Financial statements of non-profit-making bodies
In
this tutorial we look at the fi nancial statements of organizations such as
clubs and societies, which are not primarily set up for the purpose of trading
and making a profi t (although they may engage in some trading activities, for
example, running a bar for the use of members and visitors).
Accounting terminology for non-profit-making bodies
Some organizations exist, not with the main
intention of making profi ts in the long term, but with the objective of
providing facilities to their members or others who may benefi t from their
activities. These organizations are often clubs and societies. They may have
trading activities, and they will often engage in profi table activities that
increase the net assets of the organization. However, this increase in net assets
is not attributed directly to the members, but is used to expand and improve
the organization, or to provide benefi ts for those whom the organisation
exists to support.
Local government is another example of a
non-profi t-making organization, but the fi nancial statements of local
government are outside the scope of your syllabus. The fi nancial statements
prepared for these organizations are similar to those prepared for other
trading organizations described earlier in this text, and they utilise the same
accounting concepts and principles, but some of the terminology used is
different. It is usual for the following to be prepared for these organizations.
Receipts and payments account . This is a summary of the organization’s cash and bank transactions for a period. It is common for
these organizations to operate a single-entry accounting system and thus the
receipts and payments account is the starting point for the preparation of
other accounting statements.
Income and expenditure
statement (or account). This is similar
to the income statement of a trading organization. It shows the income and
expenditure of a particular period and follows the same accounting principles
as described for trading organizations earlier in this text. The word ‘ income ’
is used rather than revenue. Also, instead of using the terms profi t and loss
, the difference between the income
and expenditure of the period is referred to as surplus or defi
cit . The reason for this is that the organization
does not, in principle, exist in order to make a profi t. Sometimes, however,
the organization has sections within itself or holds specifi c events with the
deliberate intent of making profi ts that are used to subsidise the costs of
the organization’s other activities: for example, it may have a bar selling
drinks at a profi t, or might hold a dinner dance for which tickets are sold.
In these circumstances a separate ‘ trading account ’ is prepared for each such
activity. The profi t or loss arising is transferred to the income and expenditure
account.
Statement of financial
position
The
statement of fi nancial position of a non-trading organization is similar to
that of a sole trader, showing assets and liabilities at the statement of fi
nancial position date. However, the organization does not have an owner. The
equivalent of the owner’s capital is referred to as the accumulated fund .c
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