Upload
agnes-lau
View
117
Download
0
Tags:
Embed Size (px)
Citation preview
1
Income and Expenditure account
2
Introduction
Non-profit making organizations such as clubs, societies and associations usually do not have a professional and full-time accountant, the preparation of final accounts for these organization is quite different from before.
3
Accounting terms in non-profit making 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
4
Receipts and payment account
It is summary of bank and cash transactions
Receipt and payment account for the year ended 31 Dec XXXX
Receipts $
Bank balance 1.1XX X
Cash balance 1.1.XX X
Membership fees X
Sales of fixture X
Receipts from tea or drink X
X
Payments $
Sports stadium expenses X
Wages X
Purchase of tea and drink X
Sundry expenses X
Bank balance 31.12.XX X
Cash balance 31.12.XX X
X
5
Preparation of final accounts
1. Bar trading account – to compute the bar profit (one of the income of non-profit making organization 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. Balance sheet – to show the financial position of the organization
6
Bar Trading Account
7
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
8
XXXX Sport club
Bar Trading Account for the year ended XXXX$ $
Sales (wk1) X
Less : COGS
Opening stock X
Add: Purchases (wk2) X
Less: Closing stock X X
Gross Profit X
Less: Expense
Barmen wages (wk3) X
Barmen commissions X
Bar expenses X
Depreciation of Bar equipment X X
Net profit to I&E X
Expenses related bar trading only
9
Total Debtors
Bal b/f X Cash X
Sales (bal.fig.) X Bal c/f X
X X
Total Creditors
Bank X Bal b/f X
Bal c/f X Purchases (bal. Fig.) X
X X
wk1
wk2
wk3
Expense/income incurred = cash paid/received + prepaid last
year – accrued last year – prepaid
this year + accrued this year
10
Income and Expenditure Account
11
Income and Expenditure AccountXXXX Sport Club
Income and Expenditure account for the year ended XXXX
Expenditure Income
12
XXXX Sport Club
Income and Expenditure account for the year ended XXXX$ $ Income
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
13
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
$ $
14
Balance Sheet
15
Balance Sheet as at 31 Dec XXXXCost Dep. Net
$ $ $Fixed Assets
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
16
$ $ $
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
17
Fund Raising ActivitiesThe profit or loss on the fund raising activities must be computed before transferring to income and expenditure account
Example
Receipt and payment account
ReceiptsProceeds of dance party 9500
Receipts from refreshment 5000
PaymentsPrinting of dance party tickets 500
Purchase of refreshments 4500
Sundry expenses of dance party 1020 Additional information:
The opening stock of refreshments was valued at $3200 and the
closing stock of refreshments was valued at $2400
18
Ans:Income and expenditure
Loss from the sale of refreshment
(3200+4500-2400-5000) 300
Profit from dance party
(9500-500-1020) 7980
Expenditure
Income
The related revenue and expense are group together
to compute profit or loss on some activities
Back
19
DonationsDonations/Subsidies received
Ordinary donations/subsidies
Large donations/legacies
Dr Bank
Cr Donations/Subsidies
Dr Donations/subsidies
Cr Income and expenditure
With the amount received
Transferring to income and expenditure
For general purposes Dr Bank
Cr Accumulated fund
For specific purposes Dr Bank
Cr special fund(e.g. training fund,
Building fund)
20
Donations to other charitiesFor general purposes
• Dr Donation to XXX
• Cr Bank
For special purposes• Dr Income and Expenditure
• Cr Donation to XXX
With the amount paid
Transferring to I&E as
an expense
21
Subscriptions
Annual Subscription
Life membership fund
Entrance fees/joining fees
22
Annual SubscriptionsExample 1
Receipt and Payments account for the year ended 31 Dec 1996Receipts
Subscriptions from members for
1995 110
1996 2472
1997 80 2662
Additional information:
Subscription in arrears at 31 Dec 96 = $132
Subscription in advance at 1 Jan 96 =$60
23
Ans:
Income and Expenditure account for the year ended 31 Dec 1996
Income
Subscriptions (2472+60+132) 2664
$
Subscription= Cash received from members+Opening
prepayment-opening accrued + closing accrued-
closing prepaid
24
Example 2
Receipt and Payments account for the year ended 31 Dec 1996Receipts
Subscriptions from members for
1995 100
1996 2472
1997 80 2562
Additional information:
1. 1 Jan 1996 31 Dec 1996
Subscription in arrear $110 $132
Subscription in advance $60 $80
2. The club has a policy of writing off any subscription that
are outstanding for more than one year
25
Ans:
Income and Expenditure account for the year ended 31 Dec 1996
Income
Subscriptions (2472+60+132) 2664
$
ExpenditureSubscription written off (110-100) 10
$
26
Example 3The 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 1995 were
$8000 and 1 October 1996 were $ 12000, without any
subscription in arrears.
27
Ans:
Income and Expenditure account for the year ended 31 Dec 1996
Income
Subscriptions
from 1 Jan-30Sept96 ($8000*9/12) 6000
from 1 Oct-31 Dec96 ($12000*3/12) 3000 9000
$
Back
28
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.
29
Several points be noted
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
Cr Life membership fund
With the amount of the life membership fees received
Dr Life membership fund
Cr Income and expenditure
With the part of life membership fees to be recognized as income in the current year
30
Example 4•From 1 January 1995, 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 1995, 20 people had been admitted as
life members.
•In 1996, 5 people joined the club as life members
•The life membership fee is to be recognized as income evenly
over 10 years.
31
Life membership fund
1995 $ 1995 $Dec 31 I&E
(80000*1/10) 8000Dec 31 Bal c/d 72000
Dec 31 cash (20*$4000) 80000
80000 80000
Ans:
Income and Expenditure account for the year ended 31 Dec
IncomeSubscriptions
1995
$8000
Balance Sheet (Extract)1995
$Life membership subscription 72000
32
Life membership fund
1995 $ 1995 $Dec 31 I&E
(80000*1/10) 8000Dec 31 Bal c/d 72000
Dec 31 cash (20*$4000) 80000
80000 80000
1996 $ 1996 $Dec 31 I&E
(20000*1/10)+
(80000*1/10) 10000Dec 31 Bal c/d 82000
Jan 1 Bal b/d 72000Dec 31 Cash (5*4000) 20000
92000 92000
Ans:
33
Income and Expenditure account for the year ended 31 Dec
IncomeSubscriptions
1996
$
1995
$8000 10000
Balance Sheet (Extract)1996
$
1995
$Life membership subscription 72000 82000
34
Life membership fund can be transferred directly to the accumulated fund when an individual life member dies
Dr Bank
Cr Life membership fund
With the amount of the life membership fees received
Dr Life membership fund
Cr Accumulated fund
With the part of life membership fund written off to the accumulated fund when a members dies
35
Example 5•The life membership fund was $8000 as at 1 January1996.
•In 1996, two people joined the club as life members.
•During the year 1996, three life members died.
•It is the club’s policy to transfer the life membership fund of
$400 each directly to the accumulated fund when life members
die.
36
Life membership fund1996 $ 1996 $
Dec 31 Accumulated
fund (3*$400) 1200Dec 31 Bal c/d
(19*$400) 7600
Jan 1 Bal b/d 8000Dec 31 Cash (2*400) 800
8800 8800
Ans:
Back
37
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
38
Write off entrance fees wholly in the year they are received
Dr Bank
Cr Entrance fees/joining fees
With the amount received
Dr Entrance fees/joining fees
Cr I&E
Transferring wholly to the I&E as income
Write off entrance fees over a number of years
Dr Bank
Cr entrance fees/joining fees
With the amount received
Dr Entrance fees/joining fees
Cr I&E
Transferring the portion to be recognized as income
39
Example 6
•The balance of the entrance fees as at 31 December 1995 was
made up of:
Year of joining Balance
1993 $1000
1994 $1500
1995 $3000
•On joining the club, each new member has to pay an entrance
fee of $500
•The entrance fee is to be recognized as income evenly over four
years
•During the year of 1996, 10 new members had been admitted
40
Income and Expenditure account for the year ended 31 Dec
IncomeEntrance Fees (1000+1500*1/2+3000*1/3+500*10*1/4) 4000
1996
$
Balance Sheet (Extract)$
Accumulated fund X
Add surplus of I&E X
XEntrance fees (1500*1/2+3000*2/3+500*10*3/4) 6500