How To Prepare The Financial Statements

The following are simple snapshot to prepare the following financial statements:

(a) Income Statement
(b) Owner's Equity Statement
(c) Balance Sheet

========================================================

(a) How to prepare the Income Statement:

• All temporary or nominal accounts relating to incomes and expenses are closed by using closing entries and transferred to the Income Statement/Summary

Journalize the closing entries as follows:

For all Revenue accounts:

• Debit Revenue Account Credit Income Summary

For all Expenses accounts:

• Debit Income Summary Credit Expense Account
  

(b) How to prepare Owner's Equity Statement:

• From (a) the Income statement is transferred to the Owner's Equity Statement

For Profit in the Income Summary:

• Debit Income Summary Credit Owner's Capital

For Loss in the Income Summary:

• Debit Owner's Capital Credit Income Summary
  

• The Owner's drawing account which is part of temporary/nominal account is similarly closed by using closing entry and transferred to the Owner's Equity Statement

Accounting entries:

• Debit Owner's Capital Credit Drawings Account
  

(c) How to prepare the Balance Sheet:

• All permanent or real accounts like all asset accounts, all liability accounts and owner's capital account are not closed and transfer to the Balance Sheet(refer to vertical and horizontal format)
  

LCCI Accounting Third Level-Accounting Questions on Clubs and Societies Accounts

Append below are five LCCI Accounting Third Level questions from 1995 to 2003 which are testing the candidates on non trading organization re: club & society accounts.

The accounting test questions on club & society typically asked are:

• Calculates the subscription rates, its breakeven point, comment whether subscription or bar pricess should be increase and
  
• Calculaes the accumulated Fund
  
• Prepare subscription accounts
• Prepare Bar Trading account,Income & Expenditure account and Balance Sheet

Click the image:

Accounting for Club And Society: Understand What is The Receipts And Payments Account and Income and Expenditure Account

In a non trading concern like a club or a society, besides the usual Balance Sheet and a Trading Account ( if it runs a restaurant or bar), we see two unique Accounts called the Receipts & Payments Account and Income And Expenditure Account
Actually, the Receipts & Payments Account, Income And Expenditure Account in a non trading concern are like the Cash Book and Income Statement respectively in a trading concern.

Below article describes further the salient features:

RECEIPTS & PAYMENTS A/C
1. Is equivalent to the Cash Book of a trading concern.
2. Contains both revenue and capital items
3. Contains the part actually received or paid plus items relating to preceding or succeeding periods
4. If positive bank balance then include as Current Assets in the Balance Sheet otherwise as overdraft classified under Current Liability

INCOME AND EXPENDITURE A/C
1. Summary of all revenue income earned and all revenue expenditure incurred in the current year, the balance being surplus or deficit.
2. Only revenue items are included.
3. Also based on accrual basis where all income and revenue expenditures attributable to the current period are included
4. If surplus balance is added to the Accumulated Fund in the Balance Sheet. Vice versa, if deficit, to deduct from Accumulated Fund in the Balance Sheet.

Accounting for Club And Society: What are the Sources of Income And Normal Expenditure

The following are some of the major sources of Income In a Non-Trading Concern:

Revenue in nature:
Entrance fees;
Subscriptions;
Interest from investment;
Visitors fees;
Lockers fees;
Gross trading profit from bar or restaurant;
Refreshment receipts;
Donations;

Capital in nature
Legacies;
Donations ( if stated for capital purpose like building a swimming pool)


Please note that:-

• Only the revenue income are included in the Income & Expenditure Account ( Profit & Loss A/c for a trading concern) to determine the Surplus or Deficit for the current year activities ( contrast with the trading concern - profit or loss for the current year )
  

Next are some of the normal expenditure in a Non-Trading Concern:

Revenue expenditure:
· Rent for club/association building;
· Staff wages;
· Maintenance costs of club/association;
· Honorarium;
· Insurance, printing and others

Capital expenditures:
Fixed assets

Please note that:-

• Purchases of fixed assets cannot be taken up in the Income and expenditure account only the depreciation of the fixed asset is permitted.