Non-Trading Organizations

Non-trading organizations do not exist to make a profit but instead to provide voluntary services to its members and the public.  Some examples of non-trading organizations are:

• ·         Charities and Societies  i.e. The Red Cross Society
• ·         Sporting Clubs
• ·         Social Clubs
• ·         School Clubs

Since this type of organization does not trade for a profit, they get their sources of income from:

• ·         Government grants
• ·         Donations from the public and private sectors
• ·         Fund raising activities i.e. raffles, fairs, dance, competitions etc.
• ·         Subscription/Membership dues
• ·         Rental of facilities and equipments
• ·         Competition fees/Competition entry fees
• ·         Gain on the sale of fixed asset

Even though non-trading organizations do not trade, there are financial records that must be kept.  These records are prepared almost the same way trading organizations prepare financial records except with a different name. 

Below are the different terms used between a trading and non-trading organization.

Trading Organizations	Non-trading Organizations
Capital (assets – liabilities)	Accumulated fund (asset – liabilities)
Cash Book	Receipts and Payments
Trading Account	Bar Trading/Activity Trading
Profit and Loss Account	Income & Expenditure Account
Balance Sheet	Balance Sheet
Profit	Surplus (excess of income over expenditure)
Deficit	Loss (excess of expenditure over income)
Debtor	Subscription in arrears
Creditor	Subscription in advance

Accumulated fund is calculated the same way as capital:

(assets – liabilities  = accumulated fund)

Receipts and Payments Account

This account is prepared to record monies received and paid out during the current year. 

The receipts and payments account usually begin with the balance b/d from the previous year.  Receipts are recorded on the debit side of the account and payments are recorded on the credit side of the account.

There is no recording for adjustments (prepayments and arrears) or assets that are already on the books.

Example 1: Below is the trial balance for Star Sports Club for the year ended 30 June 2010.

	Dr $	Cr $
Equipment	14,000
Premises	6,000
Bar Sales		16,300
Bar Purchases	9,500
Bar stock 1.07.10	2,200
Bank	2,800
Subscription received		8,700
Accumulated fund 1.07.10		22,500
Secretary pay	3,100
Staff wages	5,300
Telephone	900
Furniture	1,300
Rent and rates	1,500
Cash	75
Ground maintenance expense	700
Window Cleaning	125	________
	47,500	47,500

Notes: at 30 June 2010

a)     Bar stocks $2,500.

b)     Subscription in arrears amounted to $100.

c)      Rates prepaid $70.

d)     Depreciation – Equipment $600 and furniture $150.

Required:

Prepare the receipts and payment account, the bar trading account, and the income and expenditure account for the year ended 30 June 2010.

  

	Receipt and Payment Account
Balance b/d	2,800	Bar Purchases	9,500
Bar Sales	16,300	Secretary pay	3,100
Subscription	8,700	Staff wages	5,300
		Telephone	900
		Rent and rates	1,500
		Ground maintenance expense	700
		Window Cleaning	125
	________	Balance c/d	6,675
	27,800		27,800

Note:  No adjustments for prepayment and arrears, no old assets recorded.

Bar Trading/Activity Trading

Fundraising activities such as raffle, fair, dance etc, are done to make a profit in a non-trading organization. An activity trading account is prepared in the same way as the trading account in a trading organization, to see if a profit or loss was made on that activity.

Continuing with example 1:

	Bar Trading Account
Opening bar stocks	2,200	Bar Sales	9,500
add Bar purchases	9 500
	11,700
less Closing bar stocks	2,500
	9,200
*Gross Profit c/d	300		_______
	9,500		9,500

*Gross profit will be carried down to the income and expenditure account.

Income and Expenditure Account

This account is prepared to record all of the organization expenditure and income during the current year.  Figures that need to be adjusted for prepayments and arrears are adjusted in this account.

Expenses are recorded on the debit side of the account and all income is recorded on the credit side of the account.

This account is prepared from the information in the receipts and payments account and the profit from the bar trading account.

Calculation for expenses and subscription

Bank

+ Current year arrears

- Previous year arrears

- Current year prepayment

+ Previous year prepayment

Continuing with example 1:

	Income & Expenditure Account
Secretary pay	3,100	Bar Profit b/d	9,500
Staff wages	5,300	Subscription (8700+100)	8,800
Telephone	900
Rent and rates (1500-70)	1,430
Ground maintenance expense	700
Window Cleaning	125
Depreciation - Equipment	600
Furniture	150
Surplus	5,995		________
	18,300		18,300