distinguish between receipts and payments accounts and income and expenditure accounts

Topic 5.4 – Clubs and Societies

Objective

To distinguish between receipts‑and‑payments (R & P) accounts and income‑and‑expenditure (I & E) accounts, to understand why both are required, and to learn how to prepare the three basic financial statements used by clubs and societies:

• Receipts‑and‑Payments Account (cash‑basis)
• Income‑and‑Expenditure Account (accrual‑basis)
• Statement of Financial Position (balance‑sheet‑type statement)

1. Why clubs and societies need special accounts

• Clubs are not profit‑making businesses; their aim is to cover costs and, where possible, build a reserve.
• Several parties are interested in the club’s finances:
  • Members – want to know whether fees are being used properly.
  • School governors / trustees – need assurance that the club stays within its budget and builds a surplus for future activities.
  • External auditors / funding bodies – require evidence that income is recorded correctly and that assets are safeguarded.
• Because different users need different information, clubs prepare both a cash‑basis R & P account (for day‑to‑day cash management) and an accrual‑basis I & E account (to show performance). The Statement of Financial Position then summarises the club’s assets, liabilities and accumulated fund at a point in time.

2. Types of activity

• Revenue‑generating activity – any activity that brings money into the club (e.g., ticket sales, refreshments, subscriptions).
• Non‑revenue‑generating activity – activities that incur costs but do not directly generate income (e.g., venue hire for a meeting, equipment maintenance).

3. Receipts‑and‑Payments Account (R & P)

3.1 Definition & purpose

• Records the actual cash that flows in and flows out of the club during a period.
• It is a cash‑basis statement – only transactions involving cash or bank transfers are shown.
• Purpose: to show the club’s cash position at the start and at the end of the period.

3.2 What is included

• Receipts: cash received from membership fees, donations, ticket sales, refreshments, bank interest, etc.
• Payments: cash paid for venue hire, equipment, supplies, wages, bank charges, etc.
• Accrued (unpaid) items are not recorded – they appear only in the I & E account.

3.3 Format

Receipts & Payments Account for the year ended …
Receipts	Payments
Opening cash balance
… (list each cash receipt)	… (list each cash payment)
Total receipts	Total payments
Closing cash balance = Opening cash + Total receipts – Total payments

3.4 Step‑by‑step preparation

1. Write down the opening cash balance (cash in hand at the beginning of the period).
2. List every cash receipt, grouped if desired (membership fees, ticket sales, donations, etc.).
3. List every cash payment, grouped by type (venue hire, supplies, wages, etc.).
4. Calculate total receipts and total payments.
5. Compute the closing cash balance using the formula above.

3.5 Example – Drama Club (cash basis)

Receipts & Payments Account Year ended 31 July
Opening cash balance	£500
Membership fees (cash)	£300
Ticket sales (cash)	£200
Cash donation	£100
Refreshments sales (cash)	£80
Total receipts	£1 180
Costume hire (cash)	£150
Venue hire (cash)	£120
Refreshments (cash purchase)	£80
Total payments	£350
Closing cash balance = £500 + £1 180 – £350 = £1 330

4. Income‑and‑Expenditure Account (I & E)

4.1 Definition & purpose

• Shows the club’s financial performance for the period on an accruals basis.
• Matches income earned with the expenses incurred to earn that income, regardless of when cash is received or paid.
• Purpose: to determine whether the club has generated a surplus or incurred a deficit for the period.

4.2 What is included

• Income: all revenue‑generating activity earned during the period – membership fees, ticket sales, refreshments, donations, interest, and any other earned income (including amounts not yet received).
• Expenditure: all costs incurred during the period – venue hire, costume hire, supplies, wages, depreciation of equipment, etc. (including amounts not yet paid).
• Accrued items are recorded here, even though no cash has moved.

4.3 Format

Income & Expenditure Account for the year ended …
Income	Expenditure
… (list each income item)	… (list each expense item)
Total income	Total expenditure
Surplus / Deficit = Total income – Total expenditure

4.4 Step‑by‑step preparation

1. Identify every source of income earned during the period, whether cash has been received or not.
2. Identify every expense incurred during the period, whether cash has been paid or not.
3. Sum the income items and the expense items separately.
4. Calculate the surplus (if income > expenditure) or deficit (if expenditure > income).

4.5 Example – Drama Club (accrual basis)

Income & Expenditure Account Year ended 31 July
Membership fees (earned)	£300
Ticket sales (earned – cash + accrued)	£250
Donations (earned)	£100
Refreshments sales (earned)	£80
Total income	£730
Costume hire (incurred)	£150
Venue hire (incurred)	£120
Refreshments (incurred)	£80
Supplies – credit purchase	£30
Total expenditure	£380
Surplus = £730 – £380 = £350

5. Statement of Financial Position (Balance‑Sheet‑type Statement)

5.1 Definition & purpose

• A snapshot of the club’s financial position at a specific date.
• Shows what the club owns (assets), what it owes (liabilities) and the net wealth (accumulated fund).
• Used by governors, auditors and prospective funders to check that assets are protected and that the club is solvent.

5.2 Format

Statement of Financial Position As at 31 July
Assets
Cash in hand / bank	£ …
Stock (e.g., refreshments, props)	£ …
Pre‑paid expenses	£ …
Total assets	£ …
Liabilities
Outstanding payments to suppliers	£ …
Accrued expenses (e.g., wages payable)	£ …
Total liabilities	£ …
Capital (Accumulated Fund)	£ …
Total liabilities & capital	£ …

5.3 Step‑by‑step preparation

1. List all cash and bank balances.
2. Add any stock, prepaid items or other tangible assets.
3. List all amounts the club still owes (outstanding supplier invoices, accrued wages, etc.).
4. Enter the closing accumulated fund (carried forward from the previous year plus the current surplus or minus the deficit).
5. Check that Total assets = Total liabilities + Capital.

5.4 Example – Drama Club (balance‑sheet‑type)

Statement of Financial Position As at 31 July
Assets
Cash in hand / bank	£1 330
Stock – refreshments (unsold)	£40
Pre‑paid insurance (3 months)	£30
Total assets	£1 400
Liabilities
Outstanding payment to costume supplier	£50
Accrued wages (staff not yet paid)	£20
Total liabilities	£70
Capital (Accumulated Fund)	£1 330
Total liabilities & capital	£1 400

6. Accumulated Fund

6.1 Definition

The accumulated fund is the total of all surpluses retained by the club since its inception, less any deficits that have been carried forward. It represents the club’s reserve for future activities.

6.2 Calculation

Opening accumulated fund (balance at the start of the year)
+ Surplus for the year (or – Deficit)
= Closing accumulated fund

6.3 Relationship to the accounts

• The surplus/deficit from the I & E account is transferred to the accumulated fund.
• The closing accumulated fund appears in the Statement of Financial Position under “Capital”.

6.4 Example – Continuing Drama Club

Statement of Accumulated Fund Year ended 31 July
Opening accumulated fund	£200
Surplus for the year (from I & E)	£350
Closing accumulated fund	£550

7. Comparison of R & P and I & E Accounts

Feature	Receipts & Payments (R & P)	Income & Expenditure (I & E)
Basis of recording	Cash basis – recorded when cash is actually received or paid.	Accrual basis – recorded when income is earned or expense incurred.
Purpose	Shows the club’s cash position (opening & closing cash).	Shows financial performance – surplus or deficit for the period.
Items shown	Only cash transactions (e.g., cash fees, cash purchases).	All income and expenses, including credit purchases and unpaid fees.
Result	Closing cash balance.	Surplus / Deficit, which is transferred to the accumulated fund.
Typical user	Treasurer for day‑to‑day cash management.	Committee, school governors and external auditors for performance evaluation.

8. Summary Checklist

• Prepare a Receipts & Payments account to monitor cash flow and to know the cash on hand at any point.
• Prepare an Income & Expenditure account to assess whether the club is operating at a surplus or deficit.
• Prepare a Statement of Financial Position to show assets, liabilities and the accumulated fund at year‑end.
• Remember:
  • R & P = cash basis.
  • I & E = accrual basis.
  • Surplus/deficit from I & E is transferred to the accumulated fund, which appears in the Statement of Financial Position.
• Both statements together give a complete picture of a club’s financial health and satisfy the requirements of the Cambridge IGCSE/A‑Level syllabus.