Income received in advance) 100
Total Current Liabilities 500
Total Equity and Liabilities 13,000

Wait! The totals do not match. Let's re-check the logic.

Correct Logic for SOFP:

  1. Calculate Net Assets: \text{Assets} - \text{Liabilities}.
    • Total Assets = 8,000 + 2,000 = 10,000.
    • Total Liabilities = 500.
    • Net Assets = 9,500.
  2. Calculate Accumulated Fund:
    • Opening Fund: 10,000.
    • Add Surplus: 2,500.
    • Closing Fund: 12,500.

Discrepancy Check: In this example, the Net Assets (9,500) do not equal the Accumulated Fund (12,500). This implies an error in the scenario data provided. In a real exam, Net Assets MUST equal Accumulated Fund. If they don't, check your asset/liability classifications.

Corrected Scenario for Balance: Let's assume Opening Fund was 7,500.

  • Closing Fund = 7,500 + 2,500 = 10,000.
  • Net Assets = 9,500. Still off. Let's adjust Bank to 1,800.
  • Total Current Assets = 500+200+1800 = 2,500.
  • Total Assets = 10,500.
  • Net Assets = 10,500 - 500 = 10,000.
  • Matches!
⚠︎ Accumulated Fund and SOFP Errors
Mistake 1: Confusing Accumulated Fund with Cash. Students often think the Accumulated Fund is the bank balance. It is not. It is the net worth of the club. The bank balance is just one asset.

Mistake 2: Incorrect Classification of Prepaid Income. In the SOFP, 'Income Received in Advance' (Prepaid Income) is a Liability, not an Asset. Students often list it under Current Assets because it involves cash. Remember: If you owe service to someone, it is a liability.

Mistake 3: Forgetting to Add Surplus. When calculating the Closing Accumulated Fund, students often just copy the Opening Fund. You must add the Surplus (or subtract Deficit) from the Income and Expenditure Account.

Justifying Funding Decisions (LO 4)
Context: You may be asked to advise the treasurer on whether to increase subscriptions to fund new equipment.

Examiner Expectation: Provide balanced arguments (For and Against) based on financial and non-financial factors.

Correct Usage:

  • For: 'Increasing subscriptions provides internal funding, avoiding interest costs associated with loans.' or 'The club has a surplus, indicating it can afford the increase without external borrowing.'
  • Against: 'An increase in subscriptions may lead to a loss of members who cannot afford it.' or 'Subscriptions are often fixed by committee and may not be flexible enough for large capital purchases.'

Why this is accepted: Examiners reward critical thinking. Simply saying 'Yes' or 'No' is insufficient. You must link the financial data (surplus/deficit) to the strategic decision.

Common Exam Questions
Q:
Define the term 'Accumulated Fund'.
A:
The total of all past surpluses less all past deficits accumulated over the life of the club. OR Total assets less total liabilities.
Q:
State two items that appear in the Receipts and Payments Account but not in the Income and Expenditure Account.
A:
  1. Purchase of non-current assets (e.g., equipment). 2. Opening bank balance. (Or any cash item related to prior/future years).
Q:
Calculate the amount of subscriptions to be included in the Income and Expenditure Account for the year ended 31 December 2024.
Data: Subscriptions received 5,000; Accrued at 1 Jan200; Prepaid at 1 Jan 100; Accrued at 31 Dec300; Prepaid at 31 Dec $150.
A:
Subscriptions received: 5,000<br>Add: Opening Accruals: +200
Less: Opening Prepayments: -100<br>Add: Closing Prepayments: +150
Less: Closing Accruals: -300<br>Total Income for I&E: <strong>4,950
Q:
Prepare the Refreshments Account for the year ended 31 Dec 2024.
Data: Sales 2,000; Opening Inventory200; Purchases 800; Closing Inventory150; Wages $300.
A:
Refreshments Account
Sales: 2,000<br>Less: Cost of Sales<br>Opening Inventory:200
Purchases: 800<br>Less: Closing Inventory: (150)
Cost of Sales: (850)<br>Gross Profit:1,150
Less: Wages: (300)<br>Surplus from Refreshments: <strong>850
Beta v0.7.8 Free while we're in beta — it transitions to paid post launch. Thank you for supporting us at this stage!