Accounting for non-profit organisations
Two different statements
A club keeps a receipts and payments account, which is a cash summary and not a profit statement. To measure performance it prepares an income and expenditure account on the accruals basis, showing a surplus or deficit. The accumulated fund replaces capital, and the balance sheet shows it plus any surplus or less any deficit.
Subscriptions
Subscriptions received in the year must be adjusted: deduct opening arrears, add closing arrears, add opening subscriptions in advance and deduct closing subscriptions in advance. Irrecoverable subscriptions may be written off.
Other items
Donations, fundraising profits, bank interest and profits from a bar or shop are income. Expenses include depreciation, insurance, rent and the cost of goods sold for a trading activity. Life membership is capitalised and released over the member's expected membership period.
Traps
- Treating the receipts and payments balance as a surplus.
- Charging the purchase of a fixed asset as an expense instead of showing it in the balance sheet.
- Forgetting that subscription arrears and advances affect both the income and expenditure account and the balance sheet.
- Recording entrance fees as income when club policy is to capitalise them.
- Omitting depreciation on club assets.
Worked example
Subscriptions received P9,000; opening arrears P600; closing arrears P900; opening advance P300; closing advance P400. Income = 9,000 − 600 + 900 + 300 − 400 = P9,200.