INCOME AND EXPENDITURE ACCOUNT(with answers)
P.1
A conventional trading and profit and loss account is not an appropriate form in which to present
the final accounts of a non-trading entity. Clubs, institutions, societies, professional bodies and similar
concerns not formed with the intention of profit making will usually prepare an income and
expenditure account. Occasionally it may be called a revenue account.
Differences between ‘A Receipts and Payment Account’ and
‘An Income and Expenditure Account’
Receipts and Payment Account
1.
a summary of cash transactions and the
resultant cash or bank balance
Income and Expenditure
Account
1. a balance representing the surplus or
deficit of income over expenditure for the
period under review
2. contains only part of the income or
expenditure for the period, i.e., the part
actually received or paid. It may also
contain receipts and payments
belonging to preceding or succeeding
periods.
2. contains all income and revenue
expenditure attributable to the period of
the account, whether received or paid or
not.
3. contains both capital and revenue items
if received or paid.
3. contains revenue items only.
4. virtually a summarised statement of
cash book
4. virtually a Trading and Profit and Loss
Account.
There are a few points in particular that should be noted when attempting an income and expenditure
question in an examination.
1. In large clubs it is usual to prepare special Trading Accounts to show the results of bar trading, sale
of refreshments and similar operations.
2. The capital account is sometimes described as an Accumulated Fund. A surplus of income over
expenditure for the period is added to this fund, and a deficit is deducted.
3. Depreciation of fixed assets may or may not be required. If depreciation is required there will be
some indication of this, though it may be implicit rather than explicit.
4. If receipts are described as ‘bar receipts’ or ‘dance receipts’ or other ‘special effort receipts’, careful
scrutiny is recommended to see if expenses are similarly identified. If is quite probable that the
examiner is looking for a separate ‘bar account’ or ‘dance account’, the profit and loss on which
should be transferred to the main income and expenditure account. Marks will be list if the
individual items are simply listed in the income and expenditure account. In the case of a bar
account, stocks at the beginning and the end of the year should of course be included, as should
items such as barman’s wages.
P.2
5. A payment for life membership should not be treated as income solely in the year in which the
member paid the money. It should be credited to a Life Membership Account, and transfers should be
made to the credit of the income and expenditure account of an appropriate amount annually.
6. Entrance fees paid on application for membership should not be treated as income solely in the year
in which the member is admitted. It should be credited to Entrance Fees Account and transfers
should be made from that account to the income and expenditure account of an appropriate amount
annually.
Accounting treatments for subscriptions
e.g 1. The club has 10 members at present and the annual subscription for each member is $100 each.
Case 1 – all members duly paid their subscriptions.
I&E a/c
Subscription
$1 000 | Bank (10x$100)
$1 000
Case 2 – only 9 members paid their subscriptions.
I & E a/c
In arrear b/d
Subscription
1 000
| Bank (9x$100)
| In arrear c/d
1 000
|
|
100
900
100
1 000
Journal entries for year end adjustments:
Dr. Subscription in arrear
Cr. Subscription
100
100
To record the unpaid subscription for one member.
Case 3 – all members duly paid their subscriptions and one of them also paid for the next year.
Subscription
I & E a/c
1 000
| Bank (11x$100)
In advance c/d
100
|
1 100
|
| In advance b/d
Journal entries for year end adjustments:
Dr. Subscription
Cr. Subscription in advance
100
100
To record the subscription paid in advance for one member.
1 100
1 100
100
P.3
e.g 2. The cash receipts for members’ subscription amounted to $4 388 for the year ended 30
September 1998. The following valuations are also available:
As at 30 September
Subscriptions in arrears
Subscriptions in advance
1997
$150
75
1998
$ 90
35
You are required to prepare the subscription account for the year ended 30 September 1998.
Subscription account
In
arrear
b/d
I&E a/c (b.f.)
In
advance
150
| In
4 368
c/d
advance b/d
75
| Bank
35
| In
4 553
4 388
arrear
c/d
90
|
4 553
e.g 3. The subscriptions received from members for the year ended 31 December 1998 are shown as
follows:
Subscriptions received for:
1997
55
1998
1 236
1999
40
Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December
1998. Subscriptions owing for more than one year would be treated as uncollectible.
You are required to prepare the subscription account for the year ended 31 December 1998.
Subscription
In
arrear
b/d
I & E a/c (b.f.)
In
advance c/d
65
1 302
|
In
advance
b/d
0
|
Bank – 1997
55
|
- 1998
1 236
|
- 1999
___44
1 335
|
Bad debts
44
|
In
______
|
_____
1 411
|
1 411
arrear
10
c/d
66
P.4
Illustration One (Amended from 1998 Section A Question 3)
The treasurer of the Leisure Club has prepared the following receipts and payments account for the year
ended 31 December 1997:
Receipts and payments account
$
$
Balance b/d
15 330
Bar purchases
61 250
Subscriptions
49 000
Bar wages
7 420
Bank interest
92
Administration expenses
42 270
Bar sales
97 500
Insurance
6 250
Balance c/d
44 732
161 922
161 922
Additional information:
(i)
The following balances were extracted from the club’s books at 31 December 1996:
$
Accrued bar wages
455
Bar debtors
1 000
Club premises
300 000
Creditors for bar supplies
8 190
Bar stock
9 425
Prepaid insurance
600
Subscriptions in arrears
2 405
Subscriptions in advance
1 120
(ii)
Depreciation is to be charged on the cost of club premises at 5% per annum.
(iii)
Bar stock at 31 December 1997, amounted on $9 620.
(iv)
Accrued bar wages, prepaid insurance, bar debtors and creditors for bar supplies amounted
to $390, $400, $1 200 and $7 215 respectively at 31 December 1997.
(v)
Subscriptions in advance and in arrears amounted to $2 600 and $1 360 respectively at 31
December 1997.
You are required to prepare for the Leisure Club:
a) A statement showing the accumulated funds of the club as at 1 January 1997, and
b) A bar trading account for the year ended 31 December 1997, and
c) An income and expenditure account for the year ended 31 December 1997,
d) A balance sheet as at 31 December 1997.
Answers:
a) A statement showing the accumulated funds of the club as at 1 January 1997:
Assets:
Club premises
$
$
300 000
Bar debtors
1 000
Bar stock
9 425
Prepaid insurance
600
Subscriptions in arrears
2 405
Cash and Bank
15 330
328 760
Liabilities:
Accrued bar wages
455
Creditors for bar supplies
8 190
Subscriptions in advance
1 120
Balance of the accumulated funds as at1.1.1997
9 765
318 995
P.5
b)
Leisure Club
Bar trading account for the year ended 31 December 1997
Opening stock
9 425
Purchases (W2)
60 275
Sales (W1)
97 700
69 700
Less: closing stock
9 620
Cost of goods sold
60 080
Gross profit c/d
37 620
______
97 700
97 700
Bar wages (W3)
Net profit
7 355
Gross profit b/d
37 620
30 265
______
37 620
37 620
Workings:
1.
Bar debtors
1997
1997
Jan 1 Balance b/d
Dec 31 Total sales (b.f.)
1 000
Dec 31 Cash / Bank
97 500
97 700
31 Balance c/d
1 200
98 700
98 700
2.
Bar creditors
1997
1997
Dec 31 Cash / Bank
Dec 31 Balance c/d
61 250 Jan 1 Balance b/d
7 215 Dec 31 Total purchases (b.f.)
68 465
8 190
60 275
68 465
3.
Bar wages
1997
1997
Dec 31 Cash / Bank
7 420
Dec 31 Accrued c/d
390
Jan 1 Accrued b/d
455
Dec 31 Bar trading (b.f.)
7 355
7 810
7 810
c)
Leisure Club
Income and expenditure account for the year ended 31 December 1997
Expenditure
Administration expenses
Insurance (W5)
Income
42 270
6 450
Depreciation
15 000
Surplus of income over expenditure
13 112
76 832
Subscription (W4)
46 475
Bar profit
30 265
Bank interest received
92
______
76 832
P.6
Workings :
4.
Subscription
1997
1997
Jan 1 In arrear b/d
2 405
Dec 31 I&E a/c (b.f.)
46 475
Dec 31 Bank / Cash
49 000
2 600
31 In arrear c/d
1 360
31 In advance c/d
Jan 1 In advance b/d
1 120
51 480
51 480
5.
Insurance
1997
1997
Jan 1 Prepaid b/d
600
Dec 31 Cash / Bank
6 250
Dec 31 I&E a/c (b.f.)
6 450
31 Prepaid b/d
400
6 850
6 850
d)
Leisure Club
Balance Sheet as at 31 December 1997
Fixed assets
Accumulated funds
Club premises
300 000
Accumulated depreciation
15 000
At 1 January 1997
318 995
Add: Surplus for the year
13 112
285 000
Current assets
332 107
Current liabilities
Bar stock
9 620
Bar creditors
Bar debtors
1 200
Accruals
Prepaid insurance
Subscription in arrear
Cash and Bank
400
Subscription in advance
7 215
390
2 600
10 205
1 360
44 732
57 312
_______
342 312
342 312
P.7
Illustration Two (Amended from 1987 Section A Question 4)
The Treasurer of the International Club submitted the following receipts and payments account to
club members covering the year to 31 December 1986:
Receipts
Bank b/f
Subscriptions received:
For current year
In advance
For previous years
Bar takings
Sale of equipment
Bank c/f
Receipts and Payments Account
$
Payments
62 500
Printing and stationery
Bar purchases
232 000
New equipment bought
8 000
Wages for bar staff
10 000
Sundry expenses
318 600
35 000
51 600
717 700
$
110 000
132 000
150 000
215 000
110 700
_______
717 700
Additional information:
(i)
The following balances were extracted from the club’s books:
At 31.12.86 At 31.12.85
Bar stock
$ 36 000
$ 28 000
Bar debtors
4 100
5 200
Bar creditors
3 200
6 300
Stationery stock
800
600
Sundry expenses accrued
700
200
(ii)
(iii)
(iv)
(v)
The discounts allowed, discounts received and bad debts during the year were $1 000, $2 000
and $3 000 respectively.
On 1 January 1986 the club’s only equipment was sold. The net book value of the equipment
was $20 000.
Depreciation on the new equipment was estimated at $30 000.
The subscription in advance at 31 December 1985 was $900 and all the subscriptions for the
previous years were collected. The subscription in arrears on 31 December 1986 amounted to
$3 000.
You are required to prepare for the Leisure Club:
a) A statement showing the accumulated funds of the club as at 31 December 1985, and
b) A bar trading account for the year ended 31 December 1986, and
c) An income and expenditure account for the year ended 31 December 1986,
d) A balance sheet as at 31 December 1986.
Answers:
a) A statement showing the accumulated funds of the club as at 31 December 1985:
Assets:
Equipment
$
Bar debtors
$
20 000
5 200
Bar stock
28 000
Stationery stock
600
Subscriptions in arrears
10 000
Cash
62 500
126 300
Liabilities:
Bar creditors
6 300
Sundry expenses accrued
200
Subscriptions in advance
900
Balance of the accumulated funds as at 31.12.1985
7 400
118 900
P.8
b)
International Club
Bar trading account for the year ended 31 December 1986
Opening stock
Purchases (W2)
28 000
Sales (W1)
321 500
130 900
158 900
Less: closing stock
36 000
Cost of goods sold
122 900
Gross profit c/d
198 600
_______
321 500
321 500
Bar wages
215 000
Gross profit b/d
_______
Net loss
215 000
198 600
16 400
215 000
Workings:
1.
Bar debtors
1986
1986
Jan 1 Balance b/d
Dec 31 Total sales (b.f.)
5 200
321 500
Dec 31 Bank
318 600
31 Discounts allowed
1 000
31 Bad debts
3 000
31 Balance c/d
4 100
326 700
326 700
2.
Bar creditors
1986
1986
Dec 31 Bank
132 000 Jan 1 Balance b/d
31 Discounts received
2 000
31 Balance c/d
3 200 Dec 31 Total purchases (b.f)
137 200
6 300
130 900
137 200
c)
International Club
Income and expenditure account for the year ended 31 December 1986
Expenditure
Loss from bar
Income
16 400
Subscription (W3)
235 900
Printing and stationery (W4)
109 800
Discounts received
2 000
Sundry expenses (W5)
111 200
Profit on disposal of equipment
15 000
Deficit of expenditure over income
18 500
Discounts allowed
1 000
Bad debts
3 000
Depreciation
30 000
_______
271 400
271 400
P.9
Workings :
3.
Subscription
1986
1986
Jan 1 In arrear b/d
10 000
Jan 1 In advance b/d
Dec 31 I&E a/c (b.f.)
235 900
Dec 31 Bank - current
- in advance
- previous
31 In advance c/d
8 000
900
232 000
8 000
10 000 250 000
31 In arrear c/d
3 000
253 900
253 900
4.
Printing and stationery
1986
1986
Jan 1 Stock b/d
600
Dec 31 Bank
110 000
Dec 31 I&E a/c (b.f.)
109 800
31 Stock b/d
800
110 600
110 600
5.
Sundry expenses
1986
1986
Dec 31 Bank
110 700
Dec 31 Accrued c/d
700
Jan 1 Accrued b/d
200
Dec 31 I&E a/c (b.f.)
111 200
111 400
111 400
d)
International Club
Balance Sheet as at 31 December 1986
Fixed assets
Accumulated funds
Equipment
150 000
Accumulated depreciation
30 000
At 1 January 1986
118 900
Less:Deficit for the year
18 500
120 000
Current assets
Bar stock
Bar debtors
Stationary stock
Subscription in arrear
100 400
Current liabilities
36 000
Bar creditors
4 100
Accruals
800
3 000
Subscription in advance
43 900
163 900
Bank overdraft
3 200
700
8 000
51 600
63 500
163 900
P.10
Exercise One
The following is a summary of the receipts and payments of the Victory Club during the year ended 30
September 1998:
Victory Club
Receipts and Payments Account
For the year ended 30 September 1998
---------------------------------------------------------------------------------------------------------------------Cash and Bank balances b/d
$1 247
Rent
$1 524
Sales of annual dinner tickets
990
Purchase of office equipment
870
Members’ subscriptions
4 388
Donations to charities
287
Life membership
200
Meeting expenses
559
Donations
150
Expenses of annual dinner
1 213
Heating and lighting
446
Stationery and printing
320
Cash and Bank balances c/d
1 756
6 975
6 975
The following valuations are also available:
As at 30 September
1997
Subscriptions in arrears
$150
Subscriptions in advance
75
Stocks of stationery
67
Meeting expenses prepaid
150
Heating and lighting accrued
110
1998
$ 90
35
83
0
83
On 1 October 1997 the Victory Club owned office equipment costing $2 500 which had been depreciated
by $500. The policy of the club is to depreciate office equipment at 10% per annum using the straight line
method applied on a full year basis. The club did not sell any office equipment during the year ended 30
September 1998.
Life membership was introduced for the first time in the current year. The payment for each member
amounted to $100 and it would be spread over 5 years.
You are required to prepare an Income and Expenditure Account for the Victory Club for the year ended
30 September 1998 and a Balance Sheet as at that date
Victory Club
Income and Expenditure Account
For the year ended 30 September 1998
Income:
Life membership
Subscriptions
Donations
Expenditure:
Rent
Donations to charities
Meeting expenses
Expenses over ticket sales of annual dinner
Heating and lighting
Stationery and printing
Depreciation
Surplus of income over expenditure
P.11
Victory Club
Balance Sheet as at 30 September 1998
Fixed assets:
Office equipment
Less: Accumulated depreciation
Current assets:
Stock of stationery
Subscriptions in arrear
Cash and bank
Less: Current liabilities
Subscription in advance
Accruals
Accumulated fund:
Beginning balance
Add: Surplus
Ending balance
Life membership account
________
Workings:
1.
Subscription
In arrear b/d
| In advance b/d
I & E a/c
| Bank
In advance c/d
| In arrear c/d
|
2.
Meeting expenses
Prepaid b/d
| I & E a/c
Bank/Cash
|
|
3.
Bank-expenses
Annual dinner
| Bank-sales of tickets
| Excess of expenses
| over sales revenue
|
P.12
4.
Bank
Heating and Lighting
| Accrual b/d
Accrual c/d
| I & E a/c
|
5.
Stock b/d
Stationery and printing
| I & E a/c
Bank/Cash
| Stock c/d
|
6. Accumulated Fund as at beginning of year:
Assets:
Cash and bank
Subscriptions in arrear
Stock of stationery
Meeting expenses prepaid
Office equipment
Liabilities:
Subscriptions in advance
Heating and lighting accrued
$
P.13
Exercise Two
Long Lane Football Club
Receipts and Payments Account
For the year ended 31 December 1998
--------------------------------------------------------------------------------------------------------------------------Bank Balance 1.1.1998
$ 524
Payment for bar supplies
$ 3 962
Subscriptions received for:
Wages:
1997
55
Groundsman and assistant
939
1998
1 236
Barman
624
1999
40
Bar expenses
234
Bar sales
5 628
Repairs to stands
119
Donations received
120
Ground upkeep
229
Secretary's expenses
138
Transport costs
305
_____
Bank Balance 31.12.1998
1 053
7 603
7 603
1. Assets and liabilities at the beginning and end of the year:
31.12.1997 31.12.1998
Stocks in the bar - at cost
$ 496
$ 558
Owing for bar supplies
294
340
Bar expenses owing
25
36
Transport costs owing
65
2.
The land and football stands were valued at 31 December 1997 at:
Land at cost of $4 000
Football stands at cost of $5 000 less accumulated depreciation of $3 000
The stands are to be depreciated by 10% per annum on reducing balance method.
3. The equipment at 31 December 1997 was valued at cost of $1 000 less depreciation to date of $500,
and is to be depreciated at 25 per cent per annum on straight line method.
4. Four-fifths of the bar expenses were actually spent on the improvement of the equipment on 1
January 1998.
5.
It was found repairs to stands included $100 cost of additions to stands.
6. Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December
1998. Subscriptions owing for more than one year would be treated as uncollectible.
You are required to prepare a Bar Trading Account, an Income and Expenditure Account for the year
ended 31 December 1998 and a Balance Sheet as at that date.
Long Lane Football Club
Bar Trading Account for the year ended 31 December 1998
Bar sales
Beginning stock
Add: purchases
Less: ending stock
Cost of goods sold
Gross profit
Bar wages
Bar expenses
Net profit from bar
P.14
Income and Expenditure Account for the year ended 31 December 1998
Income
Subscriptions
Profit from the bar
Donations received
Expenditure
Wages
Repairs to stands
Ground upkeep
Secretary's expenses
Transport costs
Depreciation
- Stands
- Equipment
Bad debts
Surplus of income over expenditure
Balance Sheet as at 31 December 1998
Fixed assets:
Cost
Depreciation
Net book value
Land
Stand
________
Current assets:
Stock of bar supplies
Subscriptions in arrear
Cash at bank
Less: Current liabilities
Bar creditors
Bar expenses owing
Transport costs owing
Subscription in advance
Accumulated fund:
Beginning balance
Add: Surplus
Ending balance
_________
________
P.15
Workings:
1.
Bar creditors
|
|
|
2.
Bar expenses
|
|
|
3.
Subscription
|
In advance b/d
In arrear b/d
I & E a/c
In advance c/d
|
Bank - 1997
|
- 1998
|
- 1999
|
Bad debts
|
In arrear c/d
|
4.
Transport costs
|
|
|
5. Accumulated Fund as at beginning of year:
Assets:
Land
Stands
Equipment
Stock in bar
Bank
Subscriptions in arrear
Liabilities:
Bar creditors
Bar expenses owing
$