SUBJECT: FINANCIAL ACCOUNTING

CLASS: SS 2

DATE:

TERM: 3rd TERM

WEEK SEVEN AND EIGHT

TOPIC: PREPARATION OF ACCOUNTS OF NON-PROFIT-MAKING ORGANIZATIONS-PRACTICAL ILLUSTRATION

Example

The star sports and social club provides recreational activities, refreshments and social events for its members. Its assets and liabilities at 31st December, 2003 were as follows

Fixed Assets N

Pavilion 120,000

Club sports equipment 40,000

Motor roller 2,000

Current Assets

Stock of equipment for sale to members 4,000

Annual subscription owing 1,200

Bank balance 6,730

Current liabilities

Creditors for equipment for sale to members 1,300

Annual subscription received in advance 800

Life subscriptions fund 1,750

In the year ended 31st December, 2003 the club’s cash receipts and payments were as follows.

Receipts

Annual subscriptions N18,000

Proceeds from sale of equipment N12,000

Sale of tickets for dinner-dance N4,400. Refreshment and bar takings N2660. Life members subscription N400

Payments

Caretaker’s wages N8,000. Repairs to club equipment N1,700 purchase of club equipment N2000. Equipment for sale to members N4000. Heating and lighting N1800. Food for refreshment bar N1400. Secretary’s expenses N840.

Dinner – dance expenses: - Hire of band N 200 - Catering N 1000

Further information

At 31st December 2004: annual subscriptions in arrears N1400, annual subscriptions received in advance were N900
Stock of equipment for sale to members N200
Creditors of equipment for sale to members N900
A member donated N5000 to a fund to encourage young people to train for sport. This donation was invested in saving bonds.
the club transfers life subscriptions to the income and Expenditure Account in equal installment over five years
Depreciation is to be provided on fixed assets by the reducing – balance method as follows:- pavilion 6%. Sport equipment 20%, motor roller 20%. Required (a) prepare the star sport and social club’s income and Expenditure Account for the year ended 31st December, 2004 (b) prepare the club’s balance sheet as at 31st December, 2004

Solution

Step 1: Prepare an opening statement of affairs. This will give the balance on the Accumulated fund at 1st January 2004 and will be the starting point for recording the transactions during the year.

Statement of affairs as at 31st December, 2003.

Fixed Assets:- N

Pavilion Sport equipment 120,000

Club sports equipment 40,000

Motor roller 20,000

Current Assets

Stock of equipment for sale to members 4,000

Annual subscriptions owing 1,200

Bank balance 6,730

Total Assets 173,930

Current Liabilities

Creditors for equipment for sale to members 1,300

Annual subscription received in advance 800

Life subscription fund 1,700 3,850

Accumulated fund 1st January, 2004 170,080

Step 2:- prepare a receipt and payments Account. This will summarize all the transactions affecting the Income and Expenditure Account and balance sheet and calculate the bank balance at 31st December, 2004.

Receipts and payments account for the year ended 31st December, 2004

		N		N
1 Jan.	Balance b/f	6,730	31 Dec. Caretaker’s wages	8000
31 Dec.	Annual subscriptions	18,000	Repair’s club equipment	1,700
	Sales of equipment	12,000	Purchase club equipment	2,000
	Sales of tickets dinner-dance	4,400	Purchase of equipment for resale	4,000
	Takings-refreshment	2,660	Heating and lighting	1,800
	Life membership subscriptions	400	Dinner dance hire of band	200
			Catering	1000
			Food for refreshment bar	14000
			Secretary’s expenses	840
			Balance c/d	23,250
		44,190		44,190

Step 3:- prepare workings to adjust for accruals, prepayments, depreciation and any other items. Show these workings with your answer.

Purchase of equipment for resale

	N		N
Cash part	4000	Creditors b/f (opening bal.)	1,300
Creditors c/f	900	Income and Exp. a/c	3,600
	4,900		4,900

Annual subscriptions A/C

	N		N
Owing at 1st January	1,200	Prepaid	800
Prepaid at 31st December	900	Cash (R & Payt a/c)	18,000
I & E a/c 9for the up)	18100	Owing at 31st December	1,400
	20,200		20,200

Life Subscriptions A/C

	N		N
I & Exp. A/C (1/5 x 2/50 )	430	B/F	1,700
Balance c/f	1,720	Cash received (i.e. additional)	400
	2,150		2,150

Club Sport equipment A/C

	N		N
Bal b/f	40,000	I & Exp a/c (20% x 4200)	8,400
Cash (addition)	2,000	Bal c/d	33,600
	42,000		42,000

Step 4: The income and expenditure A/C and Balance sheet may now be copied out from steps 1, 2 and 3. As the sale of equipment to members is trading, a trading A/C should be prepared even though the question did not ask for it.

If steps 1, 2 and 3 have been carefully carried out, preparing the income & Expenditure A/C and balance sheet is now only copying exercise and can be completed in little time.

Sales of equipment A/C

Sales	N	N
Less: Cost of sales		1,200
Stock 1st January	4000
Purchase (wk. 1)	3,600
	7,600
Less closing stock 31/12/04	2000	5,600
Profit on sales of equipment (transferred to income and expenditure account)		6,400

STAR SPORTS AND SOCIAL CLUB

INCOME & EXPENDITURE ACCOUNT FOR THE YOUR ENDED 31/12/04

	N	N	N
Annual subscriptions (wks. 2)			18,000
Life subscription (wks. 3)			430
Profit on sale of equipment			6,400
Dinner/dance:-
Sales of ticket		4,400
Less: Hire of band	200
Catering	1,000	1,200	3,200
Refreshment Bar
Takings		2,660
Less: cost of food		1,400	1,260
			29,390
Less expenses
Caretaker’s wages		8,000
Repairs to club equipment		1,700
Heating and lighting		1,800
Secretary’s expenses		840
Depreciation: Pavilion (6% x 120,000)		7,200
:Equipment (wks. 4)		8400
: Motor roller (20% x N2000)		400	28,340
SURPLUS OF INCOME OVER EXPENDITURE			1,050

BALANCE SHEET

AS AT 31ST DECEMBER, 2004

	N	N
Fixed Assets at net book value
Pavilion		112,800
Club equipment		33,600
Motor roller		1,600
		148,000

Current Assets

Stock of equipment for resale to members	2000
Subscription owing	1,400
Bank balance	23,250
	26,650

Less current liabilities
Creditors	900
Subscriptions prepaid	900
Life subscriptions (wks. 3)	1,720	3,520	23,130
			171130
Presented By:			170080
Accumulated fund at 1/1/04 Add surplus of income over expenditure			1050 171130

Fund to encourage young people to train for sports N5000

Presented by savings fund N5000

Evaluation

Write short note on (a) subscription prepaid (b) subscription accrued

Reading Assignment

Financial accounting with Ease by Onafowokan O., Harold Randall pages 95-98

WEEKEND ASSIGNMENT

Life subscription A/C should have a (a) debit balance (b) credit balance (c) neutral balance (d) none of the above
Club sports equipment A/C should have a balance (a) credit (b) debit (c) debit and credit (d) neutral
Sales of a equipment to members is a form of (a) asset (b) trading (c) gambling (d) debating
Subscriptions accrued is an/a_______ (a) asset (b) liabilities (c) accumulated fund (d) working capital
Repair of club equipment is a ______ expenditure (a) revenue (b) capital (c) fixed (d) floating

THEORY

Write short notes on (a) annual subscription (b) life subscriptions (c) subscription prepaid (d) subscription accrued
Differentiate between life membership subscriptions and annual subscription of a non-profit-making organization.

GENERAL EVALUATION QUESTIONS

List five sources of income for a not-for-profit making organizations
State five differences between a Receipts and Payments Account and

an Income and Expenditure Account

State five uses of a Control Account
State six errors that will not affect the agreement of the trial balance
Explain the objective of transfer pricing in Manufacturing Accounts

Lesson Notes By Weeks and Term - Senior Secondary School 2