Non – Profit Making Organisations

A non-profit making organization is an organization set up with the aim of maximizing members’ welfare. It
does not aim at maximizing profit.
Examples: Parent Teachers Association (PTA), Youth Club, Charitable societies, social club and so on.

Terms used in profit making organisations and non-profit making organisations

profit making organisations non-profit making organisations
Capital Accumulated fund
Capital = Assets – Liabilities Accumulated fund = Assets - Liabilities
Income Statement Income and Expenditure Account
Profit for the year Surplus
Loss for the year Deficit
Cash Book / Bank Account Receipts and Payments Account
Statement of financial position Statement of financial position

Receipt and Payment Account

A receipt and payment account is similar to a cash book (bank account). It is also referred to as a bank current
account. A receipt and payment account will record all money received (subscriptions, donations, entrance fees,
proceed on disposal, takings, dinner ticket sales, competition entrance fees, loan and so on) on the receipt side
(debit side) and all money paid (purchases, purchase of non-current assets, expenses, competition expenses,
dinner expenses, secretary’s honorarium and so on) on the payment side (credit side).
The receipt and payment account will provide the opening and closing bank balances. It is prepared on a cash
basis and does not record non-cash items such as depreciation. It records capital and revenue expenditures /
receipts. A receipts and payments account can have a debit balance which is shown under current assets or a
credit balance shown as a bank overdraft in the statement of financial position.

Income and Expenditure Account

An income and expenditure account is prepared to calculate the surplus or deficit of the club. It is similar to the
income statement of a profit making organization. The income and expenditure account is prepared on an
accrual basis after taking into account other receivables and other payables. It records only revenue
expenditures / receipts and contains non-cash items such as depreciation.
If total incomes are greater than total expenditures, a surplus is made.
If total expenditures are greater than total incomes, a deficit is made.

Difference between an income and expenditure account and a receipt and payment account
Receipt and payment account Income and expenditure account
- It shows the opening and closing bank balance - It shows surplus or deficit
- It is prepared on a cash basis. Only cash received - It is prepared on an accrual basis after adjusting
and cash paid is recorded in a receipt and for other receivables and other payables
payment account
- It includes only cash items - It includes non-cash items such as depreciation
- It records both capital and revenue expenditures / - It records only revenue expenditures / receipts
receipts
Incomes
(a) Subscription
To become a member of a club, members have to pay for a membership fee known as subscription. There
are two types of subscription namely ordinary subscription and life membership subscription.

(i) Ordinary Subscription / Annual subscription

Ordinary subscription is a fixed amount payable annually or monthly by members to stay a member of the
club. It is a member’s obligation to pay his subscription. The amount is an income for the club and hence is
shown in the income and expenditure account. It is the main income of a club. It is used to run the club on a
day to day basis. To get the amount of ordinary subscription, a subscription account should be prepared.
Subscription is an income; hence the subscription account will be similar to an income account.

Subscription Account
Balance b/d (subscription due at start) XXX Balance b/d
(subscription received in advance / prepaid at XXX
start)
Subscription refund (receipt and XXX Receipt and Payment (subscription received
payment) during the year as in the receipt and payment XXX
account)
Income and Expenditure Subscription written off as bad debt XXX
(number of members X membership fee
per member) XXX
Balance c/d XXX Balance c/d XXX
XXX XXX
Balance b/d (subscription due at end Balance b/d (subscription received in advance /
shown under current assets in the prepaid at end shown as current liabilities in the
statement of financial position) XXX statement of financial position) XXX

Example 1:
The following receipt and payment account extract for the year ended 31 December 2012 has been provided
Receipt and Payment Account
Receipts Payments
Ordinary subscription 25 000

The following information is also available

31 December 2011 31 December 2012
Subscription due 1 750 1 780
Subscription received in advance 3 250 4 750

(a) Prepare a subscription account for the year ended 31 December 2012
Dr Subscription Account Cr
Date Details Amoun Date Details Amount
t
1 Jan 2012 Balance b/d 1 750 1 Jan 2012 Balance b/d 3 250
31 Dec 2012 Income and Expenditure 23 530 Receipt and payment 25 000
31 Dec 2012 Balance c/d 4 750 31 Dec 2012 Balance c/d 1 780
30 030 30 030
1 Jan 2013 Balance b/d 1 780 1 Jan 2013 Balance b/d 4 750

(b) Prepare and income and expenditure account extract for the year ended 31 December 2012
Income and Expenditure account extract for the year ended 31 December 2012
 Incomes
Ordinary subscription 23 530

(c) Prepare a statement of financial position extract as at 31 December 2012

Statement of financial position extract as at 31 December 2012
Current Assets
Other receivables:
Subscription due 1 780
Current Liabilities
Other payables:
Subscription prepaid 4 750

Example 2
On 1st January 2013 a club had subscription due of $2 650.
During the year ended 31 December 2013 the club received subscription of $36 700.
On 31st December 2013 subscription of $1 440 was received in advance.
Prepare a subscription account
Dr Subscription Account Cr
Date Details Amoun Date Details Amount
t
1 Jan 2013 Balance b/d 2 650 Receipt and payment 36700
31 Dec 2013 Income and Expenditure 32 610
31 Dec 2013 Balance c/d 1 440
36 700 36 700
1 Jan 2014 Balance b/d 1 440

Example 3
The following receipt and payment account extract for the year ended 30 June 2013 has been provided
Receipt and Payment Account
Receipts Payments
Ordinary subscription 48 000 Subscription refund 2 700

The following information is also available

30 June 2012 30 June 2013
Subscription due 2 880 1 990
Subscription prepaid 1 775 4 550
During the year subscription of $400 was written off.

(a) Prepare a subscription account for year ended 30 June 2013

Dr Subscription Account Cr
Date Details Amoun Date Details Amount
t
1 Jul 2012 Balance b/d 2 880 1 Jul 2012 Balance b/d 1 775
Subscription refund Receipt and payment 48 000
(receipt and payment) 2 700
30 June 2013 Income and Expenditure 42 035 Subscription written off 400
30 June 2013 Balance c/d 4 550 30 June Balance c/d 1 990
2013
52 165 52 165
1 Jul 2013 Balance b/d 1 990 1 Jul 2013 Balance b/d 4 550
(b) Prepare an income and expenditure account extract for the year ended 30 June 2013
Income and expenditure account extract for the year ended 30 June 2013
Incomes
Ordinary subscription 42 035
Expenditures
Subscription written off (bad debt) 400
(c) Prepare a statement of financial position extract as at 30 June 2013
Statement of financial position extract as at 30 June 2013
Current Assets
Other receivables:
Subscription due 1 990
Current Liabilities
Other payables:
Subscription prepaid 4 550

Example 4
A club has 40 members each paying $200.
The following information has been provided
31 December 2011 31 December 2012
Subscription due 1 110 560
Subscription received in advance - 340

Prepare a subscription account for year ended 31 December 2012

Dr Subscription Account Cr
Date Details Amount Date Details Amount
1 Jan 2012 Balance b/d 1 110 Receipt and payment ??? 8 890
31 Dec 2012 Income and Expenditure
(40 X 200) 8 000
31 Dec 2012 Balance c/d 340 31 Dec 2012 Balance c/d 560
9 450 9 450
1 Jan 2013 Balance b/d 560 1 Jan 2013 Balance b/d 340

Example 5
A club has 90 members each paying $100
On 1st January 2010, 12 members owed subscription for year ended 31 December 2009 and 7 had already paid
for year ended 31 December 2010.
On 31st December 2010, 15 members had already paid subscription for year ended 31 December 2011 and 5
members still owed subscription for year ended 31 December 2010.
The club decided to write off subscription due by 3 members for year ended 31 December 2009.

Prepare a subscription account for year ended 31 December 2010

Dr Subscription Account Cr
Date Details Amount Date Details Amount
1 Jan 2010 Balance b/d (12 X 100) 1 200 1 Jan 2010 Balance b/d (7 X 100) 700
Receipt and Payment ??? 10 200
31 Dec 2010 Income and Expenditure Subscription written off
(90 X 100) 9 000 (3 X 100) 300
31 Dec 2010 Balance c/d 1 500 31 Dec 2010 Balance b/d 500
11 700 11 700
1 Jan 2011 Balance b/d (5 X 100) 500 1 Jan 2011 Balance b/d (15 X 100) 1 500
Example 6
A club receipt and payment account for the year ended 31 December 2013 has been provided below
Receipt and Payment Account
Receipts Payments
Ordinary subscription
- 2012 900
- 2013 55 000
- 2014 2 900

The following information is available

31 Dec 2012
Subscription due 1 500
Subscription prepaid 2 500
Subscription still due for year ended 31 December 2012 is to be written off.
On 31 December 2013 subscription due amounted for $1 690

(a) Prepare a subscription account for year ended 31 December 2013

Dr Subscription Account Cr
Date Details Amount Date Details Amount
1 Jan 2013 Balance b/d 1 500 1 Jan 2013 Balance b/d 2 500
Receipt and Payment
(900 + 55 000 + 2 900) 58 800
31 Dec 2013 Income and Expenditure 59 190 Subscription written off
(1 500 – 900) 600
31 Dec 2013 Balance c/d 2 900 31 Dec 2013 Balance b/d 1 690
63 590 63 590
1 Jan 2014 Balance b/d 1 690 1 Jan 2014 Balance b/d 2 900

(b) Prepare an income and expenditure account extract for the year ended 31 December 2013
Income and Expenditure Account extract for the year ended 31 December 2013
Incomes
Ordinary subscription 59 190

Expenditures
Subscription written off (bad debt) 600

(c) Prepare a statement of financial position extract as at 31 December 2013

Statement of financial position extract as at 31 December 2013
Current Assets
Other receivables:
Subscription due 1 690

Current Liabilities
Other payables:
 Subscription prepaid 2 900

(ii) Life membership subscription

Some members prefer to pay a life membership fee once instead of paying membership fee ever year. Any
income received as life membership is capitalized that is credited to a life membership account. Each year
an equal amount is transferred to the income and expenditure account. The balance remaining after transfer
to income and expenditure account is added to accumulated fund in the statement of financial position.

Example 1:
A club started a life membership scheme on 1 January 2013. During the year ended 31 December 2013 the club
received $10 000 as life membership subscription. It was decided that the life membership should be accounted
for separately and credited to ordinary revenue over twenty years, in equal amounts.
(a) Prepare an income and expenditure account extract for the year ended 31 December 2013.
Income and expenditure account extract for the year ended 31 December 2013
Incomes
Life membership subscription (10000 / 20) 500

(b) Prepare a statement of financial position extract as at 31 December 2013

Statement of financial position as at 31 December 2013
Accumulated fund XXX
Add life membership subscription (10 000 – 500) 9 500

Example 2:
A club started a life membership scheme on 1 January 2008. On 1 st January 2008 it admitted 5 life members
each paying $5 000. The life subscriptions are brought into income over 10 years starting from the year in
which payment of life subscription takes place.
(a) Prepare an income and expenditure account extract for the year ended 31 December 2008, 2009 and 2010
Income and expenditure account extract for the year ended 31 December 2008
Incomes
Life membership subscription (5 X 5 000) / 10 2 500

Income and expenditure account extract for the year ended 31 December 2009
Incomes
Life membership subscription (5 X 5 000) / 10 2 500

Income and expenditure account extract for the year ended 31 December 2010
Incomes
Life membership subscription (5 X 5 000) / 10 2 500

(b) Prepare a statement of financial position extract as at 31 December 2008, 2009 and 2010
Statement of financial position extract as at 31 December 2008
Accumulated fund XXX
Add life membership subscription (25 000 – 2 500) 22 500

Statement of financial position extract as at 31 December 2009

Accumulated fund XXX
Add life membership subscription (22 500 – 2 500) 20 000
 Statement of financial position extract as at 31 December 2010
Accumulated fund XXX
Add life membership subscription (20 000 - 2500) 17 500
Note after 10 years, the amount of life membership subscription in the statement of financial position will
become nil and no amount will be transferred to the income statement for life membership subscription (unless
new life members are enrolled).

(b) Profit on ancillary activities

An ancillary activity is an activity organized by the club to raise more incomes in addition to subscription.
Such activity does not form part of the normal activity of a club.

(i) Sales of refreshment, running a café, running a souvenir shop and running a bar.
Some clubs often sells refreshment, café, drinks and souvenir. On sales of these items a profit can be made.
Such profit is calculated by preparing a bar / café / shop / refreshment income statement (trading account).
Any profit on such ancillary activities is shown under incomes in the income and expenditure account.
Refreshment / Shop / Bar / Café income statement
Sales of refreshment / Café taking / Bar takings / Shop takings (W1) XXX
Less cost of sales
Opening inventory of bar / café / shop / refreshment XXX
Add café / bar / shop / refreshment purchases (W2) XXX
XXX
Less closing inventory of bar / café / shop / refreshment (XXX)
XXX
Add direct wages (bar wages / café wages / shop wages / refreshment wages) (W3) XXX (XXX)
Gross Profit / Gross Loss XXX / (XXX)
Less Expenses (only expenses related to café / bar / shop and refreshment) (W4)
Café / shop / bar rent , rates , insurance, repairs and maintenance XXX
Depreciation on non-current assets being used in café, shop and bar XXX (XXX)
Café / shop / bar / refreshment profit / Loss XXX / (XXX)
Notes:
- (W1) If in a question there is trade receivables for bar / shop / café / refreshment at start and at end, prepare
a sales ledger control account to get credit sales. Then add the credit sales with cash sales (if any) to get the
total amount of sales. If there are no trade receivables, take the amount in the receipt and payment account
(shown as bar takings / shop takings / sales of refreshment / café takings on receipt side) as sales directly.

- (W2) If in a question there is trade payables for bar / shop / café / refreshment at start and at end, prepare a
purchases ledger control account to get credit purchases. Then add the credit purchases with cash purchases
(if any) to get the total amount of purchases. When there are trade payables, the bar purchases / café
purchases / purchases for shop / purchases of refreshment shown on payment side of a receipt and payment
account will be used as payment to trade payables when preparing a purchases ledger control account. If
there are no trade payables take the amount shown as purchases in the receipt and payment account (shown
as café purchases / bar purchases / purchases for shop / purchases of refreshment on payment side) as
purchases directly.

- (W3) For café / shop / bar / refreshment wages, if there is due or prepaid at start, prepare a bar / shop / café /
refreshment wages account as follows:
Bar / café / refreshment / shop wages account
Balance b/d (prepaid at start) XX Balance b/d (due at start) XXX
X
Receipt and payment XX Income Statement XXX
 X
Balance c/d XX Balance c/d XXX
X
XX XXX
X
Balance b/d XX Balance b/d XXX
X

If there is only due or prepaid at end, add due or less prepaid.

- (W4) For any expense directly related to refreshment / bar / café / shop, if there is due and prepaid at start,
prepare an expense account. It will be similar to the wages account shown above. If the expense is to be
shared between the club and the bar / café / refreshment / shop, prepare the account first and then share the
amount obtained as income statement in the account. If there is only due or prepaid at end, add due or less
prepaid,

- (W5) If no method and rate of depreciation is given in the question, calculate depreciation using the
revaluation method.
Depreciation = Opening NBV + Purchases – Disposal at NBV – Closing NBV

- If there is no other expenses related to café / bar / wages / refreshment, the gross profit will become the
profit for the year.

- Bar / café / shop / refreshment profit will be shown under incomes in the income and expenditure account.
Any loss will be shown under expenditures in the income and expenditure account.

(ii) Dinner / Dance, Concerts and Competition

Some clubs organize ancillary activities such as dinner, dance and competition. A club can make either a
profit or a loss on organization of such activities. Any income and expenditure related to such activities
should be net off in the income and expenditure account. If total income is greater than total expenditure, the
amount for dinner, dance and competition will be shown under incomes in the income and expenditure
account. If total expenditure is greater than total income, the amount for dinner, dance and competition will
be shown under expenditures in the income and expenditure account,

Example 1
Receipt and Payment Account
Receipts Payments
Dinner receipts 18 000 Catering for dinner 12 000
Dinner expenses 5 000
Prepare an income and expenditure account extract
Income and expenditure account extract
Incomes
Dinner receipts 18 000
Less catering for dinner (12 000)
Less dinner expenses (5 000) 1 000

Example 2
Receipt and Payment Account
Receipts Payments
Competition entrance fees 9 000 Competition prizes 6 000
 Dinner receipts 5 000 Dinner expenses 7 000
Prepare an income and expenditure account extract
Income and expenditure account extract
Incomes
Competition entrance fees 9 000
Less competition prizes (6 000) 3 000

Less expenditures
Dinner (7 000 – 5000) 2 000

(c) Donations
Donations can be classified as either specific donation or general donation. Donation is a voluntary
contribution which can be made by member and non-members. The amount is not received at regular
interval and is not fixed. The donation can be used for specific purpose such as purchase of non-current
assets. It can either be recorded in the income and expenditure as an income or it can be capitalized in the
statement of financial position.
(i) Specific donation
Specific donation is the amount of money received for a specific purpose, for example to acquire a non-
current asset. Such donation is capitalized and added to accumulated fund in the statement of financial
position. It is not shown under incomes in the income and expenditure account.

(ii) General donation

General donation is the amount of money not received for a specific purpose. The club can do whatever
it wants with the amount received. Such donation is shown under incomes in the income and
expenditure account.

(d) Profit on disposal of non-current assets.

When cash received from disposal of non-current assets is greater than the net book value of the non-current
assets, a profit on disposal is made which is shown under incomes in the income and expenditure account

(e) Gifts
Gifts received for a specific purpose is added to accumulated fund in the statement of financial position
whereas gifts received for no specific purpose is shown under incomes in the income and expenditure
account.

(f) Entrance fees

To become member of a club, a member is required to pay an entrance fee which is an income for the club.
It is shown as an income in the income and expenditure account

(g) Legacy
Some people make a will that after their death; their wealth should be given a charitable institution. Any
such income received by a non-profit making organization is capitalized. It is added to accumulated fund in
the statement of financial position.

(h) Interest on deposit account

Some clubs put surplus cash in a deposit account where it will earn interest. Interest on the deposit account
is an income which is shown under incomes in the income and expenditure account.
Interest on deposit account = rate of interest X amount in deposit account.
Pay attention to date because some club may make deposit in between the year, the interest should be
calculated only for number of months the cash was put in a deposit account.
 If no amount is shown in the receipt and payment account as interest on deposit, then the interest on deposit
will be due and should be shown under current assets as other receivables in the statement of financial
position.

Expenditures
(a) Club rent, rates, insurance, repairs, maintenance and so on.
Such expenditures will be shown under expenditures in the income and expenditure account. Exclude all
expenditures already recorded in a bar / café / refreshment / shop income statement. At times the
expenditures are shared between the income and expenditure account and the bar / café / refreshment / shop
income statement.
If there are expenditures due and prepaid at start an expenditure account as follows to get the amount to be
recorded in the income and expenditure account. If there is no due or prepayment at start and at end, take the
amount from the receipt and payment and record it directly under expenditures in the income and
expenditure account. If there is only due or prepaid at end, add due or less prepaid.
Expenditure account
Balance b/d (prepaid at start) XX Balance b/d (due at start) XXX
X
Receipt and payment XX Income and Expenditure Account XXX
X
Balance c/d XX Balance c/d XXX
X
XX XXX
X
Balance b/d XX Balance b/d XXX
X

(b) Loss on ancillary activities (café / bar / shop / restaurant losses)

(c) Depreciation on non-current assets

Depreciation on non-current assets being used in the club (not on non-current assets being used in bar / shop
/ café) will be calculated using the revaluation method if no rate and method of depreciation is given
Depreciation = Opening NBV + Purchases – Disposal at NBV – Closing NBV

(d) Loss on disposal of non-current assets

When cash received from disposal of non-current assets is less than the net book value of the non-current
assets, a loss on disposal is made which is shown under expenditures in the income and expenditure account

(e) Interest on loan = % X amount of loan (pay attention to date and the interest on loan can be due)

(f) Subscription written off (bad debts)

Income and Expenditure Account for the year ended……………………………………………….

Incomes
Subscriptions
- Ordinary XXX
- Life XXX
General donation XXX
General gift XXX
Bar / café / shop / restaurant profit XXX
Dinner receipts XXX
 Less dinner expenses (XXX) XXX
Concert receipts XXX
Less hire of band (XXX)
Less concert expenses (XXX) XXX
Competition entrance fees XXX
Less competition prizes XXX
Profit on disposal of non-current assets XXX
Interest on deposit account XXX
Entrance fees XXX
XXX
Less Expenditures
Rent, rates, repairs, maintenance , wages and so on XXX
Loss on disposal of non-current assets XXX
Bar / café / shop / restaurant profit XXX
Loss on ancillary activities (dinner, dance, concerts and competition) XXX
Interest on loan XXX
Depreciation on non-current assets XXX
Subscription written off XXX (XXX)
Surplus / (Deficit) XXX / (XXX)

Statement of financial position

The statement of financial position of a non-profit making organization is similar to the statement of financial
position of a sole trading business. To prepare the statement of financial position use all closing balances except
for accumulated fund; use the accumulated fund at start

Statement of financial position as at …………………………………………

Non-current Assets
Fixtures XXX
Equipment XXX
Motor Van XXX
XXX
Current Assets
Closing inventory XXX
Trade receivables XXX
Other receivables:
Expenses prepaid XXX
Subscription due
Bank Deposit account (add interest on deposit account to the existing XXX
balance on deposit account)

Bank Current Account (closing debit balance on receipt and payment XXX XXX
account)
TOTAL ASSETS XXX
Accumulated Fund and Liabilities XXX
Accumulated fund XXX
Accumulated fund at start XXX
Add Surplus / Less deficit XXX
Add Specific Donation and Gifts XXX
Add Legacy XXX
Add Life Subscription (balance left after transferring to income an
expenditure account) XXX
 Accumulated Fund at end XXX
Non-Current Liabilities
Loan XXX
Current Liabilities
Trade payables XXX
Other payables XXX
Expenses due XXX
Interest on loan due XXX
Subscription prepaid XXX
Bank overdraft (closing credit balance on receipt and payment account XXX XXX
TOTAL ACCUMULATED FUND AND LIABILITIES XXX
Notes:
- For non-current assets use the closing balances. Show the cost and accumulated depreciation if it is possible
to show them.
- To get the bank balance (bank current account) prepare a receipt and payment account by taking the opening
bank balance, adding all receipts and deducting all payments. If the receipt and payment account has a
closing debit balance it will be shown under current assets and if there is a credit balance, it will be shown
under current liabilities
- Accumulated fund will be the accumulated fund at start. The accumulated fund at start will be obtained as
follows:
Opening assets – Opening liabilities
When taking the opening assets and liabilities do not forget the opening bank balance which is often given as
the opening balance in the receipt and payment account. If the opening balance is on debit side, it is an asset
and if the opening balance is on credit side, it is a liability.
1.
 November 2003 P2 Q1
2.

November 2005 P2 Q2
3.
 June 2006 P2 Q2
4.

November 2011 V3 P2 Q2 B
5.

November 2009 V1 P2 Q2
6.
June 2010 V1 P2 Q2
7.

June 2011 V1 P2 Q2
8.

June 2011 V2 P4 Q2
9.

November 2011 V3 P2 Q2B

10.

November 2012 V1 P2 Q2
11.

June 2013 V1 P2 Q1
12.

November 2013 V3 P2 Q1
13.

June 2014 V2 P2 Q1
14.

November 2015 V1 P2 Q1
15.

November 2015 V2 P2 Q1
16.
June 2016 V1 P3 Q1
17.
 June 2016 V2 P3 Q1
18.
 November 2016 V1 P3 Q1
19.
20.
November 2016 V3 P3 Q2
21.

March 2017 V2 P3 Q3
22.

November 2017 V1 P3 Q2
23.

November 2017 V2 P3 Q1
24.
 November 2017 V3 P2 Q2
25.
 June 2018 V1 P3 Q4
26.
November 2018 V1 P3 Q1
27.

March 2019 V2 P1 Q1
28.

November 2019 V1 P3 Q1