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FUNDAMENTALS OF FINANCIAL ACCOUNTING
INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS
11.3 Financial statements of
non-profit-making bodies
In this section we look at the fi nancial statements of organisations 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).
11.3.1 Accounting terminology for
non-profit-making bodies
In Chapter 1, we learned that some organisations 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 organisations are often
clubs and societies. They may have trading activities, and they will often engage in profi t-
able activities that increase the net assets of the organisation. However, this increase in net
assets is not attributed directly to the members, but is used to expand and improve the
organisation, or to provide benefi ts for those whom the organisation exists to support.
Local government is another example of a non-profi t-making organisation, but the
fi nancial statements of local government are outside the scope of your syllabus.
The fi nancial statements prepared for these organisations are similar to those prepared
for other trading organisations 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 organisations.
Receipts and payments account . This is a summary of the organisation’s cash and bank
transactions for a period. It is common for these organisations 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 organisation. It shows the income and expenditure of a particular period and fol-
lows the same accounting principles as described for trading organisations 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 organisation does not, in principle, exist in
order to make a profi t. Sometimes, however, the organisation 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 organisation’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 organisation is similar to that of a sole
trader
, showing assets and liabilities at the statement of fi nancial position date. However,
the organisation does not have an owner. The equivalent of the owner’s capital is referred
to as the accumulated fund .