Clubs and Societies — common mistakes

Examiners often provide a Receipts and Payments Account and expect you to prepare the Income and Expenditure Account. Your main task is to convert the cash-based figures into accrual-based figures by making adjustments for opening and closing accruals and prepayments.

When asked to 'evaluate', you must provide a balanced argument. Consider both the pros and cons of each option and make a justified recommendation based on the specific context of the club in the question.

Functionally, they are calculated in a similar way (Income - Expenses). However, the terminology reflects the organisation's purpose. 'Profit' implies a commercial goal of returning value to owners. 'Surplus' implies that the excess funds will be retained and reinvested by the non-profit organisation to further its objectives, not distributed to owners.

You cannot just use the cash figure because the Income and Expenditure Account must be prepared on the accruals basis. The cash received includes payments for last year and next year, and excludes amounts owed from this year. The T-account is the most reliable method to adjust the cash figure to find the true income for the current period only.

It does NOT go into the Income and Expenditure Account. When the cash is received, it increases the bank balance (asset). A corresponding liability called 'Building Fund' or 'Specific Donation Fund' is created. This liability remains on the Statement of Financial Position until the money is spent on the building. When spent, the asset (Building Fund) is used to pay, and the value is transferred to Non-Current Assets.

The cash received from the sale will appear in the Receipts and Payments Account. However, for the Income and Expenditure Account, you must calculate the profit or loss on disposal. This is done by comparing the net book value (Cost - Accumulated Depreciation) with the sale proceeds. The resulting profit or loss on disposal is then shown in the Income and Expenditure Account.