IGCSE Clubs & Societies Accounts
In this lesson, we will learn how to prepare the receipts and payment account, income and expenditure account, subscription account and the shop and cafe accounts.
Related Lessons:
Subscription Account
Subscriptions, which is the main source of income for clubs and societies, are fees received from its members.
As an income account, it is adjusted for prepaid and accrued income as well.
At the start of the financial year, a debit balance represents Accrued Subscription brought forward from the previous accounting year; while a credit balance represents Prepaid Subscription.
Fees received during the financial year is credited to the account since income increases.
At the end of the accounting year, Accrued Subscription is credited to the account while Prepaid Subscription is debited to it. The amount is brought down to the opposite side of the account on the next accounting year.
The balancing figure represents the actual subscription income earned for the financial year and is transferred to the Income and Expenditure account.
Shop or Cafe Income Statement
To serve the needs of its members, clubs and societies may operate a shop that sells products required by its members or a cafe to meet the dining of its members. Earnings from the shop or cafe forms part of the club’s income.
The profit or loss from the shop or cafe will be transferred to the Income & Expenditure account in order for the club or society to determine their final profit or loss for the financial year.
To determine the profit or loss made by the shop or cafe, an income statement is prepared. This is prepared in the exact same way as the income statement of a sole trader.
Receipts & Payments Accounts
The Receipt & Payment account is similar to the Cash Book, where it records all money received on the debit side and money paid on the credit side. However, unlike the Cash Book, it does not differentiate between cash and bank transactions.
A debit balance of this account is recorded as a Current Asset in the Statement of financial position, while a credit balance is recorded as a Current Liability.
Income & Expenditure Account
Salary is paid to a partner who has contributed time and effort towards operating the business. Unlike salaries paid to employees, it is treated as an appropriation of profit rather than a business expense, as it represents the partner’s entitlement.
Therefore, it is recorded in the Appropriation account as a reduction of profit.
In the Current Account, only the salary due to the partner is recorded. As it increases the partner’s stake in the business, it is entered on the credit side of the Current Account.
Recording in the Current Account
While the Capital Account records the funds or assets each partner invests in or withdraws from the business, the Current Account records the additional amounts owed to or by each partner in relation to the partnership.
The Current account records:
- Drawings made by the partners
- Interest charged on the drawings
- Interest on capital
- Salary owed to the partner
- Interest on partner’s loan owing
- Profits or losses allocated to a partner
Transactions that increase a partner’s stake in the business are credited to the Current account, while those that decreases the stake is debited to the account.
At the end of the accounting year, a Debit balance in the Current Account represent Profit Overdrawn by the partner, and a Credit balance represent Profit Not Drawn by the partner.