Welcome to the World of Clubs and Societies!
In your accounting journey so far, you have mostly looked at businesses that exist to make a profit, like a local shop or a large company. But what about your local football club, a charity, or a school chess club? These are non-profit making organisations.
In this chapter, we are going to learn how these groups keep track of their money. Instead of "Profit," we talk about "Surplus," and instead of "Capital," we talk about the "Accumulated Fund." Don't worry if this seems a bit different at first—the basic rules of double-entry accounting still apply!
1. What Makes a Club Different?
A club or society is formed by a group of people who share a common interest. Their main goal is to provide a service or facility for their members, not to put money in an owner's pocket.
Key Terminology Changes:
- Instead of Profit, we use the term Surplus (Income is more than Expenditure).
- Instead of Loss, we use the term Deficit (Expenditure is more than Income).
- Instead of Capital, we use the term Accumulated Fund (the total "worth" of the club built up over the years).
Key Takeaway: The goal of a club is to provide service to members, and any extra money (surplus) is kept within the club to improve its facilities.
2. The Receipts and Payments Account
This is the simplest account a club prepares. It is essentially a summary of the Cash Book.
What goes in it?
- Every single bit of money that comes in (Receipts) goes on the Debit side.
- Every single bit of money that goes out (Payments) goes on the Credit side.
Important Rule: This account does not follow the accruals concept. We record money when it actually moves, regardless of which year it belongs to. It includes both Capital items (like buying a new clubhouse) and Revenue items (like paying for electricity).
Quick Review: Receipts and Payments
- Debit Side: Opening cash balance + all money received.
- Credit Side: All money paid out + Closing cash balance.
3. The Income and Expenditure Account
This is the club's version of an Income Statement (Statement of Profit or Loss). It calculates whether the club made a Surplus or a Deficit for the year.
Crucial Rules for this account:
- Accruals Concept applies: You only include income and expenses that belong to the current financial year.
- No Capital Items: If the club buys a minibus, you do not put the full cost here. You only include the Depreciation of that minibus.
- Revenue only: Only day-to-day running costs and regular income (like subscriptions) are included.
Did you know? Even though a club doesn't aim for profit, it needs a surplus occasionally to save up for big future projects, like fixing a leaking roof!
Key Takeaway: Income - Expenditure = Surplus (if positive) or Deficit (if negative).
4. Subscriptions: The "Trickiest" Part
Subscriptions are the membership fees paid by members. This is usually the main source of income for a club. Students often find this tricky because members might pay late (Arrears) or pay early for next year (Advance).
To find the correct "Income" for the year to put in the Income and Expenditure account, we use a Subscription Account.
How to handle the Subscription Account:
1. Subscription in Arrears: This is an Asset (money owed to the club). Opening arrears go on the Debit side.
2. Subscription in Advance: This is a Liability (money received but not yet earned). Opening advance goes on the Credit side.
3. Bank/Cash: Total money actually received during the year goes on the Credit side.
4. Income and Expenditure: The "balancing figure" that represents what the members should have paid for this year goes to the Income and Expenditure account.
Memory Aid: Use the "PULSE" check for adjustments:
- Plus Closing Arrears
- Understand to deduct Opening Arrears
- Less Closing Advance
- Simply add Opening Advance
5. The Accumulated Fund
In a normal business, the owner starts with Capital. In a club, there is no "owner." Instead, the value grows over time as the club keeps its surpluses. We call this the Accumulated Fund.
If a question asks you to calculate the opening Accumulated Fund, use the Accounting Equation:
\( \text{Opening Total Assets} - \text{Opening Total Liabilities} = \text{Opening Accumulated Fund} \)
Common Mistake Alert: Don't forget that "Subscriptions in Arrears" is an asset and "Subscriptions in Advance" is a liability when calculating this fund!
6. Trading Activities (The Club Bar)
Sometimes a club runs a small shop or a bar to make extra money. We treat this like a tiny separate business.
1. You prepare a Bar Trading Account to find the Bar Profit.
2. Formula: \( \text{Sales} - \text{Cost of Sales} = \text{Gross Profit} \).
3. Then deduct bar expenses (like barman's wages) to get the Net Bar Profit.
4. Important: Only the final profit from the bar is transferred to the main Income and Expenditure Account as a source of income.
Key Takeaway: Treat the bar separately first, then move the profit to the main accounts.
7. Statement of Financial Position (Balance Sheet)
This is very similar to a sole trader's balance sheet, but the "Financed By" section looks like this:
Financed by:
Accumulated Fund (Opening Balance)
Add: Surplus for the year (or Less: Deficit)
Total: Closing Accumulated Fund
Summary Checklist for Success
- Receipts & Payments: It's just a summary of cash. No adjustments!
- Income & Expenditure: Use the accruals concept. Only revenue items!
- Subscriptions: Be careful with Arrears (Asset) and Advance (Liability).
- Accumulated Fund: It’s just "Capital" with a different name.
- Life Membership: If mentioned, usually spread over several years (follow the specific instructions in the question).
Don't worry if this seems tricky at first! Practice drawing the Subscription T-account several times, as that is where most marks are won or lost in this chapter. You've got this!