A football club, a church, a charity and a hospital do not exist to make a profit. They exist to provide a service, and they raise money from members and donors rather than from selling goods for gain. They still need accounts, because members and donors want to know how their money was spent and whether the organisation can carry on.
This topic covers how the accounts of a club or society are prepared: the receipts and payments account, the subscriptions account, and the income and expenditure account with its statement of financial position.
The method is the accruals-based preparation you already know, applied with different names. It follows incomplete records, because the starting point is often a bare summary of cash, which must be converted into a statement of surplus or deficit. A not-for-profit question is a 20-mark question in several past diets. The next topic starts computerised and virtual accounting.
In 30 seconds
A Receipts and payments account is a summary of cash and bank, with no accruals and no split between capital and revenue. An Income and expenditure account is the accruals-based equivalent of the statement of profit or loss. Its result is a Surplus (or Deficit) of income over expenditure, which is added to (or deducted from) the Accumulated fund instead of retained earnings.
Subscription income = cash received + closing arrears + opening advance receipts − opening arrears − closing advance receipts. Show profit from a bar or event as one net line. Leave capital items such as buying equipment out of the income and expenditure account, add depreciation, and adjust for accruals and prepayments. Opening accumulated fund = opening assets − opening liabilities.
Not-for-profit organisations
Not-for-profit organisations include clubs and societies, charities, hospitals and government bodies. They have income and costs like any other organisation and try to operate at a slight surplus so that they can keep providing their service. A profit-making business tries to earn as much as it can to increase the wealth of its owners.
Some are less regulated, and some, such as clubs and small charities, prepare only a cash-based account. Large charities and public bodies keep records to the standard of a company, and public bodies may use International Public Sector Accounting Standards (IPSAS).
| Profit-making entity | Not-for-profit organisation |
|---|---|
| Statement of profit or loss | Income and expenditure account |
| Profit for the period | Surplus of income over expenditure |
| Loss for the period | Deficit of income over expenditure |
| Equity and reserves; retained earnings | Accumulated fund (and other fund accounts) |
The accumulated fund is the members’ interest in the club. It equals the net assets, so the difference between assets and liabilities of a club is the accumulated fund (November Diet 2019, Section A, Question 16; May Diet 2023 and May Diet 2024, Section A, Question 20).
Receipts and payments accounts
A receipts and payments account is a summary of cash receipts and payments in the period. Cash and bank are combined to avoid contra entries. Receipts are on the debit side and payments on the credit side, with the opening and closing balances. It does not apply the accruals concept, so it includes every receipt and payment, capital or revenue, whatever period it relates to.
It gives far less information than a set of accruals-based statements. For practical purposes it is a cash account.
Example (Eden Youth Club). Opening cash in hand ₦5,000 and bank ₦80,000. Receipts: subscriptions ₦120,000, donations ₦25,000, sale of old equipment ₦10,000 and entrance fees ₦15,000, so total receipts including balances are ₦255,000. Payments: rent and rates ₦40,000, electricity ₦12,000, salaries ₦55,000, repairs ₦18,000 and new equipment ₦30,000, a total of ₦155,000. Closing cash in hand is ₦4,500, so closing bank is 255,000 − 155,000 − 4,500 = ₦95,500.
The subscriptions account
Subscriptions are the main income of a club, and at each year end some members have paid in advance (a liability, because the club owes them membership) and some are in arrears (an asset, a debtor). The subscriptions account works out the cash received or the income. Members’ fees for the year (members × fee) are the income.
The account has opening arrears and closing advance payments on the debit side, and opening advance payments and closing arrears on the credit side.
Cash received. A club has 500 members paying ₦1,000 a year, so income is ₦500,000. Arrears were ₦18,000 at the start and ₦22,000 at the end, and advance payments were ₦10,000 and ₦6,000. Cash received = 18,000 + 500,000 − 10,000 − 22,000 + 6,000 = ₦492,000.
Income. The other way round: arrears ₦48,000 at the start, advance payments ₦12,000, cash received ₦624,000, closing advance payments (26 members × ₦1,200) ₦31,200 and closing arrears (16 × 1,200) ₦19,200. The account balances at ₦655,200 with income transferred to the income and expenditure account of ₦576,000 (48,000 + I&E + 31,200 = 12,000 + 624,000 + 19,200, so I&E = 576,000).
The income and expenditure account
An income and expenditure account is an accruals-based statement that lists the types of income, followed by the categories of expenditure, ending in the surplus or deficit. Income may include subscriptions, life membership fees, donations, investment income, and the surplus from a bar, shop or event. There is no mandatory format.
Bar, shop and events. The profit from a coffee bar or shop is worked out in a separate trading account (sales less opening inventory plus purchases less closing inventory), and only the gross profit is shown as a line in the income and expenditure account. For an event such as a tournament, deduct the prizes and costs from the income, and show the net result.
| Typical layout | |
|---|---|
| Income | Subscription income; donations; interest on bank deposit; bar or shop profit; tournament income less prizes |
| Expenditure | Club expenses; rent; electricity; depreciation; repairs |
| Result | Surplus (or deficit) of income over expenditure |
Life membership fees. A club needs a policy for these. It may recognise the fee as income when received (Dr Bank, Cr Income and expenditure). It may recognise it over a specified period, crediting a deferred income account on receipt and releasing an equal amount to income each year (Dr Deferred income, Cr Income and expenditure).
Or it may credit a life membership fund in equity, transferred to the accumulated fund over a set period or on the member’s death. For example, a club that received ₦3,000,000 in year 1 and ₦11,600,000 in year 2, taking credit in equal parts over ten years, shows ₦1,460,000 of fees in the income and expenditure account for year 2, which is 300,000 from year 1’s fee plus 1,160,000 from year 2’s (November Diet 2017, Section A, Question 20).
Donations. A donation without a purpose is income in the period received. A donation for a stated purpose, such as a new football pitch, is credited to a fund account in equity (Dr Bank, Cr Pitch fund).
The accumulated fund and the statement of financial position
The statement of financial position has assets and liabilities like any other, with the equity section made of the accumulated fund, plus any other funds. The accumulated fund at the start is the net assets at the start: bank and cash, equipment at carrying amount, subscriptions in arrears and inventory, less liabilities such as subscriptions received in advance and payables.
The surplus is added to it (a deficit is deducted). Subscriptions in advance are a liability, and subscriptions in arrears are a current asset.
The ideas in more depth
Slips to watch. In Question 3 (Grace Welfare Society) the subscriptions received were ₦283,000, but the working uses ₦281,000 and gives income of ₦283,000. With cash of ₦283,000, arrears ₦10,000 and ₦12,000, income is 283,000 + 12,000 − 10,000 = ₦285,000 and the surplus is ₦147,000, not ₦145,000. The opening fund subtracts the opening arrears, which are an asset. It should be 45,000 + 200,000 − 50,000 + 10,000 = ₦205,000. The bank balance at the end is 45,000 + 283,000 + 60,000 − 120,000 − 18,000 − 35,000 − 100,000 = ₦115,000, not ₦93,000. Then total assets are 230,000 + 12,000 + 115,000 = 357,000, which equals the closing fund of 205,000 + 147,000 = 352,000 plus the salaries owing of ₦5,000.
In the Eden Youth Club answer the closing bank balance carried down is ₦95,500, not ₦70,000 as shown below the account. The first subscription example labels both year ends “2018”, and the second should be “2019”.
Background. Items such as the purchase of equipment and the sale of old equipment appear in the receipts and payments account but not in the income and expenditure account. Depreciation appears in the income and expenditure account but not in the receipts and payments account, because it is not a cash flow.
Payments for a bar are not all costs of the year, so find the cost of the bar’s sales from purchases, inventory and payables.
Worked example: Oloibiri Social Club
Scenario. At the start of the year the club had bank ₦50,000, equipment at carrying amount ₦140,000, subscriptions in arrears ₦20,000, subscriptions paid in advance ₦10,000, bar inventory ₦25,000 and bar payables ₦18,000. Receipts were subscriptions ₦640,000, donations ₦40,000 and bar takings ₦300,000. Payments were bar purchases ₦210,000, rates ₦36,000, wages ₦120,000 and new equipment ₦90,000. At the end of the year subscriptions in arrears were ₦30,000, subscriptions paid in advance ₦15,000, bar inventory ₦35,000, bar payables ₦26,000 and wages owing ₦8,000.
Depreciation for the year is ₦29,000. Required: the income and expenditure account and the statement of financial position.
- Opening fund.
50,000 + 140,000 + 20,000 + 25,000 − 10,000 − 18,000 = ₦207,000. - Subscription income.
640,000 + 30,000 + 10,000 − 20,000 − 15,000 = ₦645,000. - Bar profit.
Purchases = 210,000 + 26,000 − 18,000 = 218,000.
Cost of sales = 25,000 + 218,000 − 35,000 = 208,000.
Profit = 300,000 − 208,000 = ₦92,000. - Surplus.
Income 645,000 + 40,000 + 92,000 = 777,000.
Expenditure: rates 36,000, wages 120,000 + 8,000 = 128,000, depreciation 29,000, total 193,000.
Surplus = ₦584,000. - Bank at the end.
50,000 + 640,000 + 40,000 + 300,000 − 210,000 − 36,000 − 120,000 − 90,000 = ₦574,000. - Statement of financial position.
Equipment 140,000 + 90,000 − 29,000 = 201,000.
Current assets: inventory 35,000, arrears 30,000, bank 574,000, total 639,000.
Total assets 840,000.
Accumulated fund 207,000 + 584,000 = 791,000.
Liabilities: payables 26,000, wages 8,000, subscriptions in advance 15,000, total 49,000.
Total 840,000.
Common mistakes in the exam
- Copying the receipts and payments account into the income and expenditure account without adjusting for accruals.
- Including the purchase or sale of equipment in income and expenditure, or leaving out depreciation.
- Showing the whole of the bar takings and payments instead of the bar profit as a single line.
- Putting the subscriptions the wrong way round: arrears at the end are added to cash, and advance receipts at the end are deducted.
- Treating subscriptions in arrears as a liability, or subscriptions in advance as an asset.
- Using retained earnings instead of the accumulated fund, or “profit” instead of surplus.
- Forgetting to find the opening accumulated fund from the opening assets and liabilities.
- Taking a donation for a specific purpose to income instead of a fund.
Quick revision
- R&P account: cash summary, no accruals, capital and revenue together.
- I&E account: accruals, surplus or deficit, bar profit as one line.
- Subscriptions income = cash + closing arrears + opening advance − opening arrears − closing advance.
- Accumulated fund = net assets. Surplus adds to it.
- Life membership: a policy is needed (income now, spread, or fund).
Practice questions
These are original questions in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one first.
Section A style: multiple choice
Question 1. The not-for-profit equivalent of profit is:
- Retained earnings
- Accumulated fund
- Deficit
- Surplus of income over expenditure
Show the answer
D. A surplus is added to the accumulated fund.
Question 2. A receipts and payments account is:
- An accruals-based statement
- A summary of cash receipts and payments
- A trading account
- A statement of financial position
Show the answer
B. It is a cash account and does not apply the accruals concept.
Question 3. The equity of a club is called:
- Share capital
- Drawings
- The accumulated fund
- Loan notes
Show the answer
C. It is the members’ interest, equal to net assets.
Question 4. Subscriptions received in advance by a club are:
- A liability
- An asset
- Income of the year
- An expense
Show the answer
A. The club owes the members a period of membership.
Question 5. A club has 500 members at ₦1,000. Arrears were ₦18,000 and ₦22,000 and advance payments ₦10,000 and ₦6,000. Cash received is:
- ₦500,000
- ₦524,000
- ₦508,000
- ₦492,000
Show the answer
D. 18,000 + 500,000 − 10,000 − 22,000 + 6,000 = 492,000.
Question 6. Cash from members was ₦640,000. Arrears went from ₦20,000 to ₦30,000 and advance payments from ₦10,000 to ₦15,000. Subscription income is:
- ₦640,000
- ₦645,000
- ₦635,000
- ₦655,000
Show the answer
B. 640,000 + 30,000 + 10,000 − 20,000 − 15,000 = 645,000.
Question 7. A club received life membership fees of ₦3,000,000 in year 1 and ₦11,600,000 in year 2, and takes credit over ten years. The fees in year 2’s income and expenditure account are:
- ₦1,460,000
- ₦1,160,000
- ₦300,000
- ₦14,600,000
Show the answer
A. 300,000 + 1,160,000 = 1,460,000.
Question 8. The profit from a club’s bar is shown:
- In the receipts and payments account
- As a deduction from the fund
- As a line in the income and expenditure account
- In the statement of financial position only
Show the answer
C. The bar trading account gives a gross profit that is shown as one line.
Question 9. An excess of expenditure over income is called:
- A surplus
- A deficit
- An accumulated fund
- A donation
Show the answer
B. A deficit is deducted from the accumulated fund.
Question 10. A member donates money for a new football pitch. The club records it as:
- Income immediately
- A reduction in expenses
- A liability
- A credit to a pitch fund in equity
Show the answer
D. A donation for a stated purpose goes to a fund account.
Section B style: written questions
Question 11 (10 marks). (a) Distinguish a receipts and payments account from an income and expenditure account. (5 marks) (b) State four terms used by a club in place of the terms used by a company. (5 marks)
Question 12 (20 marks). Ikorodu Welfare Club had at the start of the year bank ₦80,000, equipment at carrying amount ₦120,000, subscriptions in arrears ₦15,000 and subscriptions in advance ₦5,000. Receipts were subscriptions ₦500,000, donations ₦50,000 and ticket sales for an event ₦120,000. Payments were salaries ₦200,000, rates ₦40,000, new equipment ₦60,000 and event costs ₦45,000. At the end of the year subscriptions in arrears were ₦25,000, subscriptions in advance ₦10,000 and salaries owing ₦12,000. Depreciation for the year is ₦15,000.
(a) Prepare the subscriptions account. (4 marks) (b) Prepare the income and expenditure account. (8 marks) (c) Prepare the statement of financial position. (8 marks)
A further written question
Question 13 (10 marks). (a) Describe three possible policies for life membership fees. (6 marks) (b) A club received life membership fees of ₦2,400,000 in year 1 and ₦3,600,000 in year 2, and credits them in equal parts over twelve years. Calculate the amount credited to income in year 2. (4 marks)
Model answers
Show the model answer to Question 11
(a) A receipts and payments account is a summary of cash and bank receipts and payments, with receipts on the debit side and payments on the credit side. It does not apply the accruals concept and does not separate capital from revenue.
An income and expenditure account is prepared on the accruals basis, showing income earned and expenditure incurred for the period, excluding capital items, and ends in a surplus or deficit. (b) Surplus instead of profit, deficit instead of loss, accumulated fund instead of retained earnings or equity reserves, and income and expenditure account instead of statement of profit or loss.
Show the model answer to Question 12
(a) Subscriptions: Dr arrears b/d 15,000, Dr income and expenditure (balancing figure) 505,000, Dr advance payments c/d 10,000. Cr advance payments b/d 5,000, Cr cash 500,000, Cr arrears c/d 25,000. Both sides total 530,000.
(b)
- Income.
subscriptions 505,000, donations 50,000, event surplus 120,000 − 45,000 = 75,000, total 630,000. - Expenditure.
salaries 200,000 + 12,000 = 212,000, rates 40,000, depreciation 15,000, total 267,000. - Surplus ₦363,000.
(c)
- Opening fund.
80,000 + 120,000 + 15,000 − 5,000 = 210,000. - Bank at the end.
80,000 + 500,000 + 50,000 + 120,000 − 200,000 − 40,000 − 60,000 − 45,000 = 405,000. - Equipment 120,000 + 60,000 − 15,000 = 165,000.
- Assets.
165,000 + arrears 25,000 + bank 405,000 = 595,000. - Accumulated fund 210,000 + 363,000 = 573,000.
- Liabilities: salaries 12,000 and subscriptions in advance 10,000.
- Total 595,000.
Show the model answer to Question 13
(a) Recognise the fee as income when received, with Dr Bank and Cr Income and expenditure. Recognise it over a specified period, with Cr Deferred income on receipt and an equal release to income each year. Credit it to a life membership fund in equity, transferred to the accumulated fund over a set period or when the member dies.
(b)
- Year 1 fee: 2,400,000 ÷ 12 = 200,000.
- Year 2 fee: 3,600,000 ÷ 12 = 300,000.
- Credit in year 2 = 200,000 + 300,000 = ₦500,000.
Pathfinder on Not-for-profit accounts: receipts and payments, income and expenditure
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the previous syllabus. A sports club with a stated number of members paying an annual subscription gives its receipts and payments account. Asks for the subscriptions account (3 marks), the income and expenditure account (7 marks) and the statement of financial position (10 marks).
Revise first: The subscriptions account
From the previous syllabus. A social club gives a summary of receipts and payments with subscriptions, a donation, a Christmas dance and bar takings. Asks for the bar trading account (3 marks), the income and expenditure account (8 marks) and the statement of financial position (9 marks), showing workings.
Revise first: The income and expenditure account
From the previous syllabus. A club gives its assets and liabilities at the start of the year, including furniture, refreshment inventory, land, subscriptions received in advance and payables for drinks, and a receipts and payments account. Asks for the income and expenditure account and the statement of financial position.
Revise first: The accumulated fund and the statement of financial position
From the previous syllabus. Asks what the excess of expenditure over income is called, where the excess of income over expenditure is added, what represents members’ interest in a club, and what the difference between assets and liabilities of a not-for-profit organisation is called.
Revise first: Not-for-profit organisations
From the previous syllabus. Gives life membership fees received in two years and a policy of crediting them equally over ten years, and asks for the fees recognised in the income and expenditure account for the second year.
Revise first: The income and expenditure account
Source: ICAN Pathfinder, Financial Accounting. Diets covered: May Diet, 2015, May Diet, 2016, November Diet, 2016, November Diet, 2017, May Diet, 2019, November Diet, 2019, November Diet, 2020, May Diet, 2023 and May Diet, 2024 (the later ones are not all on the previous syllabus). Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
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