NON-PROFIT-MAKING ORGANISATIONS
(CLUBS AND SOCIETIES)
NON-PROFIT-MAKING ORGANISATIONS
Definition:
An organisation whose primary purpose is to provide a service
for its users.
Examples:
Central Government institutions - eg the National Health Service
Local Government institutions- eg public libraries
Charities
Social and Leisure Clubs
We concentrate our study on this last category only.
NON-PROFIT-MAKING ORGANISATIONS
Ownership:
A club is owned by its members
Raising of Finance:
Members fees or subscriptions - the main source of finance
Clubs may also receive grants from the local authority or other
body to help finance the purchase of assets
Fund-raising events eg raffles, dances
Additional services provided eg a bar or cafe
Donations from other organisations
Liability:
Members have no liability for the club’s debts.
NON-PROFIT-MAKING ORGANISATIONS
Control:
A club is run by a committee elected by the members.
The committee normally comprises the following office bearers:
• Chairperson - who leads the committee and chairs meetings
• Secretary - who is responsible for all administration
• Treasurer - who looks after the financial affairs of the club
These posts are voluntary but an Honorarium (fee) may be paid
All members can attend the club’s Annual General Meeting
Club members are entitled to vote on major issues
Club members can vote out the office bearers and re-elect new ones
NON-PROFIT-MAKING ORGANISATIONS
Financial Record Keeping
It is the responsibility of the Treasurer to:
record all cash received and paid out in the Receipts and Payments
Account
take care of all the club’s banking matters
prepare the Club’s final accounts once a year consisting of:
• the Income and Expenditure Account
• the Balance Sheet
prepare a report to present at the AGM on the financial state
of the club
answer any questions club members have about the club’s finances
NON-PROFIT-MAKING ORGANISATIONS
Capital and Revenue Items
Capital transactions are those involving long term items and
include:
• the purchase and sale of fixed assets
• the borrowing or repayment of loans
Revenue transactions are short term and concern the day-to-day
running of an organisation. They include:
• the payment of expenses by the organisation eg rent paid
• the payment of expenses to the organisation eg rent received
NON-PROFIT-MAKING ORGANISATIONS
The Receipts and Payments Account:
A summary of all cash and bank transactions throughout the year.
Procedure:
Start with the Opening Cash/Bank Balance at the start of the year
add on all cash and cheques received during the year regardless of:
• what the transaction is for ie include capital and revenue items
• what time period the transaction applies to
subtract all cash and cheques paid during the year regardless of:
• what the cash/cheque is for ie include capital and revenue spending
• what time period the payment applies to
what is left is the Closing Cash/Bank Balance for the year.
NON-PROFIT-MAKING ORGANISATIONS
The Amateur Musical Society
Receipts and Payments Account for year ended 31 May 20..
£
£
Opening Balance
300 Add Receipts:
Subscriptions Received
2,000 –
Life Memberships Received
2,500 Donations Received
300 –
Bar Takings
700 5,900 Sale of Concert Tickets
400 Less Payments:
6,200 Purchase of Piano
1,000 –
Hire of Concert Hall
320 –
Lighting and Heating
200 –
Bar Supplies
300 2,000 Concert Expenses
180 Closing Balance
4,200 -
NON-PROFIT-MAKING ORGANISATIONS
Profit Statements from Fund-Raising Activities:
A club often runs special fund-raising events or a bar or cafe in
order to generate additional finance and provide additional
entertainment and services for its members.
For each of these events/services, a profit statement is prepared.
In the case of a bar or café, a Trading Account is prepared.
All relevant items concerning each event is included in the profit
statement/Trading Account.
Profits made from these events/services are individually listed
as income items in the Income and Expenditure Account.
Losses are listed as expenditure items.
NON-PROFIT-MAKING ORGANISATIONS
Subscriptions:
Paid by members but not always for the full year or on time.
Clubs calculate how much of the subscriptions received applies to
the current year as follows:
Subscriptions Received this year
Add Subs in advance last year
Add Subs in arrears this year
Less Subs in arrears last year
Less Subs in advance this year
= Subscriptions which apply only to the current year
This is entered as income in the Income and Expenditure Account
NON-PROFIT-MAKING ORGANISATIONS
Life Membership:
Some clubs allow members to pay one lump-sum payment
Like subscriptions, clubs need to identify how much of the
lump-sum payment applies to each year
Estimate how many years the member will use the club
Divide life membership received by the number of years
This tells you how much membership fee applies to each year
This is entered as income in the Income and Expenditure Account
Example: Life Membership Fee
Number of years usage
£500 = £50 each year
10
per member
The balance of the life membership is a long-term liability
NON-PROFIT-MAKING ORGANISATIONS
Profit Statement for Annual Concert
Sale of Concert Tickets
£400
Less Hire of Hall
£320
Concert Expenses
180 500
Loss on Concert
£100
Bar Trading Account
Bar Takings (Sales)
£700
Less Cost of Sales:
Opening Bar Stock
£120
Add Purchase of Bar Supplies 300
420
Less Closing Bar Stock
70
350
Profit on Bar
£350
NON-PROFIT-MAKING ORGANISATIONS
Surplus or Deficit?
Since a club’s main purpose is to provide a service for members
and not to make a profit, clubs do not use the terms ‘profit’ or ‘loss’
in the accounting statements.
Clubs therefore do not prepare Profit and Loss Accounts
Clubs prepare Income and Expenditure Accounts instead.
If, in the process or providing a service to members, a club makes
a profit, it is called a Surplus.
A loss is called a Deficit
The surplus or deficit is calculated in the Income and Expenditure
Account
NON-PROFIT-MAKING ORGANISATIONS
Income and Expenditure Account
The equivalent of a firm’s Profit and Loss Account
List and total up all revenue income applying to the year in
question only - including any profits from special events/services
This means adjustments must be made for accruals and prepayments
List, total up and deduct all revenue expenditure applying to the
year in question only
- including any losses from special events/services
Again, adjust items for accruals and prepayments
When total income exceeds expenditure the club makes a Surplus
When total expenditure exceeds income the club makes a Deficit
NON-PROFIT-MAKING ORGANISATIONS
The Amateur Musical Society
Income and Expenditure Account for year ended 31 May 20..
£
£
Income:
Subscriptions (Note 1)
1,900 Life Memberships (Note 2)
250 Donations Received
300 Profit on Bar (Bar Trading A/c)
350 Less Expenditure:
Loss on Concert
Depreciation on Piano
Lighting and Heating
Surplus
2,800 100 150 200 -
450 2,350-
Note 1 Subscriptions Received
2000 – Note 2 Life Membership 2,500
LessSubscriptions for next year 100
Years
10
1900 -
NON-PROFIT-MAKING ORGANISATIONS
Accumulated Fund
A business’s net worth or value is measured by its capital A club’s net worth or value is measured by its Accumulated Fund
Procedure:
Accumulated Fund at the beginning of the year is the:
Value of assets at the
Value of liabilities at the
minus
beginning of the year
beginning of the year
Opening Accumulated Fund (at the beginning of the year) appears
in the Balance Sheet under the ‘Financed by’ heading
The Amateur Musical Society’s Opening Accumulated Fund is
Bank Balance £300 + Bar Stocks £120 + Sheet Music £800 = £1,220
Add to this any surplus or deduct any deficit to find the club’s
Accumulated Fund at the end of the year.
NON-PROFIT-MAKING ORGANISATIONS
The Amateur Musical Society Balance Sheet as at 31 May 20..
Fixed Assets:
At Cost Agg Dep NBV
Sheet Music
800 800 Piano
1,000 150 850 1,800 150 - 1,650 Current Assets:
Bar Stock
70 Bank
4,200 4,270 Less Current Liabilities:
Subscriptions in Advance
100 4,170 5,820 Financed by:
Opening Accumulated Fund (300+120+800)
1,220 Add Surplus
2,350 3,570 Long Term Liabilities:
Life Membership
2,250 5,820 -