A-Level Accounting (9706): Preparation of Financial Statements – Clubs and Societies

Welcome to one of the most interesting and practical sections of A-Level Financial Accounting! You’ve already mastered preparing accounts for sole traders, partnerships, and limited companies. Now, we look at entities that don’t exist to make money for owners: Clubs and Societies, also known as Non-Profit Making Organisations (NPOs).

Don't worry if this seems tricky at first. The basic rules of double entry and adjustments (like accruals and depreciation) still apply. The main difference is the format and the terminology we use—we aim for a Surplus or Deficit instead of a Profit or Loss.

Let's dive in and organize these concepts!

1. Understanding Non-Profit Making Organisations (NPOs)

Clubs and societies (like a local sports club, chess club, or charity) have a primary objective that is not financial profit. Their goal is usually to provide services to their members or the community.

Key Terminology Differences

  • Instead of Profit, they aim for a Surplus (Income > Expenditure).
  • Instead of Loss, they incur a Deficit (Expenditure > Income).
  • Instead of Capital (Owner's Equity), they have an Accumulated Fund.

The Two Key Statements

NPOs prepare two crucial financial statements:

  1. Receipts and Payments Account (R&P Account): A summary of cash movements.
  2. Income and Expenditure Account (I&E Account): Calculates the Surplus or Deficit using accrual concepts.
Quick Review: The Foundation

The R&P Account is based on the Cash Basis of accounting. The I&E Account is based on the Accrual Basis (Matching Concept), just like a standard Statement of Profit or Loss.

2. The Receipts and Payments Account (R&P)

What is the R&P Account?

Think of the R&P Account as a summarized Cash Book for the year. It records every cash inflow (receipt) and every cash outflow (payment), regardless of whether the transaction relates to the current period, past periods, or future periods.

It begins with the opening cash/bank balance and ends with the closing cash/bank balance.

Format and Content of the R&P Account

The R&P Account is a simple T-account layout:

Debit Side (Receipts/Inflows):
Includes all money received, such as subscriptions received (cash), sale of old non-current assets (cash), donations (cash), and proceeds from fundraising events.

Credit Side (Payments/Outflows):
Includes all money paid, such as rent paid (cash), purchase of equipment (cash), wages paid (cash), and payments for trading inventory.

Step-by-Step R&P Calculation:

Opening Cash/Bank Balance + Total Receipts – Total Payments = Closing Cash/Bank Balance

Common Mistake Alert!

The R&P Account is NOT used to calculate the surplus or deficit. It is only a summary of cash flow. It ignores non-cash items like depreciation and any outstanding (accrued or prepaid) amounts.

3. The Income and Expenditure Account (I&E)

The Purpose of the I&E Account

The I&E Account is the equivalent of a Statement of Profit or Loss for a trading business. Its purpose is to calculate the Surplus or Deficit for the period by applying the accrual concept.

It includes all income earned and all expenditure incurred, regardless of whether the cash was received or paid in the current year. Non-cash items (like depreciation) must be included.

Format and Content of the I&E Account (Summary)

(i) Income Section
  • Subscriptions (calculated amount for the year)
  • Profit from trading activities (e.g., bar profit)
  • Revenue generated (e.g., rental income earned, locker fees earned)
  • General revenue donations
(ii) Expenditure Section
  • Expenses incurred (rent, wages, light and heat, adjusted for accruals/prepayments)
  • Loss from trading activities (if applicable)
  • Depreciation of non-current assets

Key Takeaway: If Income > Expenditure, the result is a Surplus (which increases the Accumulated Fund). If Expenditure > Income, the result is a Deficit (which decreases the Accumulated Fund).

4. Accounting for Specific Items

4.1 The Subscriptions Account (Crucial Calculation)

Subscriptions are the main source of recurring income for a club, paid by its members. Since the R&P account only shows subscriptions received in cash, we must prepare a Subscriptions Account to find the amount that relates *only* to the current year (the figure transferred to the I&E Account).

This is a standard application of accruals and prepayments:

Subscriptions Account (T-Account Format)

| Debit (DR) | Credit (CR) | | :--- | :--- | | Balance b/d (Arrears/Receivable at start) (Asset) | Balance b/d (In Advance/Prepaid at start) (Liability) | | Income and Expenditure Account (Balancing figure: Income for the year) | Receipts & Payments Account (Cash received this year) | | Balance c/d (In Advance/Prepaid at end) (Liability) | Balance c/d (Arrears/Receivable at end) (Asset) |

Memory Aid: Think of subscriptions in arrears (money owed to the club) as a receivable (Asset). Think of subscriptions paid in advance (money owed by the club) as a prepayment (Liability).

4.2 Accounting for Trading Activities

Many clubs run secondary operations, such as a bar, a canteen, or selling club merchandise, to raise extra funds. These are treated like a mini-sole trader business within the club.

Step 1: Prepare a Trading Account
A specific Trading Account (e.g., Bar Trading Account) is prepared to calculate the gross profit from this activity.

Sales Revenue
Less Cost of Sales (Opening Inventory + Purchases – Closing Inventory)
= Gross Profit

Step 2: Transfer Result to I&E
The Gross Profit (or Loss) from the trading account is taken directly to the Income and Expenditure Account (as income or expenditure, respectively). Any other revenue or running costs associated with the bar (like the barman's wages or rent on the bar space) are treated as general club expenditure in the I&E account, unless the question requires them to be deducted in the trading account to find *net* profit.

4.3 Life Membership and Donations

Accounting for these depends entirely on their nature:

Life Membership Fees

When a member pays a large lump sum for Life Membership, this payment is usually considered a capital receipt, as it covers many future periods. It should NOT be included fully in the I&E Account in the year of receipt.


Treatment: The full amount is initially recorded as a liability in the SOFP. It is then released to the I&E Account (as income) over the estimated lifespan of the member (or a fixed period specified by the club's rules). This process is known as amortisation or systematic allocation.

Donations (General vs. Specific)
  • General Donations: Small, regular donations (e.g., cash placed in a collection box). These are treated as revenue income and go directly into the I&E Account.
  • Specific Donations / Legacies: Large donations received for a particular purpose (e.g., a donation to build a new stand, or a large sum left in a will). These are treated as capital receipts, increasing the Accumulated Fund directly, or kept separate as a designated fund/liability until used for the intended non-current asset.

4.4 Adjustments (Recap from 1.5.1)

Remember, the I&E account uses the accrual concept. Therefore, you must apply all the standard adjustments you learned for sole traders:

  • Accruals and Prepayments: Ensuring expenses (like rent or insurance) and income (like locker fees) are recorded only for the current period.
  • Depreciation: Calculating the annual charge on non-current assets (e.g., sports equipment, clubhouse). This is an expense in the I&E Account and reduces the Net Book Value in the SOFP.
  • Inventory Valuation: Used for trading activities (bar, café).

5. The Statement of Financial Position (SOFP)

The SOFP for a club is prepared exactly like a trading business, detailing Assets and Liabilities. The only significant difference is the equity section.

The Accumulated Fund

The Accumulated Fund replaces the Capital section. It represents the total accumulated wealth of the club (the surplus of assets over liabilities).

Calculating the Accumulated Fund (The Starting Point)

If the opening Accumulated Fund is not provided, you must calculate it by preparing an opening Statement of Financial Position (or a Statement of Affairs) at the start of the year:

\(\text{Opening Non-current Assets} + \text{Opening Current Assets} - \text{Opening Liabilities} = \mathbf{Opening \text{Accumulated Fund}}\)

Closing Accumulated Fund Calculation:

\(\text{Opening Accumulated Fund} + \text{Surplus (or - Deficit)} + \text{Capital Receipts (e.g., Specific Donations)} = \mathbf{Closing \text{Accumulated Fund}}\)

Structure of the SOFP (End of Year)

The SOFP will list:

  1. Non-current Assets: Shown at Net Book Value (Cost less Accumulated Depreciation).
  2. Current Assets: Includes inventory (if trading), trade receivables, prepaid expenses (e.g., prepaid rent), and subscriptions in arrears (receivable).
  3. Current Liabilities: Includes accrued expenses (e.g., outstanding wages), trade payables, and subscriptions received in advance (prepaid liability).
  4. Financed by (Equity/Fund):
    • Accumulated Fund (opening balance)
    • Add: Surplus for the year
    • Add: Capital income (if applicable)
    • Less: Deficit for the year (if applicable)

6. Evaluating Sources of Finance and Fundraising

Unlike profit-making businesses that raise capital from shares or loans for growth, clubs often rely on specific fundraising methods. Understanding these is vital for evaluation and decision-making (an AO3 skill).

Possible Sources of Finance and Fundraising Methods

  1. Subscriptions: The core, reliable income stream. (Evaluation: Low risk, but limits spending based on membership size.)
  2. Grants and Sponsorships: Funds received from external bodies (government, local businesses) often for specific projects. (Evaluation: Excellent for large capital projects, but often comes with strict conditions.)
  3. Specific Appeals or Donations: Asking members or the public for money for a dedicated cause (e.g., "Save the Club Roof Fund"). (Evaluation: Highly effective if the cause is compelling, but can only be used for the stated purpose.)
  4. Legacies: Money or assets left to the club in a will. (Evaluation: Can be very large and helpful, but unpredictable and irregular.)
  5. Fundraising Events: Social nights, raffles, fetes. These are revenue-generating activities designed to maximize profit. (Evaluation: High effort and organizational risk, but boosts community engagement.)

Evaluation Focus

When evaluating sources of finance, consider factors such as:

  • Predictability: How reliable is the income stream year to year?
  • Control: Does the club retain full control over how the money is spent?
  • Repayment: Are there any repayment obligations (rare for clubs, but possible if they take out a bank loan)?
  • Cost: How much does it cost to raise the money (e.g., printing costs for raffle tickets)?

Did you know? The distinction between Capital and Revenue receipts is especially important for NPOs. A capital receipt usually improves the club's long-term structure (like building a new court), whereas a revenue receipt covers day-to-day running costs.

Key Takeaway for Clubs & Societies

Clubs and Societies accounting is all about segregating cash movement (R&P) from actual earnings (I&E) and meticulously calculating the Subscriptions and Accumulated Fund to reflect the true financial position under the accrual concept.