Non-Profit Making Organizations
NON PROFIT MAKING ORGANIZATIONS (Club, Associations and Others)
These are some form of organizations that are set up to promote or to cater for the welfare of the members involved and not to make a profit. These include clubs, (e.g. football clubs, sports clubs), welfare associations and any other societies (charitable institutions).
Because these organizations are not trading, the types of accounts to prepare are different from the ones of trading organizations.
Example:
Instead of a cashbook, the clubs will maintain a receipts and payments which has similar entries to those of a cashbook.
Instead of profit and loss account, we have an income and expenditure account.
Because the club is not formed by any one owner (has no owner), it is funded by members’ contributions, donations, income from investments to get an accumulated fund instead of capital.
From the income and expenditure account, if the incomes are more than the expenditures for the period, then the club has a surplus and not a net profit.
If the expenditure is more than incomes, then the club has a deficit and not a loss.
The club may carry out some trading activities on a small scale to finance some of the clubs activities and incase a firm has a trading activity, then in addition to the income and expenditure account and the balance sheet, prepare a Bar Trading Account.
Format of the Final Accounts
Name
Income and Expenditure Account for the year ended 31 December ……
Incomes
£
£
Profit from trading activities
XX
Subscriptions
XX
Income from investments
XX
Donations
XX
Income from other activities
[dinner dance, raffles, festivals]
XX
XX
Expenditure
Depreciation
XX
Salaries and wages
XX
Expenses on other activities [prizes]
XX
Loss from trading activities
XX
All other expenses
XX
(XX)
SURPLUS/( DEFICIT )
XX/(XX)
NAME
BALANCE SHEET AS AT 31 DECEMBER ……
Non current Assets
£
£
£
Buildings
XX
(XX)
XX
Fixtures, fittings and equipment
XX
(XX)
XX
Motor vehicle
XX
(XX)
XX
XX
(XX)
XX
Investments
XX
Current Assets
Stocks
XX
Debtors
XX
Prepayments and accrued income
XX
Cash at bank/hand (receipts + payments)
XX
XX
Current liabilities
Creditors
XX
Accrued expenses and prepaid income
XX
Bank overdraft
XX
(XX)
XX
XX
Accumulated fund balance b/f
XX
Add/less surplus / deficit
XX/(XX)
Other funds
Life membership fund
XX
Building fund
XX
Education fund
XX
XX
XX
Notes To The Above Format:
Subscriptions:
These are the amounts received by the club from the members to renew their membership. It is often paid on an annual basis.
It is income for the club and therefore reported in the income and expenditure account.
Depending on the policy of a club, any subscriptions due but not received are shown as accrued income (debtors for subscriptions) in the balance sheet.
Any amounts prepaid are shown as prepaid (creditors for subscriptions).
Some clubs will not report subscriptions as income until it is received in form of cash.
Income from Investments:
Some clubs invest excess cash in the bank (fixed deposit account), shares of limited companies, treasury bills and any other investment that may be available.
If the club is investing with no specific intention (i.e a general investment) then income from this investment should be reported in the income and expenditure account.
If the investment is for a specific purpose and relates to a specific fund (e.g building fund) it will not be reported in the income and expenditure account but credited directly to the fund.
Other funds
These are funds set up for a specific purpose and not general. They will be shown together with the accumulated fund.
Any incomes relating to these funds, will be credited directly to the funds and any expenses will be taken off from these funds e.g. building fund, education fund.
Life Membership Fund
Some members may pay some amount to become life members of the club and if this happens, there may be a need to spread out this income over the expected life of the members in the club.
Depending on the policy of a club, the following accounting treatment may be allowed:
The full amount is reported in the Income and Expenditure account in the year it is received and therefore no balance is retained in the life membership account.
The amount is shown separately in the life membership fund with no transfer in the Income and Expenditure account and hence no balance in the life membership account.
To transfer some amounts from the life membership funds to the income and expenditure account over the expected life of membership to the club.
Example 6.7
The following is the receipts and payments account of the Friendship Club for the year ended 31 December 19X1:
£
£
Balance at bank
31 December 19X0
102
Bar purchases
4,434
Entrance fees
42
Wages
416
Subscriptions: 19X0
25
Rent
186
19X1
305
Heating and lighting
128
19X2
35
Postage and stationery
33
Bar Sales
5,227
Insurance
18
Sale of investments
750
General expenses
46
Payments on account of new furniture
450
_____
Balance at bank,
31 December 19X1
775
6,486
6,486
The following information is also supplied:
(1)
31 December 19X0
31 December 19X1
Bar stock, at cost
272
315
Creditors for bar purchases
306
358
Rent due
18
36
Heating and lighting expenses due
16
19
Subscriptions due
25
40
