IGCSE Accounting Ch 18: Clubs and Societies

Cambridge IGCSE Accounting

Clubs and Societies

This chapter explains how non-profit organisations prepare accounting records, including receipts and payments accounts, income and expenditure accounts, surplus and deficit, accumulated fund, subscriptions, subscriptions in arrears, subscriptions in advance, trading activities and year-end adjustments.

Non-profit organisationsTreasurerReceipts & paymentsIncome & expenditureSurplus / deficitAccumulated fundSubscriptionsNo drawings

Clubs and societies overview with key accounting terms

Topic 1: Club and Society Basics

Clubs and societies are normally non-profit organisations, so they use some accounting terms differently from ordinary businesses.

1. What are Clubs and Societies?

Clubs and societies are usually non-profit organisations. Their main aim is to provide services or facilities for members rather than make profit for owners.

Examples include:

Sports clubs

Provide sporting facilities for members.

Drama clubs

Provide performance and social activities.

Social clubs

Provide social facilities and events.

Charities

Use funds for organisational aims.

Recreation clubs

Provide leisure facilities.

They may still earn money from activities such as cafés, shops or fundraising events, but this money is used for the organisation rather than distributed to owners.

2. Treasurer

The person responsible for maintaining the accounting records of a club or society is normally the treasurer.

Records money received.
Records payments.
Maintains accounting records.
Helps ensure funds are properly controlled.

Proper accounting records are important because clubs may handle large amounts of money and need to guard against fraud.

3. Sources of Income

Common sources of money for clubs and societies include:

Members’ subscriptions

Regular membership fees.

Donations

Money given to support the club.

Entrance fees

Amounts charged to join or enter activities.

Fundraising activities

Events organised to raise funds.

Competition income

Receipts from competitions.

Café/shop sales

Income from club trading activities.

Rent received

Income from letting facilities.

A subscription is a fee paid regularly by members in order to belong to the organisation.

4. Special Accounting Terms

A club uses slightly different terminology from a profit-making business.

Profit-making Business	Club or Society
Profit for the year	Surplus of income over expenditure
Loss for the year	Deficit / excess of expenditure over income
Capital	Accumulated fund
Cash book summary	Receipts and payments account
Income statement	Income and expenditure account

Topic 2: Receipts and Payments vs Income and Expenditure

The receipts and payments account is based on cash movement. The income and expenditure account is based on the current year’s income and expenses.

Receipts and payments compared with income and expenditure account

5. Receipts and Payments Account

A receipts and payments account is a summary of the cash book.

Debit side

All money received, such as subscriptions received, donations, entrance fees, fundraising receipts and sale of equipment.

Credit side

All money paid, such as rent, electricity, wages, purchase of equipment and general expenses.

6. Important Features of Receipts and Payments Account

Includes

Capital receipts.
Revenue receipts.
Capital payments.
Revenue payments.

Does not include

Depreciation.
Accrual adjustments.
Prepayment adjustments.
Other non-cash items.

It simply records actual cash and bank transactions.

Example
Opening cash = $2,000
Subscriptions received = $8,000
Donations = $5,000
Rent paid = $3,000
Equipment purchased = $4,000
Closing cash = $2,000 + $8,000 + $5,000 − $3,000 − $4,000 = $8,000

7. Income and Expenditure Account

The income and expenditure account is similar to the income statement of a business. It records only the income and expenses relating to the current financial year.

Included

Accruals are included.
Prepayments are adjusted.
Depreciation is included.

Excluded

Capital receipts and capital expenditure are excluded.

8. Surplus and Deficit

Surplus

If Income > Expenditure, the organisation has a surplus of income over expenditure.

Deficit

If Expenditure > Income, the organisation has a deficit or excess of expenditure over income.

Example
Income = $20,000; expenditure = $15,000.
Surplus = $20,000 − $15,000 = $5,000.
If expenditure were $23,000, deficit = $23,000 − $20,000 = $3,000.

9. Receipts and Payments vs Income and Expenditure

Receipts & Payments	Income & Expenditure
Based on cash received and paid.	Based on income earned and expenses incurred.
Includes capital items.	Excludes capital items.
No depreciation.	Includes depreciation.
No accrual adjustments.	Includes accruals.
No prepayment adjustments.	Includes prepayments.
Similar to cash book.	Similar to income statement.
Shows opening/closing cash or bank.	Shows surplus or deficit.

Topic 3: Revenue-Generating Activities and Accumulated Fund

Clubs may run activities to raise money, and any surplus affects the accumulated fund.

Club revenue generating activity trading account flow

10. Revenue-Generating Activities

A club may operate activities specifically to raise money.

Café

May prepare a trading account.

Shop

Sells goods to raise money.

Competition

Receipts can help fund the club.

Fundraising event

Organised to raise funds.

A trading account may be prepared to calculate the profit or loss from such an activity. The resulting profit is then transferred to the income and expenditure account.

11. Café Trading Account Example

Suppose café sales are $4,000, opening inventory is $460, purchases are $1,340, closing inventory is $500 and café wages are $2,000.

Café Trading Account Working

Café sales$4,000

Cost of goods sold: $460 + $1,340 − $500($1,300)

Café wages($2,000)

Café profit transferred to income and expenditure account$700

Accumulated fund formula and surplus or deficit effect

12. Accumulated Fund

A club has no owners’ capital because it does not have owners in the same way as a sole trader. Instead, it has an accumulated fund.

Accumulated Fund = Assets − Liabilities

The accumulated fund represents the surpluses accumulated by the organisation over time.

Example
Assets: clubhouse $20,000, equipment $8,000, bank $2,000.
Total assets = $30,000.
Liabilities = $5,000.
Accumulated fund = $30,000 − $5,000 = $25,000.

13. Effect of Surplus and Deficit

Surplus

A surplus increases the accumulated fund.

Deficit

A deficit decreases the accumulated fund.

Example
Opening accumulated fund = $30,000; surplus = $5,000.
Closing accumulated fund = $30,000 + $5,000 = $35,000.
If instead there were a deficit of $4,000: $30,000 − $4,000 = $26,000.

14. Statement of Financial Position

The statement of financial position of a club is similar to that of a sole trader. Instead of capital, it shows the accumulated fund.

Non-current assets

Clubhouse, equipment and furniture.

Current assets

Inventory, subscriptions owing, bank and cash.

Liabilities

Trade payables, accrued expenses and subscriptions received in advance.

Topic 4: Subscriptions

Subscriptions often need adjustments because cash received may not equal subscription income for the current year.

Subscription income formula with arrears and advance adjustments

15. Subscriptions

Subscriptions often require adjustments because the cash received during the year may not equal the amount that belongs to that year.

Subscriptions in arrears

Members owe the club money for the current year.

Subscriptions in advance

Members have paid this year for a future membership period.

A subscriptions account is prepared to calculate the correct subscription income.

16. Subscriptions in Arrears

Subscriptions in arrears are amounts members should have paid for the current year but have not yet paid.

They are included as income for the current year.
They are shown as a current asset.
This is because members owe money to the club.

Example
Subscriptions received = $10,000
Subscriptions owing at year end = $500
Subscription income = $10,000 + $500 = $10,500

17. Subscriptions in Advance

Subscriptions in advance are amounts received this year that relate to the next financial year.

They are excluded from current year’s subscription income.
They are shown as a current liability.
This is because the club has received payment before the membership period is due.

Example
Subscriptions received = $10,000
Included in this is $700 for next year.
Subscription income = $10,000 − $700 = $9,300

18. Subscription Income Formula

Using the subscriptions account shown in the chapter, a useful calculation is:

Subscriptions for the year = Cash received + Closing arrears − Opening arrears + Opening advance − Closing advance

Example
Cash received = $12,000
Opening arrears = $500; closing arrears = $700
Opening advance = $300; closing advance = $400
Subscriptions for current year = $12,000 + $700 − $500 + $300 − $400 = $12,100

The resulting amount is transferred to the income and expenditure account. The chapter’s subscriptions account shows how opening and closing arrears and advance payments are treated.

19. Subscriptions – Statement of Financial Position

Subscription Adjustment	Treatment
Subscriptions in arrears	Current asset
Subscriptions in advance	Current liability

Easy rule: Members owe club → Asset. Club owes membership/service → Liability.

Topic 5: Year-End Adjustments, No Drawings and Exam Guide

Clubs make many of the same year-end adjustments as businesses, but members cannot take drawings.

20. Year-End Adjustments

Clubs make many of the same adjustments as businesses, including:

Depreciation

Included in the income and expenditure account.

Accrued expenses

Added to the current year’s expense.

Prepaid expenses

Deducted from the current year’s expense.

Closing inventory

Used where relevant, such as club trading activities.

Subscriptions

Arrears and advance amounts must be adjusted.

The important additional area is subscriptions, where amounts in arrears and in advance must also be adjusted.

21. No Drawings

Members of a club are not owners. Therefore, they cannot make drawings from the organisation.

Any surplus belongs to the organisation and remains within its accumulated fund.

Quick Comparison

Sole Trader	Club/Society
Profit-making organisation	Non-profit organisation
Owner	Members
Capital	Accumulated fund
Profit	Surplus
Loss	Deficit
Income statement	Income and expenditure account
Cash book	Receipts and payments account
Drawings possible	No drawings

Key Terms

Club or society

Usually a non-profit organisation providing services or facilities for members.

Treasurer

Person responsible for maintaining the club’s accounting records.

Subscription

A fee paid regularly by members to belong to the organisation.

Receipts and payments account

A summary of the cash book showing actual money received and paid.

Income and expenditure account

Statement showing current year income and expenditure.

Surplus

Income greater than expenditure.

Deficit

Expenditure greater than income.

Accumulated fund

Assets minus liabilities; the fund built up by the club.

Subscriptions in arrears

Amounts members owe for the current year.

Subscriptions in advance

Amounts received this year for a future period.

Remember

Receipts and Payments
Actual cash received and paid.
Includes capital and revenue items.
Does not include depreciation, accruals or prepayments.

Income and Expenditure
Current year’s income − current year’s expenditure.
Includes accruals, prepayments and depreciation.

Subscription arrears → Current AssetSubscription advance → Current LiabilityAccumulated Fund = Assets − LiabilitiesSurplus increases accumulated fundDeficit decreases accumulated fund