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Income and Expenditure account

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Introduction

Non-profit making organizations such as clubs, societies and associations usually do not have a professional and full-time accountant, the preparation of final accounts for these organization is quite different from before.

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Accounting terms in non-profit making organizations

Terms used Corresponding terms in commercial business

Accumulated fund Capital

Receipts and payments account Cash book

Income and expenditure account Profit and loss account

Surplus of income over expenditure Net profit

Deficit of expenditure over income Net loss

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Receipts and payment account

It is summary of bank and cash transactions

Receipt and payment account for the year ended 31 Dec XXXX

Receipts $

Bank balance 1.1XX X

Cash balance 1.1.XX X

Membership fees X

Sales of fixture X

Receipts from tea or drink X

X

Payments $

Sports stadium expenses X

Wages X

Purchase of tea and drink X

Sundry expenses X

Bank balance 31.12.XX X

Cash balance 31.12.XX X

X

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Preparation of final accounts

1. Bar trading account – to compute the bar profit (one of the income of non-profit making organization and include in I&E)

2. Income and expenditure account (I&E) – to compute the surplus or deficit of the organization for one year

3. Balance sheet – to show the financial position of the organization

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Bar Trading Account

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Bar Trading Account

It may be called Bar Trading and Profit and loss account

Bar sales, bar purchases and expenses related to the bar operation will also be included

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XXXX Sport club

Bar Trading Account for the year ended XXXX$ $

Sales (wk1) X

Less : COGS

Opening stock X

Add: Purchases (wk2) X

Less: Closing stock X X

Gross Profit X

Less: Expense

Barmen wages (wk3) X

Barmen commissions X

Bar expenses X

Depreciation of Bar equipment X X

Net profit to I&E X

Expenses related bar trading only

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Total Debtors

Bal b/f X Cash X

Sales (bal.fig.) X Bal c/f X

X X

Total Creditors

Bank X Bal b/f X

Bal c/f X Purchases (bal. Fig.) X

X X

wk1

wk2

wk3

Expense/income incurred = cash paid/received + prepaid last

year – accrued last year – prepaid

this year + accrued this year

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Income and Expenditure Account

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Income and Expenditure AccountXXXX Sport Club

Income and Expenditure account for the year ended XXXX

Expenditure Income

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XXXX Sport Club

Income and Expenditure account for the year ended XXXX$ $ Income

Income received X

Subscriptions – Annual subscriptions X

- Life membership fees X

- Joining fees/Entrance fees X

Profit on fund raising activities

( Related Proceeds – Related Expenditure ) X

Profit on disposal X

Donations/Subsidies received X

X

Expenditure

Expenses incurred X

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Subscriptions/bad debt written off X

Loss on fund raising activities

(Expenditure- proceed) X

Loss on disposal X

Depreciation X

Bar loss (from bar trading a/c) X X

Surplus/ (deficit) X

$ $

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Balance Sheet

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Balance Sheet as at 31 Dec XXXXCost Dep. Net

$ $ $Fixed Assets

Plant & Machinery X X X

M.V. X X X

X X X

Current Assets

Bar Stock X

Subscription in arrears X

Prepayment X

Bank X

Cash X

X

Less:Current Liabilities

Creditors – Bar purchases X

Subscription in advance X

Accrued expenses X

Working Capital X

X

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$ $ $

Accumulated Fund

Balance as at opening date X

Add/Less: Surplus/(Deficit) of I&E X

Add :Life membership fees (when life

members die) X

: Material donations/legacies received X

X

Life Membership Fund X

Entrance Fees/Joining Fees X

Other Fund (e.g. Training /Building Fund) X

X

Long-term Liabilities X

X

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Fund Raising ActivitiesThe profit or loss on the fund raising activities must be computed before transferring to income and expenditure account

Example

Receipt and payment account

ReceiptsProceeds of dance party 9500

Receipts from refreshment 5000

PaymentsPrinting of dance party tickets 500

Purchase of refreshments 4500

Sundry expenses of dance party 1020 Additional information:

The opening stock of refreshments was valued at $3200 and the

closing stock of refreshments was valued at $2400

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Ans:Income and expenditure

Loss from the sale of refreshment

(3200+4500-2400-5000) 300

Profit from dance party

(9500-500-1020) 7980

Expenditure

Income

The related revenue and expense are group together

to compute profit or loss on some activities

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DonationsDonations/Subsidies received

Ordinary donations/subsidies

Large donations/legacies

Dr Bank

Cr Donations/Subsidies

Dr Donations/subsidies

Cr Income and expenditure

With the amount received

Transferring to income and expenditure

For general purposes Dr Bank

Cr Accumulated fund

For specific purposes Dr Bank

Cr special fund(e.g. training fund,

Building fund)

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Donations to other charitiesFor general purposes

• Dr Donation to XXX

• Cr Bank

For special purposes• Dr Income and Expenditure

• Cr Donation to XXX

With the amount paid

Transferring to I&E as

an expense

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Subscriptions

Annual Subscription

Life membership fund

Entrance fees/joining fees

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Annual SubscriptionsExample 1

Receipt and Payments account for the year ended 31 Dec 1996Receipts

Subscriptions from members for

1995 110

1996 2472

1997 80 2662

Additional information:

Subscription in arrears at 31 Dec 96 = $132

Subscription in advance at 1 Jan 96 =$60

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Ans:

Income and Expenditure account for the year ended 31 Dec 1996

Income

Subscriptions (2472+60+132) 2664

$

Subscription= Cash received from members+Opening

prepayment-opening accrued + closing accrued-

closing prepaid

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Example 2

Receipt and Payments account for the year ended 31 Dec 1996Receipts

Subscriptions from members for

1995 100

1996 2472

1997 80 2562

Additional information:

1. 1 Jan 1996 31 Dec 1996

Subscription in arrear $110 $132

Subscription in advance $60 $80

2. The club has a policy of writing off any subscription that

are outstanding for more than one year

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Ans:


Income

Subscriptions (2472+60+132) 2664

$

ExpenditureSubscription written off (110-100) 10

$

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Example 3The financial year end of the club is 31 December, but

The subscriptions are payable in advance on 1 October each

Year. The subscriptions received on 1 October 1995 were

$8000 and 1 October 1996 were $ 12000, without any

subscription in arrears.

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Ans:


Income

Subscriptions

from 1 Jan-30Sept96 ($8000*9/12) 6000

from 1 Oct-31 Dec96 ($12000*3/12) 3000 9000

$

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Life membership fees are income earned over a long period, and therefore, they should not be treated as income in one year.

Usually a life membership fund would be set up, part of it would be written off in each year as income.

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Several points be noted

A life membership fund can be written off over:

The number of years of annual subscriptions purchased

The estimated average life of life members

Dr Bank

Cr Life membership fund

With the amount of the life membership fees received

Dr Life membership fund

Cr Income and expenditure

With the part of life membership fees to be recognized as income in the current year

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Example 4•From 1 January 1995, the club began to recruit life members.

•On joining the club each life member has to pay a life

membership fee of $4000.

•As at 31 December 1995, 20 people had been admitted as

life members.

•In 1996, 5 people joined the club as life members

•The life membership fee is to be recognized as income evenly

over 10 years.

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1995 $ 1995 $Dec 31 I&E

(80000*1/10) 8000Dec 31 Bal c/d 72000

Dec 31 cash (20*$4000) 80000

80000 80000

Ans:

Income and Expenditure account for the year ended 31 Dec

IncomeSubscriptions

1995

$8000

Balance Sheet (Extract)1995

$Life membership subscription 72000

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1995 $ 1995 $Dec 31 I&E

(80000*1/10) 8000Dec 31 Bal c/d 72000

Dec 31 cash (20*$4000) 80000

80000 80000

1996 $ 1996 $Dec 31 I&E

(20000*1/10)+

(80000*1/10) 10000Dec 31 Bal c/d 82000

Jan 1 Bal b/d 72000Dec 31 Cash (5*4000) 20000

92000 92000

Ans:

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IncomeSubscriptions

1996

$

1995

$8000 10000

Balance Sheet (Extract)1996

$

1995

$Life membership subscription 72000 82000

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Life membership fund can be transferred directly to the accumulated fund when an individual life member dies

Dr Bank

Cr Life membership fund

With the amount of the life membership fees received

Dr Life membership fund

Cr Accumulated fund

With the part of life membership fund written off to the accumulated fund when a members dies

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Example 5•The life membership fund was $8000 as at 1 January1996.

•In 1996, two people joined the club as life members.

•During the year 1996, three life members died.

•It is the club’s policy to transfer the life membership fund of

$400 each directly to the accumulated fund when life members

die.

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Life membership fund1996 $ 1996 $

Dec 31 Accumulated

fund (3*$400) 1200Dec 31 Bal c/d

(19*$400) 7600

Jan 1 Bal b/d 8000Dec 31 Cash (2*400) 800

8800 8800

Ans:

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Entrance fees/joining fees

Entrance /joining fees can be included as income in the year that they are received, or written off over the number of years determined by the clubs

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Write off entrance fees wholly in the year they are received

Dr Bank

Cr Entrance fees/joining fees


Dr Entrance fees/joining fees

Cr I&E

Transferring wholly to the I&E as income

Write off entrance fees over a number of years

Dr Bank

Cr entrance fees/joining fees


Dr Entrance fees/joining fees

Cr I&E

Transferring the portion to be recognized as income

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Example 6

•The balance of the entrance fees as at 31 December 1995 was

made up of:

Year of joining Balance

1993 $1000

1994 $1500

1995 $3000

•On joining the club, each new member has to pay an entrance

fee of $500

•The entrance fee is to be recognized as income evenly over four

years

•During the year of 1996, 10 new members had been admitted

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IncomeEntrance Fees (1000+1500*1/2+3000*1/3+500*10*1/4) 4000

1996

$

Balance Sheet (Extract)$

Accumulated fund X

Add surplus of I&E X

XEntrance fees (1500*1/2+3000*2/3+500*10*3/4) 6500

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Documents

x x x x x

expenditure x

x x x wk3 expenseincome

purchases wk2 x

sales wk1 x

plant machinery x

payments x bank balance

drink x bank balance