Advanced-Level

INCOME AND EXPENDITURE ACCOUNT

A conventional trading and profit and loss account is not an appropriate form in which to
present the final accounts of a non-trading entity. Clubs, institutions, societies, professional bodies
and similar concerns not formed with the intention of profit making will usually prepare an income
and expenditure account. Occasionally it may be called a revenue account.

Differences between ‘A Receipts and Payment Account’ and ‘An Income and Expenditure Account’

Receipts and Payment Account Income and Expenditure Account

1. A summary of cash transactions and the 1. A balance representing the surplus or

resultant cash or bank balance deficit of income over expenditure for
the period under review

2. Contains only part of the income or 2. Contains all income and revenue
expenditure for the period, i.e., the part expenditure attributable to the period of
actually received or paid. It may also the account, whether received or paid or
contain receipts and payments belonging not.
to preceding or succeeding periods.

3. Contains both capital and revenue items if 3. Contains revenue items only.
received or paid.

4. Virtually a summarized statement of cash 4. Virtually a Trading and Profit and Loss
book Account.

There are a few points in particular that should be noted when attempting an income and
expenditure question in an examination.
1. In large clubs it is usual to prepare special Trading Accounts to show the results of bar trading,
sale of refreshments and similar operations.
2. The capital account is sometimes described as an Accumulated Fund. A surplus of income over
expenditure for the period is added to this fund, and a deficit is deducted.
3. A gift to the concern form of money should be added directly to the accumulated fund and not
shown in the income and expenditure account if it is a large and non-recurring amount. Small
gifts of money may be shown as income in the income and expenditure account if they are of
little individual significance and are a regular and recurring form of income. The principle to
follow is that the income and expenditure account should reflect the normal operations of the
year.

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4. A gift to the concern in the form of an asset should be added directly to the accumulated fund in
the balance sheet and listed as an asset if a value is stated.
5. Depreciation of fixed assets may or may not be required. If depreciation is required there will be
some indication of this, though it may be implicit rather than explicit.
6. If receipts are described as `bar receipts' or `dance receipts' or other `special effort receipts',
careful scrutiny is recommended to see if expenses are similarly identified. If is quite probable
that the examiner is looking for a separate `bar account' or `dance account', the profit and loss
on which should be transferred to the main income and expenditure account. Marks will be list
if the individual items are simply listed in the income and expenditure account. In the case of a
bar account, stocks at the beginning and the end of the year should of course be included, as
should items such as barman's wages.
7. Subscription in arrears in practice may not be brought in as income by clubs and societies as
their eventual recovery can be very uncertain. However, if an examination question indicates an
amount of subscription in arrear, the examiner obviously expects this amount to be brought into
the accounts. An adjustment should always be made for advance payment of subscriptions.
8. A payment for life membership should not be treated as income solely in the year in which the
member paid the money. It should be credited to a Life Membership Account, and transfers
should be made to the credit of the income and expenditure account of an appropriate amount
annually.
9. Entrance fees paid on application for membership should not be treated as income solely in the
year in which the member is admitted. It should be credited to Entrance Fees Account and
transfers should be made from that account to the income and expenditure account of an
appropriate amount annually.

Exercise One
Extract of receipts and payments accounts:

1993 1992
Receipts $ $
Subscriptions for 1992 9 500 46 000
Subscriptions for 1993 52 000 4 700
Subscriptions for 1994 4 400 2 000
Sales of chess clocks @ $150 6 560 2 700
Part payment for a chess clock sold to Mr Chau 40

Payments
Purchases of 100 chess clocks - 12 000

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Additional information:
All 1992 subscriptions have now been collected, with the exception of $200 from M.Lung,
which is to be written off in the 1993 accounts. Subscriptions of $8 200 for 1993 remained unpaid
at the balance sheet date.

Required:
Prepare the Subscriptions Account and the Trading Account for the Chess Clock for the year
ended 31st December 1992 and 1993.

Subscriptions
1992 $ 1992 $
31/12 Income and expenditure 55700 31/12 Receipts and payments 52700
Subscriptions in advance c/d 6700 Subscriptions in arrear c/d 9700
(4700+2000) 62400 62400

1993 1933
1/1 Subscriptions in arrear b/d 9700 1/1 Subscriptions in advance b/d 6700
Income and expenditure 64900 31/12 Receipts and payment 65900
Subscriptions in advance c/d 6400 Bad Debts 200
Subscriptions in arrear c/d 8200
81000 81000

Trading account for the year ended 31-12-1992

$ $
Purchases (100 units) 12000 Sales (2700+40+110) 2850
Less: ending stock ($120x80 units) 9720 (190 units)
Cost of goods sold 2280
Gross profit 570
2850 2850

Trading account for the year ended 31-12-1993

$ $
Beginning stock 9700 Sales (6560-110) 6450
Less: Ending stock ($120x38 units) 4560 (43 units)
Cost of goods sold 5160
Gross profit 1290
6450 6450

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Subscriptions

In advance b/d 0 In arrear b/d 0

Income and expenditure (b.f.) 55700 Subscriptions received- 92 46000
In advance c/d 6700 Subscriptions received – 93 4700
Subscriptions received - 94 2000
In arrear c/d 9700
64400 64400

In arrear b/d 9700 In advance b/d 6700

Income and expenditure (b.f.) 64900 Subscriptions received- 92 9500
In advance c/d 6400 Subscriptions received – 93 5200
Subscriptions received - 94 4400
Bad Debts - 92 200
In arrear c/d 8200
81000 81000

Exercise Two
Long Lane Football Club
Receipts and Payments Account
For the year ended 31 December 1993

Bank Balance 1.1.1993 $ 524 Payment for bar supplies $ 3 962

Subscriptions received for: Wages:
1992 55 Assistants in matches 939
1993 1 236 Barman 624
1994 40 Improvement to equipment
Bar sales 5 628 at 1.1.1993 90
Donations received 80 120 Expenses for training young
Interest from fixed deposit 10 footballers 1 130
Ticket sales for matches 7 000 Transfer to fixed deposit 305
Receipts for life membership 100 Administration expenses 9 600
Bank Balance 31.12.1993 78 063
94 713 94 713

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Notes:
1. On 1st January 1993, owing for bar supplies and stock in the bar amounted to $250 and $580
respectively. At the year end, the owing for bar supplies increased by $300 and it was the policy
of the bar to sell foods and drinks at 20% mark-up on cost.
2. An equipment for maintenance was acquired at $1 000 on 31 December 1991. The ownership of
the equipment was shared with Short Cut Football Club which agreed to reimburse half of any
related costs and expenses incurred by Long Lane Football Club. Depreciation would be
provided at 10% p.a. on straight line method.
3. The scheme for life membership started five years ago and there was a quota, i.e. two, on the
number of life members admitted each year. The membership fees per person was $100 and
there had already been 10 life members. The club credited the life membership fees to income
and expenditure account in equal instalments over 10 years beginning in the year of admission.
4. Subscriptions owing by members amounted to $85 on 31 December 1992, and $66 on 31
December 1993. The club would not carry forward any subscription in arrear for more than 12
months.
5. Donations received for the year consisted of $30 000 from the estate of the ex-chairman and
$50 000 from the new chairman who specifically instructed that his donation should be used for
training young footballers. The rest of the donations received were recurring amounts from
different football fans of the club.
6. All bar sales were for cash, although at the end of the year there were `I.O.U' in the till which
amounted to $72.

You are required to prepare a Bar Trading Account, an Income and Expenditure Account for the
year ended 31 December 1993 and a Balance Sheet as at that date.

Income and Expenditure Account

Administrative expenses 9600 Profit from bar 326
Depreciation – equipment 55 Subscription 1302
(1000*1/2*10%)+(90*1/2*1/9) Profit from matches (7000-939) 6061
Bad Debts 30 Interest from fixed deposit 10
Donations 120
Life membership (10+1)*$10 110
Deficit 1756
9685 9685

Bar Trading Account

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5700
Beginning stock 580 Sales (5628+72)
Add: Purchases 4262
4842
Less: Ending stock 92
Cost of goods sold 4750
Gross profit 950
5700 5700

Bar wages 624 Gross profit 950

Net profit 326
950 950

Balance Sheet
Fixed Assets $ $ Accumulated Fund $ $
Equipment 1000*1/2+90*1/2) 545 Beginning 689
Less: depreciation 105 440 Less: deficit 1756
(1000*1/2*10% + 55) (1067)
Add: Donation 30000 28933
Current Assets
Bar stock 92 Training Fund (50000-1130) 48870
Receivable from short 45
Bar debtors 72 Life membership fund (700+100-110) 690
Subscriptions in arrear 66
Fixed deposit 305 Current Liabilities
Bank 78063 78643 Subscriptions in advance 40
Owing to supplier 550 590
79083 79083

Purchases of bar stock

Cash 3962 Balance b/d 250
Balance c/d 550 Credit purchases 4262
4512 4512

Subscriptions
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In arrear b/d 85 In advance b/d 0

Income and expenditure 1302 Cash -92 55
In advance c/d 40 Cash – 93 1236
Cash – 94 40
Bad debts (85-55) 30
In arrear c/d 66
1427 1427

Statement of affairs as at 1-1-1993

$ $
Equipment (500-50) 450
Bar stock 580
Subscriptions in arrear 85
Bank 524 1639

Less: Life membership funds 700

(1000 – 200/10*5 – 200/10*4 – 200/10*3 – 200/10 *2 – 200/10 *1)
Owing to supplier 250 950
Accumulated fund at beginning 689