Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
Here is another variation in format of final accounts. By clubs, we mean here clubs owned by their members, for example political clubs, social clubs and sports clubs. These organisations do not exist to make a ‘profit’. All the revenue comes from the shareholders themselves (e.g. as members’ subscriptions) and just reflects the cost of the goods and services they consume at the club. Their accounts are a matter of house-keeping, rather than ‘trading’; the members contribute to an accumulated common fund for the common good.
Surpluses and accumulated funds
Of course, all housekeepers like to ‘put a bit by’. Committees of clubs are in effect housekeepers, too, and often develop a small excess of revenue over expenses. But this is not profit: it is merely shareholders’ contributions (in various ways) left over after all expenses have been paid. In the accounts it is termed a surplus. It is added to the accumulated common fund to be used for the future benefit of members. It is just as an individual may save surplus income to buy things tomorrow which he could not afford today, or to make ends meet if he falls on hard times.
Format of club accounts
Club accounts differ in format from commercial accounts, in just three ways:
- The money we call profit or loss in a partnership, sole proprietorship or limited company, we call a surplus or deficit in a club.
- Instead of a profit and loss account, clubs have an income and expenditure account.
- Instead of a capital account, clubs have an accumulated fund.
- The receipts and payments account is in effect a summary of cash and banking transactions, much like the cash book of a business.
The income and expenditure account is the equivalent of the profit and loss account of a commercial business. On the income side it shows the various sources of revenue, e.g. donations, and surpluses from activities like dances, or bingo while on the other side it analyses costs into those which can be set against income, such as bank interest, depreciation and wages (revenue expenditure) and spending on assets that will last a long time, such as buildings and equipment (capital expenditure).
Receipts and payments accounts are usually kept on a single entry basis (memorandum form) but the income and expenditure account is usually kept in double entry format.
That is not to say that no profit-making activities go on in clubs. A club may well run a bar, for example, on commercial lines. If so, a bar trading account is kept, to calculate and record gross profit; bar staff wages appear in the account along with cost of goods sold, as we dealt with on page 77. Any profit is then brought down to the club’s income and expenditure account (rather than to a profit and loss account as it would be in a truly commercial business).
You can show other income-generating activities in separate trading accounts (e.g. club shop trading account), but for things like raffle and dance proceeds which do not really involve trading goods, you usually just ‘net’ the incomes concerned in the income and expenditure account. In other words you set against the income from the sale of tickets the cost of prizes, band hire, and so on.