Introduction to Clubs and Non-Profit Making Organisations

Welcome! In this chapter, we are moving away from businesses that try to make a profit (like a shop or a factory) and looking at organisations that exist to provide a service or support a hobby. Think of your local football club, a youth center, or a charity.

Because these organisations aren't trying to "get rich," their accounting looks a little different. Instead of "Profit," they talk about "Surplus." Instead of "Capital," they have an "Accumulated Fund." Don't worry if this seems like a lot of new words—the logic of double-entry accounting stays exactly the same!

1. Key Differences: Business vs. Non-Profit

Before we dive into the numbers, let’s look at why these organisations are unique. A normal business (like a sole trader) starts with the owner’s money to make a profit. A club starts with members who pay fees to enjoy an activity.

Terminology Swap-Shop

To master this chapter, you just need to "translate" the terms you already know into "Club language":

  • Profit becomes Surplus (Income is more than expenses).
  • Loss becomes Deficit (Expenses are more than income).
  • Capital becomes Accumulated Fund (The total value owned by the club).
  • Income Statement becomes Income and Expenditure Account.
  • Cash Book summary becomes Receipts and Payments Account.

Quick Tip: If you see the word "Surplus," just think "Profit for nice people!" It's the same math, just a friendlier name.

2. The Receipts and Payments Account

This is the simplest part of club accounting. It is essentially a summary of the Cash Book for the year. It records every bit of money that came in and every bit of money that went out, regardless of what it was for.

What goes in it?

  • Receipts (Debit side): All cash/bank entries coming in (Subscriptions, donations, ticket sales).
  • Payments (Credit side): All cash/bank entries going out (Rent, equipment, electricity).

Important Point: This account does not follow the accruals concept. It only cares about when cash was actually touched. If you paid next year's rent today, it goes in here!

Example: If a member pays their 2025 membership fee in December 2024, it appears in the 2024 Receipts and Payments account because the cash was received.

3. The Subscription Account (The "Heart" of the Chapter)

Most students find this the trickiest part, but we can break it down. Subscriptions are the membership fees paid by members. This is the main source of income for a club.

We need to use the accruals concept to find the actual income for the current year. This means we only want the money that belongs to this year, excluding money paid for last year or next year.

The Subscription Formula

To calculate the income for the year, use this logic:

\( \text{Income for the Year} = \text{Total Cash Received} + \text{Closing Arrears} - \text{Opening Arrears} - \text{Closing Prepayments} + \text{Opening Prepayments} \)

Memory Aid: Dealing with "Arrears" and "Advance"

  • Arrears (Accrued): Money members owe the club. This is a Current Asset.
  • In Advance (Prepaid): Money members paid early. This is a Current Liability (because the club owes them the service).

Common Mistake: Forgetting that "Opening Arrears" (money owed from last year) was received this year but belongs to last year, so it must be subtracted!

4. The Income and Expenditure Account

This is the club's version of an Income Statement. Its goal is to calculate the Surplus or Deficit for the year.

Rules for this account:

  • Use the accruals concept (adjust for prepayments and accruals).
  • Only include Revenue Income (like subscriptions) and Revenue Expenditure (like repairs).
  • Do NOT include Capital Expenditure (like buying a new clubhouse). Only include the Depreciation on those assets.
Did you know?

If a club runs a small shop or a bar to make extra money, they will prepare a separate Trading Account first. The "Profit from Bar" is then moved into the Income and Expenditure account as a single line of income.

5. The Accumulated Fund

In a normal business, the owner brings in "Capital." In a club, there is no single owner. Instead, the "Capital" grows over many years from surpluses. We call this the Accumulated Fund.

How to calculate the Opening Accumulated Fund:

If the exam doesn't give you the starting fund, you have to find it using the basic accounting equation:

\( \text{Accumulated Fund} = \text{Total Assets} - \text{Total Liabilities} \)

Step-by-Step:
1. List everything the club owned on the first day of the year (Bank balance, equipment, subscriptions in arrears).
2. List everything the club owed on the first day (Unpaid bills, subscriptions in advance).
3. Subtract Liabilities from Assets. That is your opening fund!

6. Summary and Quick Review

Key Takeaways:

  • Clubs focus on service, not profit.
  • Receipts and Payments = Just a Cash Summary (No accruals).
  • Income and Expenditure = Shows Surplus/Deficit (Uses accruals).
  • Subscriptions must be adjusted so only "this year's" portion is recorded as income.
  • Accumulated Fund is just the club's version of Capital.

Don't worry if this seems tricky at first! The most important thing is to keep track of whether a subscription is "in arrears" (asset) or "in advance" (liability). Once you master that T-account, the rest of the chapter falls into place like a puzzle. Keep practicing!