FAC 0034

FINANCIAL ACCOUNTING 2

Accounting For Non-Profit Organization

 Introduction
Non-profit organizations - clubs, societies
and associations - do not have professional
and full-time accountant - preparation of
final accounts quite different.
Not for profit but to promote and cater for
the members’ interests and welfare.
Provide service to members.
 Comparison between Businesses and
Clubs / Societies

Businesses Clubs and Societies

Set up to earn profit by selling To promotes activities of interests to
goods and services its members
Financed by owners’ equity Financed by monthly or yearly
subscriptions from members
Money received and paid are Money received/paid are recorded in
recorded in cash book receipts and payments accounts
Trading account Trading account (Canteen)
Sales revenue – Cost of sales Trading revenue – Trading
expenses
Revenues: Sales or Income Income: Subscriptions from members
received
 Businesses Clubs and Societies

Profit and Loss account Income and expenditure account

= Profit/Loss = Surplus/Deficit
SoFP (Balance sheet): SoFP (Balance sheet):
Assets = Owners’ Equity + Assets = Accumulated fund +
Liabilities Liabilities
 Accounting Terms in Non-Profit
Organizations
Terms used Corresponding terms
in commercial business
Accumulated fund Capital

Receipts and payments account Cash book

Income and expenditure account Profit and loss account

Surplus of income over expenditure Net profit

Deficit of expenditure over income Net loss

 Subscription Accounts

 Subscriptions - paid by members as charges for using the

facilities of a club / society for a particular period of time
(usually in yearly basis).
 Subscriptions fees:
Entrance fee
Annual fee
Tournament fee
 To post it to the Income and Expenditure accounts,
adjustments have to be made to the subscription.
 Subscription only pertaining to that particular year is
recorded in Income/Expenditure accounts.
 Receipt & Payment Account

 A summary of the cashbook for the period under

review.
 A summary of cash and cheques received and paid.
 It does not use accrual basis in accounting.
 Receipts are recorded at debit side and payments are
recorded at credit side of the account.
 If at the end of the accounting period, balances in
debit side indicate as cash in hand (SoFP) and
balances in credit side indicate overdraft (SoFP).
 Receipt & Payment accounts suitable for very
small clubs and societies with mainly have cash
and bank balances.
 Larger clubs and societies usually prepare and
income and expenditure accounts.
 Receipts and Payment Account
Summary of bank and cash transactions

Receipt and payment account for the year ended 31 Dec XXXX
Receipts RM Payments RM
Bank balance 1.1XX X Sports stadium expenses X
Cash balance 1.1.XX X Wages X
Membership fees X Purchase of tea and drink X
Sales of fixture X Sundry expenses X
Receipts from tea or drink X Bank balance 31.12.XX X
Cash balance 31.12.XX X
X X
 Preparation of Final Accounts
1. Bar Trading Account – to compute the bar
profit (one of the income of non-profit and
include in I&E)
2. Income and Expenditure account (I&E) –
to compute the surplus or deficit of the
organization for one year
3. SoFP (Balance Sheet) – to show the
financial position of the organization
 Bar Trading Account
It may be called Bar Trading and Profit and
loss account
Bar sales, bar purchases and expenses
related to the bar operation will also be
included
 XXXX Sport Club
Bar Trading Account for the year ended XXXX
RM RM
Sales (1) X
Less : COGS
Opening stock X
Add: Purchases (2) X
Less: Closing stock X X
Gross Profit X
Less: Expense Expenses related bar trading only
Barmen wages (3) X
Barmen commissions X
Bar expenses X
Depreciation of Bar equipment X X
Net profit to I & E X
1
Debtors
Bal b/f X Cash X
Sales (Bal.fig.) X Bal c/f X
X X
2
Creditors
Bank X Bal b/f X
Bal c/f X Purchases (Bal. Fig.) X
X X

3
Expense / Income incurred = Cash Paid / Received + Prepaid Last
Year – Accrued Last Year – Prepaid
This year + Accrued This Year
 Income and Expenditure Account
XXXX Sport Club
Income and Expenditure account for the year ended XXXX
Expenditure Income
 XXXX Sport Club
Income and Expenditure account for the year ended XXXX
Income RM RM
Income received X
Subscriptions – Annual subscriptions X
- Life membership fees X
- Joining fees/Entrance fees X
Profit on fund raising activities
( Related Proceeds – Related Expenditure ) X
Profit on disposal X
Donations/Subsidies received X
X
Expenditure
Expenses incurred X
 RM RM
Subscriptions/bad debt written off X
Loss on fund raising activities
(Expenditure- proceed) X
Loss on disposal X
Depreciation X
Bar loss (from bar trading a/c) X X
Surplus/ (deficit) X
 Balance Sheet as at 31 Dec XXXX
Cost Dep. Net
Fixed Assets RM RM RM
Plant & Machinery X X X
M.V. X X X
X X X
Current Assets
Bar Stock X
Subscription in arrears X
Prepayment X
Bank X
Cash X
X
Less:Current Liabilities
Creditors – Bar purchases X
Subscription in advance X
Accrued expenses X
Working Capital X
X
 RM
Accumulated Fund
Balance as at opening date X
Add/Less: Surplus/(Deficit) of I&E X
Add :Life membership fees (when life
members die) X
: Material donations/legacies received X
X
Life Membership Fund X
Entrance Fees/Joining Fees X
Other Fund (e.g. Training /Building Fund) X
X
Long-term Liabilities X
X
 Fund Raising Activities
The profit or loss on the fund raising activities must be
computed before transferring to income and expenditure
account
Example
Receipt and payment account
Receipts Payments
Proceeds of dance party 9500 Printing of dance party tickets 500
Receipts from refreshment 5000 Purchase of refreshments 4500
Sundry expenses of dance party 1020
Additional information:
The opening stock of refreshments was valued at RM3200 and the
closing stock of refreshments was valued at RM2400
Ans:
Income and expenditure
Income
Profit from dance party
(9500-500-1020) 7980

Expenditure
Loss from the sale of refreshment
(3200+4500-2400-5000) 300

The related revenue and expense are group together

to compute profit or loss on some activities
Bar Trading for Refreshment fye 31/12/20x3
Sales 5,000
(-) COGS / COS
Opening inventory 3,200
(+) Purchases 4,500
(-)Closing Inventory (2,400) (5,300)
Gross Loss (300)
(-) Expenses 0
Net Loss from Refreshment (300)

21
 Donations
Donations / Subsidies received
Ordinary donations / subsidies
Dr Bank
Amount received
Cr Donations/Subsidies

Dr Donations/Subsidies Transferring to income and expenditure

Cr Income and Expenditure

Large donations / Legacies

For general purposes Dr Bank
Cr Accumulated Fund

For specific purposes Dr Bank

Cr Special Fund(e.g. training
fund,
Donations to other charities
For general purposes
• Dr Donation to XXX With the amount paid
• Cr Bank
For special purposes
• Dr Income and Expenditure Transferring to I&E as
• Cr Donation to XXX an expense
 Subscriptions
Annual Subscription
Life membership fund
Entrance fees/joining fees
 Annual Subscriptions
Example 1
Receipt and Payments account for the year ended 31 Dec 20X4
Receipts
Subscriptions from members for
20X3 110
20X4 2472
20X5 80 2662

Additional information:
Subscription in arrears at 31 Dec X4 = RM132
Subscription in advance at 1 Jan X4 = RM60
 Ans:
Income and Expenditure account for the year ended 31 Dec 20X4
Income RM
Subscriptions (2472+60-110+132-80) 2474

Subscription= Cash received from members + Opening

prepaid - Opening accrued + Closing accrued-
Closing prepaid
 Example 2
Receipt and Payments account for the year ended 31 Dec 20X4
Receipts
Subscriptions from members for
20X3 100
20X4 2472
20X5 80 2562

Additional information:
1. 1 Jan 20X4 31 Dec 20X4
Subscription in arrear RM110 RM132
Subscription in advance RM60 RM80
2. The club has a policy of writing off any subscription that
are outstanding for more than one year
 Ans:
Income and Expenditure account for the year ended 31 Dec 20X4
Income RM RM
Subscriptions (2472+60 -110 +132 -80 ) 2474
Expenditure
Subscription written off (110 -100) 10
Example 3
The financial year end of the club is 31 December, but
The subscriptions are payable in advance on 1 October each
year. The subscriptions received on 1 October 20X3 were
RM8000 and 1 October 20X4 were RM12000, without any
subscription in arrears.
 Ans:
Income and Expenditure account for the year ended 31 Dec 20X4
Income RM
Subscriptions
from 1 Jan - 30 Sept X4 ($8000*9/12) 6000
from 1 Oct - 31 Dec X4 ($12000*3/12) 3000 9000
 Life Membership Fund
Life membership fees are income earned
over a long period, and therefore, they
should not be treated as income in one year.
Usually a life membership fund would be
set up, part of it would be written off in
each year as income.
 A life membership fund can be written off
over:
The number of years of annual subscriptions
purchased
The estimated average life of life members
Dr Bank With the amount of the life
Cr Life membership fund membership fees received
Dr Life membership fund With the part of life
Cr Income and expenditure membership fees to be
recognized as income in the
current year
 Example 4
•From 1 January 20X3, the club began to recruit life members.
•On joining the club each life member has to pay a life
membership fee of $4000.
•As at 31 December 20X3, 20 people had been admitted as
life members.
•In 20X4, 5 people joined the club as life members
•The life membership fee is to be recognized as income evenly
over 10 years.
 Ans:
Life membership fund
20X3 RM 203 RM
Dec 31 I&E Dec 31 cash (20*$4000) 80000
(80000*1/10) 8000
Dec 31 Bal c/d 72000
80000 80000

Income and Expenditure account for the year ended 31 Dec

20X3
Income RM
Subscriptions 8000
Balance Sheet (Extract)
20X3
RM
Life membership subscription 72000
Ans:
Life membership fund
20X3 RM 20X3 RM
Dec 31 I&E Dec 31 cash (20*4000) 80000
(80000*1/10) 8000
Dec 31 Bal c/d 72000
80000 80000
20X4 RM 20X4 RM
Dec 31 I&E Jan 1 Bal b/d 72000
Dec 31 Cash (5*4000) 20000
(20000*1/10)+
(80000*1/10) 10000
Dec 31 Bal c/d 82000
92000 92000
Income and Expenditure account for the year ended 31 Dec
20X3 20X4
Income RM RM
Subscriptions 8000 10000

Balance Sheet (Extract)

20X3 20X4
RM RM
Life membership subscription 72000 82000
 Life membership fund can be transferred
directly to the accumulated fund when an
individual life member dies

Dr Bank With the amount of the life

Cr Life membership fund membership fees received
Dr Life membership fund With the part of life
Cr Accumulated fund membership fund written off
to the accumulated fund when
a members dies
 Example 5

•The life membership fund was RM8000 as at 1 January 2024.

•In 2024, two people joined the club as life members.
•During the year 2024, three life members died.
•It is the club’s policy to transfer the life membership fund of
RM400 each directly to the accumulated fund when life
members die.
Ans:
Life membership fund
2024 RM 2024 RM
Dec 31 Accumulated Jan 1 Bal b/d 8000
Dec 31 Cash (2*400) 800
fund (3*400) 1200
Dec 31 Bal c/d
(19*400) 7600
8800 8800
 Entrance Fees / Joining Fees
Entrance /joining fees can be included as
income in the year that they are received, or
written off over the number of years
determined by the clubs
Write off entrance fees wholly in the year they are received
Dr Bank With the amount received
Cr Entrance fees/joining fees
Dr Entrance fees/joining fees Transferring wholly to the
Cr I&E I&E as income
Write off entrance fees over a number of years
Dr Bank With the amount received
Cr Entrance fees/joining fees
Dr Entrance fees/joining fees Transferring the portion to be
Cr I&E recognized as income
 Example 6
•The balance of the entrance fees as at 31 December 20X4 was
made up of:
Year of joining Balance
20X2 RM 1 000
20X3 RM 1 500
20X4 RM 3 000
•On joining the club, each new member has to pay an entrance
fee of RM500
•The entrance fee is to be recognized as income evenly over four
years
•During the year of 20X5, 10 new members had been admitted
 Income and Expenditure account for the year ended 31 Dec
20X4
Income $
Entrance Fees (1000*1/4 +1500*1/4+3000*1/4) 1375

Balance Sheet (Extract)

$

Accumulated fund X
(Add) Surplus of I & E X
X
Entrance Fees 8,250
The following information is available for the McKinnon
Tennis Club for the year ended 31 December 20X5
RM RM
Subscriptions 8,000 Balance b/d 600
Dinner dance 3,200 Dinner dance cost 1,900
Bar receipts 16,300 Wages bar staff 6,200
Maintenance 3,000
Heat and light 1,300
Bar purchases 4,800
General expenses 2,500

The following information is also available RM RM

1/1/X5 31/12/X5
Heat & light accrued 200 160
Bar stock 2,500 2,100
Creditors’ bar purchases 1,400 800
Subs due and unpaid 200 400
Subs paid in advance 1,500 900
Equipment 9,400 7,600
1)Bar staff salaries are the only expenses in the bar trading account.

Prepare:
 The Bar trading account for the year ended 31 December 20X5.
 The income and expenditure account for the year ended 31 December 20X5.
 The balance sheet as at 31 December 20X5.