accounting for club and society

Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2005

Accounting for Club and Society


Explain the types of organizations included under club and society

Prepare the financial statements of the club and society


Operated without the intention of making profits.

Main function: provide facilities to its members. For examples: Bowling Club, Football Club, and Golf Club.

Some clubs and societies may run a café or a restaurant with the intention of getting extra income.


Non-profit organizations obtain their revenue from several sources of income.

However, similar to trading concerns, it is important to distinguish between revenue and capital income.


Capital Income Revenue Income

Involve the receipts of asset that will increase the capital. For instance, donation (if stated for capital purposes).

Involve the receipts of income for one accounting year, such as subscription fees, entrance fees, visitors’ fees, locker fees, donations, and gross trading profits from café or restaurant.

Capital income will be shown as liability in the balance sheet.

Revenue income will be credited in the income and expenditure account.


There are two types of expenditures which are:capital expenditure revenue expenditure


Capital Expenditure Revenue Expenditure

Payment is made to

purchase assets such as

vehicle and office

equipment that will be

used to generate income

for the club.

Payment made for assets

and services to run daily

activity, such as rent,

wages, and insurance.

Assets are used for many

years.

Assets are used in that

accounting period.

Example: stationery.


Capital Expenditure Revenue Expenditure

Assets can be depreciated. Assets cannot be

depreciated.

These assets will be

shown as fixed assets in

the balance sheet.

These expenditure will be

debited in income and

expenditure account.

Capital expenditure will

not affect business profit.

Revenue expenditure

reduces business profit.


The organizations do not have trading and income statement drawn up for them, as their main purpose is not trading or profit oriented.

The final accounts prepared are:Receipts and Payments accounts, and Income and Expenditure accounts.A Balance Sheet, if they possess assets

other than cash.


Profit Making Organization

Non-Profit Making Organization

Cash Account Receipts and Payments Account

Trading and Income Statement Income and Expenditure Account

Net Income Surplus of Income over Expenditure

Net Loss Excess of Expenditure over Income

Capital Accumulated Fund


Equivalent to a cash book. Prepared for the purpose of

summarizing the cash transaction during the reporting period.

Any receipts obtained during the period are debited to the Receipts and Payments Account.

Any payments made during the period are credited to the Receipts and Payments Account.

Distinction between the capital and revenue items is not required.


FPK Bowling ClubReceipts and Payments Account

For the year ended 31 December 2004

Receipts: RM Payments: RMBank/Cash balance 350 Committee expense 200Subscriptions received 810 Printing and stationery 210Rent received 250 Utilities expense 150Donation received 150 Donation allowed 150Rent expense 140 Heat and light expense 110

Bank/Cash balance 600

1,560 1,560


Prepared for recording all the revenue income earned and revenue expenditures incurred in the current year.

This account is similar to the trading and income statement of a trading concern.

Possible sources of income to be credited to the Income and Expenditure accounts are:subscription fees,entrance fees,visitors’ fees, locker fees,donations, and gross trading profits from café or

restaurant.


The possible types of expenditures to be debited to the Income and Expenditure accounts are: rent for club building, staff wages, honorarium, and insurance.


The difference between total income and total expenditure can be either:Surplus of Income over Expenditure

(income is greater than expenditure)Excess of Expenditure over Income

(expenditure is greater than income)


FPK Bowling ClubIncome and Expenditures Account

For the year ended 31 December 2004 RM RM

Income:Subscription fees 8,500Entrance fees 1,750Locker fees 930Donations received 2,050Profits from café or restaurant – sales 3,840 17,070

Less: Expenditure:Rent for club building 1,200Staff wages 6,500Honorarium 2,100Insurance 2,700 (12,500)

Surplus of Income over Expenditure 4,570


When cash is received from members, the double entry would be:

Debit Cash XX Credit Subscriptions Account

XX

Only the subscriptions received relating to the payment of the current year is transferred to the Income and Expenditure account.

Payments in advance will be reported in the balance sheet as a current liability.

However, if the members have not paid the subscriptions until the end of the accounting period, it will be shown in the balance sheet as a current asset under the heading of ‘Subscriptions in Arrears’ or ‘Accrued Subscriptions’.


Subscriptions

2004 RM 2004 RM

Beginning balance (arrears/accrued)

XX Beginning balance (advance/unearned)

XX

Income and Expenditure account

XX Receipts and Payments account

XX

Ending balance (advance/unearned)

XX Ending balance (arrears/accrued)

XX


The FPK Bowling Club charges its members an annual subscription of RM30 per member. It accrues for subscriptions owing at the end of each year and also adjusts for subscriptions received in advance. The following transactions are discovered at the end of the year:

On 1 January 2004, 15 members owed RM450 for the year 2003. On 31 December 2003, 6 members paid RM180 for the year 2004. During the year 2004, we received cash for subscriptions RM11,130.

RMFor 2003 540For 2004 10,380For 2005 210

11,130 At the end of 31 December 2004, 17 members had not paid their

2004 subscriptions.

REQUIRED:Based on the above information, prepare the subscriptions account for the year ended 31 December 2004 of the FPK Bowling Club.


Subscriptions

2004: 2004:

1 January Beginning balance [Accrued Revenue (i)]

450 1 January Beginning balance (Unearned) (ii)

180

31 December Income & Expenditure

*11,160 31 December Cash (iii) 11,130

31 December Ending balance (Unearned) (iii)

210 31 December Ending balance (Accrued Revenue) (iv)

510

11,820 11,820

2005: 2005:

1 January Beginning balance (Accrued Revenue) (iv)

510 1 January Beginning balance (Unearned) (iii)

210


Members can enjoy the facilities of the clubs and become members for life by paying certain lump sum subscriptions.

The subscriptions will not be treated as income in the Income and Expenditure account solely in the year it is received. A separate life membership subscription account will be prepared.

The life subscription will be written off annually to the Income and Expenditure account by instalments and the credit balance remaining at the end of each year will be shown in the balance sheet as liability.


The FPK Bowling Club requires a member to pay RM3,000 to obtain life membership. During the year ended 31 December 2004, this club had received payment of RM3,000 from 5 members. It is the club's policy to allocate life membership fees to Income and Expenditure account over a 15-year period.

REQUIRED:Prepare a life membership account for the year ended 31 December 2004.


Life Membership Account

Income and Expenditure account

1,000Receipts and

Payment account15,000

Ending balance (advance)

14,000

-----

15,000-----

-----

15,000-----


Some clubs, societies, and associations may run a café or restaurant for the convenience of its members on a permanent basis with the intention of making profit.

Thus, the club would need to prepare a separate income statement to determine whether a profit or loss has been made from such activities.


Donations received are usually shown as income in the year that they are received. The following journal entry is recorded:

Debit Receipts and Payments Account

XX Credit Income and Expenditure Account XX

However, if the donation is stated for capital purposes, the donation should be shown in the Balance Sheet as a liability. For instance; donation of furniture by public.


Paid by new member once in a lifetime in addition to the membership fee for that year.

It is paid by the member in the year that they join into the clubs.

The receipts of the fees will be reported as income in the year that they are received.


The balance sheet of a non-profit making organization is similar to that of a trading concern except for two areas:

(i)Accumulated FundIn a non-trading concern, the term ‘Accumulated Fund’ is used instead of Capital. In a sole trader or partnership:

Capital + Liabilities = Assets


In a non-profit making organization:

Surplus of income over expenditure (income is greater than expenditure) will increase the accumulated fund, and the excess of expenditure over income (expenditure is greater than income) will decrease the accumulated fund.

Accumulated Fund + Liabilities = Assets


Assets and liabilities of a club on 1 January 2004 are as follows:

RM RM

Assets: Liabilities:

Building 30,000 Bank loan 5,000

Office equipment 3,600 Rental payable 200

Fixtures & fittings 3,400 Wages payable 150

Furniture 2,500

Cash at bank 1,200

Stationery stock 120

Locker 50

REQUIRED: Calculate the accumulated fund of the club as at 1 January 2004.


RM RM

Assets:

Building 30,000

Office equipment 3,600

Fixtures & fittings 3,400

Furniture 2,500

Cash at bank 1,200

Inventory 120

Locker rental receivable 50 40,870

Less: Liabilities:

Bank loan 5,000

Rent payable 200

Wages payable 150 (5,350)

Accumulated Fund 35,520


(ii) Profit/Loss

The profit is referred to a ‘surplus of income over

expenditure’, whereby the loss is referred to as

the ‘excess of expenditure over income’. The profit or loss of the non-trading

concerns will be treated the same way as in the Balance

Sheet of a profit making organisation.


End of Chapter 7End of Chapter 7

accounting for club and society

Documents