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 |
