Preparation of Final Accounts
Sole Proprietorship– Trading & Profit &
Loss Account– Balance Sheet
Partnership– (see sole
proprietorship)– Profit & Loss &
Appropriation A/c• Interest on
drawings• Interest on capital• Salary• Share of profits
– Balance Sheet• Capital A/c• Current A/c
Recap: What have we learnt ?
They are business organisations:– involved in trading activities, ie. the
buying & selling of goods or services
– operate solely to make a profit for their owners
What do they have in common?
At the end of the lesson, you should be able to:– state the difference between a
trading and non-trading organisation
– distinguish between the different accounts kept by a trading and non-trading organisation
Lesson Objectives
Non-Trading Organisations
Clubs, societies and associations
formed to cater and promote
the sporting, cultural and recreational interests of its members.
What are they?
They are not formed with the purpose of making profits.
Clubs & Societies
School
Guitar Club
Swimming Club
Mathematics Societysocial,
music
sports, outdoor activities
social, maths puzzles
What are the sources of income & expenses?
What are some of the non-trading organisations in Singapore?– Purpose of existence?
– Sources of income?
– Expenses incurred?
Clubs & Societies
CDAC, Mendaki, Sinda– Purpose:
• To provide tuition schemes at affordable rates• To assist low-income, low-skilled workers to
upgrade their skills• To enhance the well-being of the community
– Income:• Donations, grants from the Govt.
– Expenses:• Day-to-day activities, scholarships, training
programmes
In Singapore … …
Non-Profit Organisations:
National Kidney Foundation (NKF)– Purpose:
• To provide kidney patients with dialysis treatment & drugs at affordable cost.
– Income: • Donations only
– Expenses: • Day-to-day activities, dialysis machines,
research.
In Singapore … …
In Singapore … …
Chinese Swimming Club– Purpose:
• To provide facilities & activities that cater to the sports, recreation & social needs of the family & individual
– Income: • Entrance fees, subscriptions fees, restaurant & karaoke
operations, fruit machines & video games
– Expenses:• Day-to-day activities, eg. repairs & maintenance, utilities
Recreational Activities:
Clubs & Societies
Trading Concern1. Sale of goods2. Receipts from services3. Rent received4. Commission received5. Discount received6. Interest received7. Bad debts recovered8. Profits from the sale of
fixed assets
Non-Trading1. Subscriptions2. Entrance fees3. Profit from sale of
refreshments4. Interest received5. Donations6. Fun fair7. Life membership
subscriptions8. Grants from the
Govt.
Compare the income of a trading & non-trading organisation:
Clubs & Societies
Trading Concern– Sale of goods– Other income:
• Cash discount received for prompt payment
• Commission revenue
• Rent revenue• Interest on deposit
Clubs & Societies– Membership
subscriptions– Donations– Proceeds from
social activities– Receipts from sale
of refreshments in bar/restaurant
– Rental fees for courts, lockers
Revenue Receipts
Clubs & Societies
Trading Concern– Cost of goods sold– Administrative
expenses, staff wages, stationery, utilities, rental
– Distributive expenses:
• Transport, commission, bad debts
– Depreciation of fixed assets
Clubs & Societies– Entertainment
expenses– Competition prizes– Repairs &
maintenance– Sundry expenses:
• Utilities, staff wages
– Honorarium– Depreciation of fixed
assets– Bar/ Restaurant
expenses
Revenue Expenditure
Trading Concern– Bank loans– Owner’s
contribution
Clubs & Societies– Legacies– Entrance fees (if
capitalised)– Life membership
fees
Clubs & Societies
Capital Receipts
Trading Concerns– Purchase of fixed
assets
Clubs & Societies– Purchase of fixed
assets:• Office equipment• Sports equipment• Furniture, billiard
tables
– Extension of club houses, including legal fees
Clubs & Societies
Capital Expenditure
Clubs & Societies
Similar to trading concerns, clubs & societies need to keep accounts according to accounting concepts & principles
Financial statements are presented to members during the Annual General Meeting (AGM)
Also submitted to the Registrar of Societies
How are the accounts of clubs & societies different from trading concerns?
Clubs & Societies
Trading Concern– Trading Account
• Gross Profit =
Net Sales – Cost of Sales
Clubs & Societies– Bar Trading A/c
• Trading profit =Trading Revenue-
Trading Expenses
Recall that … Difference …
Trading Concern– Cash or Bank
Account:• Records cash
inflows & outflows
Clubs & Societies– Receipts &
Payments Account:
• Is actually a cash book by another name
Recall that … Difference …
Clubs & Societies
Trading Concern– Profit & Loss A/c:
• Records net profit or loss
Clubs & Societies– Income &
Expenditure A/c:• Same principle as
Profit & Loss A/c
• Records surplus or deficit
Difference …Recall that …
Clubs & Societies
Trading Concern– Balance Sheet:
• Assets =
Owner’s Equity +
Liabilities
Clubs & Societies– Balance Sheet:
• Assets =
Accumulated Fund
+ Liabilities
Difference …Recall that …
Clubs & Societies
1. Distinguish between trading & non-trading concerns – profit motive?
2. Different accounts used: Receipts & Payments A/c
Bar Trading A/c
Income & Expenditure A/c
Accumulated Fund
Clubs & Societies
What have we learnt today?
Do you know ?
What are the differences between
the Receipts & Payments A/c
and
the Income & Expenditure A/c ?
Differences…
Receipts & Payments A/c
1. Summary of total
receipts and payments
of cash and cheques.
Equivalent to a
summarised form of a
Cash Book of a trading
concern.
Income & Expenditure A/c
1. Summary of the
operating expenses
and revenue items.
Equivalent to a Profit and
Loss Account of a trading
concern.
Receipts & Payments A/c
2. Contains both capital
and revenue
expenditure as well
as capital and
revenue receipts.
Income & Expenditure A/c
2. Contains only revenue
expenditure and
revenue receipt items
only.
Differences…Differences…
Receipts & Payments A/c
3. Includes those revenue
and capital items that
are actually paid for
and received.
Items which may refer to
preceding or succeeding
periods are also
included.
Income & Expenditure A/c
3. Includes only revenue
items incurred or earned
during the current
accounting period.
Excludes prepaid
expenses, unearned revenue.
Includes accrued
expenses, accrued revenue.
Differences…
Receipts & Payments A/c
4. Final balance is the
balance of cash in
hand, or cash at bank.
Is a current asset in the
Balance Sheet.
Overdraft is a current
liability.
Income & Expenditure A/c
4. Final balance shows
either a surplus or a
deficit for the period.
Surplus is added to the
accumulated fund in the
Balance Sheet.
Deficit is deducted
from accumulated fund.
Differences…
Presentation …
Receipts and Payments Account
Debit all receipts(both capital& revenuereceipts)
Credit all payments(both capital &
revenueexpenditure)
Income and Expenditure Account
Debit all currentyear revenueexpenditure
Credit all currentyear revenue
receipts
Weekend Football Club provided you with the following information regarding the cash movements of its club:
$
Cash at bank as at 1 January 1999 2,000
Receipts for the year: • Subscriptions 1,000• Entrance Fees 400• Collections at Matches 600• Sale of Refreshments 350
Payments for the year:• Football Equipment 250• Cost of Refreshments 200• Sundry Expenses 150• Maintenance of Clubhouse 500
Weekend Football ClubReceipts and Payments Account
1999Jan 1Dec 31
Balance b/d 2,000
$ $
Subscriptions 1,000Entrance Fees 400
Sale of Refreshments 350Collections at Matches 600
Football Equipment 250Cost of Refreshments 200
1999Dec 31
Sundry Expenses 150Maintenance of Clubhouse 500 Balance c/d 3,250
4,350 4,3502000Jan 1 Balance b/d 3,250
Weekend Football ClubReceipts and Payments Account
1999Jan 1Dec 31
Balance b/d 2,000
$ $
Subscriptions 1,000Entrance Fees 400
Sale of Refreshments 350Collections at Matches 600
Football Equipment 250Cost of Refreshments 200
1999Dec 31
Sundry Expenses 150Maintenance of Clubhouse 500 Balance c/d 3,250
4,350 4,3502000Jan 1 Balance b/d 3,250
Can you prepare the Income and Expenditure Account
for the year ended 31 December 1999?
Weekend Football ClubReceipts and Payments Account
1999Jan 1Dec 31
Balance b/d 2,000
$ $
Subscriptions 1,000Entrance Fees 400
Sale of Refreshments 350Collections at Matches 600
Football Equipment 250Cost of Refreshments 200
1999Dec 31
Sundry Expenses 150Maintenance of Clubhouse 500 Balance c/d 3,250
4,350 4,3502000Jan 1 Balance b/d 3,250
Weekend Football ClubIncome and Expenditure Account for the year ended 31
December 1999Expenditure $ Income $
Weekend Football ClubReceipts and Payments Account
1999Jan 1Dec 31
Balance b/d 2,000
$ $
Subscriptions 1,000Entrance Fees 400
Sale of Refreshments 350Collections at Matches 600
Football Equipment 250Cost of Refreshments 200
1999Dec 31
Sundry Expenses 150Maintenance of Clubhouse 500 Balance c/d 3,250
4,350 4,3502000Jan 1 Balance b/d 3,250
Weekend Football ClubIncome and Expenditure Account for the year ended 31
December 1999Expenditure $ Income $
Cost of Refreshments 200Sundry Expenses 150Maintenance of Clubhouse 500
Subscriptions 1,000Entrance Fees 400Collections at Matches 600Sale of Refreshments 350Surplus 1,500
2,350 2,350
Trading Account
• Clubs and societies are not formed with a view to make profit.
• Clubs may operate a restaurant or bar selling refreshment and food to members.
• A Trading Account is prepared to determine the profit or loss.
• Records of stock of refreshment, refreshment debtors and creditors will be needed.
• Adjustments to find out the exact amount of sales, purchases and other expenses will be required to prepare the Trading Account.
Weekend Golf Club provided the following information:
Receipts and Payments Account for the year ended 31 June 2000
$ $
Sale of refreshment 8,000
Additional Information:
Refreshment debtors 4,000
Refreshment creditors 900 3,000
Cost of refreshment 5,000
Wages for the preparationof refreshments 3,000
Refreshment creditors 1,000
31 June 20001 July 1999
Refreshment stock 2,000 3,500$
Refreshment debtors 500 6,500
$
Accrued wages for the preparation of refreshments 700 1,000
Weekend Golf Club provided the following information:
Receipts and Payments Account for the year ended 31 June 2000
$ $
Sale of refreshment 8,000
Additional Information:
Refreshment debtors 4,000
Refreshment creditors 900 3,000
Cost of refreshment 5,000
Wages for the preparationof refreshments 3,000
Refreshment creditors 1,000
31 June 20001 July 1999
Refreshment stock 2,000 3,500$
Refreshment debtors 500 6,500
$
Accrued wages for the preparation of refreshments 700 1,000
Step 1: Calculate Credit Sales of Refreshments
Refreshment Debtors’ Account$ $1999
Jul 12000 Jun 30Balance b/d 500 Cash or Bank 4,000
Balance c/d 6,500
10,50010,500
Balance c/d 6,5002000 Jul 1
Sales 10,000
Credit sales $10,000 is the balancing figure.
Step 2: Calculate Total Sales of Refreshments
$
Credit Sales of Refreshments10,000Cash Sales of Refreshments 8,000
Total Sales of Refreshments 18,000
$18,000 is transferred to the Trading Account
Weekend Golf Club provided the following information:
Receipts and Payments Account for the year ended 31 June 2000
$ $
Sale of refreshment 8,000
Additional Information:
Refreshment debtors 4,000
Refreshment creditors 900 3,000
Cost of refreshment 5,000
Wages for the preparationof refreshments 3,000
Refreshment creditors 1,000
31 June 20001 July 1999
Refreshment stock 2,000 3,500$
Refreshment debtors 500 6,500
$
Accrued wages for the preparation of refreshments 700 1,000
Step 3: Calculate Credit Purchases of Refreshments
Refreshment Creditors’ Account$ $1999
Jul 12000 Jun 30 Balance b/d 900Cash or Bank 1,000
Balance c/d 3,000
4,000 4,000
Balance c/d 3,0002000 Jul 1
Purchases 3,100
Credit purchases $3,100 is the balancing figure.
Step 4: Calculate Total Purchases of Refreshments
$
Credit Purchases of Refreshments 3,100Cash Purchases of Refreshments 5,000
Total Purchases of Refreshments 8,100
$8,100 is transferred to the Trading Account
Weekend Golf Club provided the following information:
Receipts and Payments Account for the year ended 31 June 2000
$ $
Sale of refreshment 8,000
Additional Information:
Refreshment debtors 4,000
Refreshment creditors 900 3,000
Cost of refreshment 5,000
Wages for the preparationof refreshments 3,000
Refreshment creditors 1,000
31 June 20001 July 1999
Refreshment stock 2,000 3,500$
Refreshment debtors 500 6,500
$
Accrued wages for the preparation of refreshments 700 1,000
Step 5: Calculate wages for the preparation of refreshment
Wages Account
$ $1999Jul 1
2000 Jun 30 Balance b/d 700Cash or Bank 3,000
Balance c/d 1,000
4,000 4,000
Balance c/d 1,0002000 Jul 1
Trading A/c 3,100
Wages $3,100 incurred for the year is the balancing figure.
Step 6: Prepare the Refreshment Trading Account
Weekend Golf Club
$ $Opening Stock 2,000
Refreshment Trading Account for the year ended 30 June 2000
Less Closing Stock (3,500)
Cost of Sales 6,600
Add Purchases 8,10010,100
Gross Profit 11,400
Sales 18,000
18,000Gross Profit 11,400
18,000Wages for preparation of refreshment 3,100Net Profit 8,300
11,40011,400
Step 7: Transferring refreshment net profitto the Income and Expenditure Account
Weekend Golf Club
Income and Expenditure Account for the year ended 30 June 2000
Debit all currentyear revenueexpenditure
Credit all currentyear revenue
receipts
Step 7: Transferring refreshment net profitto the Income and Expenditure Account
Weekend Golf Club
Income and Expenditure Account for the year ended 30 June 2000
Net Profit from Refreshments 8,300
$$
• Most records of clubs are kept using the single- entry system.
• Balance day adjustments are needed to get the necessary data to prepare the accounts.
Balance Day Adjustments
Adjustments are usually made to the following:
• Subscription Account – to find exact subscription for the year.
• Trading Account – to find sales, purchases, expenses incurred for the year.
• Other revenue generating activities – to find net gain or loss from the event.
• Disposal of new assets and acquisition of new assets – to record a gain or loss on disposal.
Balance Day Adjustments
Adjustments are usually made to the following:
• Subscription Account – to find exact subscription for the year.
• Trading Account – to find sales, purchases, expenses incurred for the year.
• Other revenue generating activities – to find net gain or loss from the event.
• Disposal of new assets and acquisition of new assets – to record a gain or loss on disposal.
Balance Day Adjustments
Subscription Account
Members’ subscriptions make up the main source of a club or society’s income.
Club needs to know its exact subscription income to find out if it is able to finance its normal operations.
Problem: Not every member will pay on time.
Subscription Account
Subscription is a revenue receipt and
recorded in the Subscription Account.
Subscription owed by members is known as
subscription due or subscription in arrears.
Subscription paid by members in the current
financial year for the next financial year is
known as subscription in advance.
Subscription Account
When an arrears or advance payment happens,
adjustments in the preparation of the Subscription Account have to be made
so that only the amount of revenue earned during the current year
is included in the current year’s Income and Expenditure Account
according to the matching principle.
Subscriptions Account CrDr
Subscription in arrears b/d(not collected during the
previous year)
$ $
Income & ExpenditureAccount (exact amount of
Subscription revenuefor the current year)
Subscription received inadvance b/d (collected in
the previous year)
Total cash received assubscription during the
current year
Subscription in arrears c/d(not yet received for the
current year)
Subscription in advance c/d(collected for subsequent year)
Weekdays Country Club has the following in the books:
Receipts and Payments Account for the year ended 31 Jun 2000$ $
Subscription 5,500
Additional information:1 Jul 1999 31 Jun 2000
Subscription in advance 600 900
Subscription in arrears 1,500 850$$
Question:
What would the Subscription Account look like?
Subscriptions Account
$ $Balance b/d 1,500
1999Jul 1
1999Jul 1 Balance b/d 600
2000Jun 30
2000Jun 30 Bank
5,500Income andExpenditure A/c Balance c/d 850Balance c/d 900 6,9506,950
4,550
In this example, the subscription for the
current year is thebalancing figure.
2000Jul 1 Balance b/d 850
2000Jul 1 Balance b/d 900
Subscriptions Account
$ $Balance b/d 1,500
1999Jul 1
1999Jul 1 Balance b/d 600
2000Jun 30
2000Jun 30 Bank
5,500Income andExpenditure A/c Balance c/d 850Balance c/d 900 6,9506,950
4,550
Income and Expenditure Account for the year ended 30 June 2000
$ $
2000Jul 1 Balance b/d 850
2000Jul 1 Balance b/d 900
Subscriptions Account
$ $Balance b/d 1,500
1999Jul 1
1999Jul 1 Balance b/d 600
2000Jun 30
2000Jun 30 Bank
5,500Income andExpenditure A/c Balance c/d 850Balance c/d 900 6,9506,950
4,550
Income and Expenditure Account for the year ended 30 June 2000
$ $
Subscription 4,550
2000Jul 1
2000Jul 1Balance b/d 850 Balance b/d 900
Subscriptions Account
$ $Balance b/d 1,500
1999Jul 1
1999Jul 1 Balance b/d 600
2000Jun 30
2000Jun 30 Bank
5,500Income andExpenditure A/c Balance c/d 850Balance c/d 900 6,9506,950
4,550
Balance Sheet as at 30 June 2000$ $
Current Assets Current Liabilities
2000Jul 1
2000Jul 1Balance b/d 850 Balance b/d 900
Subscriptions Account
$ $Balance b/d 1,500
1999Jul 1
1999Jul 1 Balance b/d 600
2000Jun 30
2000Jun 30 Bank
5,500Income andExpenditure A/c Balance c/d 850Balance c/d 900 6,9506,950
4,550
Balance Sheet as at 30 June 2000$ $
Current Assets Current Liabilities
Subscription in advance 900Subscription in arrears 850
Adjustments are usually made to the following:
• Subscription Account – to find exact subscription for the year.
• Trading Account – to find sales, purchases, expenses incurred for the year.
• Other revenue generating activities – to find net gain or loss from the event.
• Disposal of new assets and acquisition of new assets – to record a gain or loss on disposal.
Balance Day Adjustments
Adjustments are usually made to the following:
• Subscription Account – to find exact subscription for the year.
• Trading Account – to find sales, purchases, expenses incurred for the year.
• Other revenue generating activities – to find net gain or loss from the event.
• Disposal of new assets and acquisition of new assets – to record a gain or loss on disposal.
Balance Day Adjustments
Other Revenue Generating Activities
Examples are charging for the use of club facilities or holding dances and socials.
Expenses incurred from these activities must be deducted from the related revenue obtained to show a GAIN or LOSS.
The net proceeds from such activities are part of the current operating revenue and recorded in the Income and Expenditure Account.
Example:
Everyday Dance Club held a dance competition
for its members. Registration fees collected was
$330. Prizes and refreshments for the
competitors amounted to $200. What is the gain
or loss from this event?
Income and Expenditure Account for the year ended 31 Jun 2000 $$
Everyday Dance Club
Gain from dance competition ($330-$200) 130
Adjustments are usually made to the following:
• Subscription Account – to find exact subscription for the year.
• Trading Account – to find sales, purchases, expenses incurred for the year.
• Other revenue generating activities – to find net gain or loss from the event.
• Disposal of new assets and acquisition of new assets – to record a gain or loss on disposal.
Balance Day Adjustments
Disposal of Old Asset and Acquisition of New Asset
Whenever a non-trading organisation disposes an asset, it can make a “gain” or “loss” due to previous under-provision or over-provision of depreciation.
“Gain” or “loss” is usually treated as a revenue item.
“Gain” or “loss” is normally not capitalised.
“Gain” or “loss” is recorded in the Income and Expenditure Account.
Weekdays Football Club has the following in the books:
Receipts and Payments Account for the year ended 31 Jun 2000$ $
Sale of surplusfootball equipment(book value $200) 150
Additional information:1 Jul 1999 31 Jun 2000
Football equipment at valuation 500 550
$$
Questions: - Is there a GAIN or LOSS on disposal?
-What is the DEPRECIATION for the year?
New footballequipment 300
Weekdays Football Club has the following in the books:
Receipts and Payments Account for the year ended 31 Jun 2000$ $
Sale of surplusfootball equipment(book value $200) 150
Additional information:1 Jul 1999 31 Jun 2000
Football equipment at valuation 500 550
$$
Questions: - Is there a GAIN or LOSS on disposal?
New footballequipment 300
Sale of surplus football equipment $150
Book value of equipment sold $200
Loss on sale of football equipment $50Income and Expenditure Account for the year ended 31
Jun 2000$ $
Is there a GAIN or LOSS on
disposal?
Weekdays Football Club
Loss on sale of footballEquipment ($150-$200)50
Weekdays Football Club has the following in the books:
Receipts and Payments Account for the year ended 31 Jun 2000$ $
Sale of surplusfootball equipment(book value $200) 150
Additional information:1 Jul 1999 31 Jun 2000
Football equipment at valuation 500 550
$$
Questions: -What is the DEPRECIATION for the
year?
New footballequipment 300
2 methods to arrive at the answer ….
What is the DEPRECIATION for the
year?
Method 1:
Balance as at 1 Jul 1999500Add Purchases 300
800Less Sale of equipment (200)
600
Depreciation = $600 - $550 = $50
2 methods to arrive at the answer ….
What is the DEPRECIATION for the
year?
Method 2:
Football Equipment Account
$ $
Balance b/d 500
Purchases 300 Disposal 200
Balance c/d 550
800 800
Depreciation 50
Remember to show your working for calculating
depreciation whatever method you use ….
Income and Expenditure Account for the year ended 31 Jun 2000$ $
What is the DEPRECIATION for the
year?
Weekdays Football Club
Loss on sale of footballequipment 50
Depreciation of footballequipment 50
What is it?
Accumulated Fund
Equivalent to the Capital Account of a trading concern.
Recall:
For a trading concern:
CAPITAL = ASSETS - LIABILITIES
For a non-trading concern:
ACCUMULATED FUND = ASSETS - LIABILITIES
Accumulated Fund
What affects it? Legacy
Money collected for capital purpose, eg. construction of
clubhouse
Surplus of income over expenditure
These will increase the accumulated fundand are CREDITED to the ACCUMULATED FUND.
Deficit of income over
expenditure is DEBITED
to the ACCUMULATED
FUND
Final balance of the
accumulated fund
represents the NET
VALUE of the club at the
end of the accounting
year.
Weekend Rollarblading Club has the following in its books:
Receipts and Payments Account$ $2000
Jan 12000Dec 31Balance b/d 2,000
Dec 31 Locker fees 500 Subscription:• 1999 100• 2000 300• 2001 150
Rent 1,500Extensionto clubhouse 1,900Sundry exp 120
On 1 Jan 2000, the club had the following assets:Rollarblading equipment $600
Clubhouse $12,000
Additional information:
• Rent paid included $500 for accrued rent from the previous year.• As at 31 Dec 2000, accrued locker fees was $210.
Weekend Rollarblading Club has the following in its books:
Receipts and Payments Account$ $2000
Jan 12000Dec 31Balance b/d 2,000
Dec 31 Locker fees 500 Subscription:• 1999 100• 2000 300• 2001 150
Rent 1,500Extensionto clubhouse 1,900Sundry exp 120
On 1 Jan 2000, the club had the following assets:Rollarblading equipment $600
Clubhouse $12,000
Additional information:
• Rent paid included $500 for accrued rent from the previous year.• As at 31 Dec 2000, accrued locker fees was $210.
Calculation of Accumulated Fund as at 1 Jan 2000:
Assets $
Cash at Bank2,000Subscription in arrears
100Rollarblading equipment 600Clubhouse 12,000
14,700Less: LiabilitiesAccrued rent (500)
Accumulated fund as at1 Jan 2000 14,200
Receipts and Payments A/c as at 1 Jan 2000
Presentation …
Balance Sheet as at 31 December 2000
Weekend Rollarblading Club
$Accumulated Fund
Balance as at 1/1/2000 14,200
Add Surplus XXX
Balance as at 31/12/2000 XXX
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