prepare accounts for revenue-generating activities, e.g. refreshments, subscriptions

Resources → Subject Notes → Accounting → Lesson Plan

Cambridge IGCSE Accounting 0452 – Topic 5.4 Clubs and Societies

Learning Objective

To prepare accounts for revenue‑generating activities of clubs and societies (e.g., refreshments, subscriptions) using the double‑entry system, and to produce a Receipts‑and‑Payments (R&P) account, an Income‑and‑Expenditure (I&E) account and a simplified Statement of Financial Position (SFP).

1. Key Concepts

  • Revenue‑generating activities – any activity that brings money into the club (refreshments sales, membership subscriptions, ticket sales, fundraising events, etc.).
  • Relevant expenses – costs incurred to earn that income (cost of goods sold, wages, venue hire, advertising, equipment repair, etc.).
  • Clubs and societies normally prepare three statements:
    • Receipts‑and‑Payments (R&P) account – a cash‑flow statement.
    • Income‑and‑Expenditure (I&E) account – an accrual‑basis profit‑and‑loss‑type statement.
    • Statement of Financial Position (SFP) – a balance‑sheet‑style summary of assets, liabilities and equity (called “Accumulated Fund”).

2. Receipts‑and‑Payments vs Income‑and‑Expenditure

Aspect Receipts‑and‑Payments (R&P) Income‑and‑Expenditure (I&E)
Basis Cash basis – records only cash received and cash paid. Accrual basis – records income when earned and expenses when incurred, regardless of cash flow.
Purpose Shows the club’s cash position (useful for bank reconciliation and cash control). Shows the club’s performance for the period and calculates the surplus that appears in equity.
Format Two‑column cash statement: Receipts (left) / Payments (right). Two‑column profit‑and‑loss statement: Income (left) / Expenditure (right).
Result shown Closing cash balance (cash in hand / bank). Net surplus (or deficit) for the period.

Key Differences (syllabus wording)

  • R&P = cash basis – only actual cash movements are recorded.
  • I&E = accrual basis – matches income with the expenses incurred to earn it.

Advantages & Disadvantages

Statement Advantages Disadvantages
R&P
  • Easy to prepare – only cash entries.
  • Provides a clear picture of cash available for future activities.
  • Does not show whether the club is making a profit.
  • Ignores income earned but not yet received, and expenses incurred but not yet paid.
I&E
  • Shows the true financial performance of the club.
  • Matches costs with the income they generate – required for calculating the surplus.
  • More complex – requires distinguishing between cash and accrual entries.
  • Needs careful allocation of expenses to the correct period.

3. Recording Transactions – Journal Entries

All income and related expenses are recorded in the journal using double‑entry bookkeeping. The most common entries for clubs are shown below.

Date Account Debited Debit (£) Account Credited Credit (£)
01/09 Cash 120 Refreshments Sales 120
05/09 Cost of Refreshments 45 Cash 45
10/09 Cash 200 Subscription Income 200
15/09 Advertising Expense 30 Cash 30

4. Preparing the Receipts‑and‑Payments Account

Only cash movements are shown. The format is a two‑column statement.

Club – Receipts‑and‑Payments Account
For the month ended 30 September
Receipts Payments
Cash sales – Refreshments         £120 Cost of Refreshments             £45
Subscriptions received            £200 Advertising expense              £30
Total Receipts     £320 Total Payments     £75
Closing cash balance = £320 – £75 = £245

5. Preparing the Income‑and‑Expenditure Account

The I&E account matches income with the expenses incurred to earn it, irrespective of cash timing.

Club – Income‑and‑Expenditure Account
For the month ended 30 September
Income
Refreshments Sales £120
Subscription Income £200
Total Income £320
Expenditure
Cost of Refreshments £45
Advertising Expense £30
Total Expenditure £75
Net Surplus (Profit) £245

6. Simplified Statement of Financial Position

Only the items required for an IGCSE club are shown. Note the equity line uses the syllabus term Accumulated Fund (Surplus).

Statement of Financial Position
As at 30 September
Assets
  Cash in Hand £245
Liabilities
  Bank Overdraft £0
Equity (Accumulated Fund – Surplus) £245

7. Worked Example – “Greenfield” Club

During September the club recorded the following transactions:

  1. Refreshments sales: £150; cost of refreshments: £60.
  2. Subscriptions received: £250.
  3. Advertising expense: £40.

7.1 Journal Entries

Date Account Debited Debit (£) Account Credited Credit (£)
02/09 Cash 150 Refreshments Sales 150
04/09 Cost of Refreshments 60 Cash 60
10/09 Cash 250 Subscription Income 250
18/09 Advertising Expense 40 Cash 40

7.2 Receipts‑and‑Payments Account

Receipts‑and‑Payments Account
For the month ended 30 September
Receipts Payments
Refreshments sales         £150 Cost of refreshments     £60
Subscriptions received     £250 Advertising expense       £40
Total Receipts £400 Total Payments £100
Closing cash balance = £400 – £100 = £300

7.3 Income‑and‑Expenditure Account

Income‑and‑Expenditure Account
For the month ended 30 September
Refreshments Sales £150
Subscription Income £250
Total Income £400
Cost of Refreshments £60
Advertising Expense £40
Total Expenditure £100
Net Surplus £300

7.4 Statement of Financial Position

Statement of Financial Position
As at 30 September
Assets
  Cash in Hand £300
Liabilities
  Bank Overdraft £0
Equity (Accumulated Fund – Surplus) £300

8. Common Errors to Avoid (AO2)

  • Leaving out cash receipts from subscriptions or ticket sales.
  • Classifying income as a liability (e.g., “Subscriptions Payable”).
  • Not matching the cost of refreshments (or other expenses) with the period of the related sales.
  • Omitting regular expenses such as advertising, venue hire, or equipment repair.
  • Confusing the closing cash balance from the R&P account with the surplus shown in equity on the SFP.

9. Practice Questions (AO2 & AO3)

  1. A school drama club sells tickets for a performance: 120 tickets at £5 each. The cost of the production (sets, costumes, etc.) is £300.
    Required: Record the journal entries, prepare a Receipts‑and‑Payments account, an Income‑and‑Expenditure account and state the net surplus.
  2. During a month, a sports society receives £180 in membership fees and spends £70 on equipment repairs.
    Required: Prepare the journal entries, the R&P account, the I&E account and calculate the net surplus.
  3. Explain why the surplus of a club is shown under “Equity (Accumulated Fund – Surplus)” in the Statement of Financial Position. (AO3 – evaluation)
  4. A photography club buys film for £40 (cash) and later sells printed photos for £120 (cash). It also receives £50 in subscriptions. Advertising costs £20 (cash).
    Required: Prepare the journal entries, the R&P account, the I&E account and the Statement of Financial Position.

10. Summary (AO1)

  • Clubs record all revenue‑generating activities using double‑entry bookkeeping.
  • Two statements are compulsory:
    • Receipts‑and‑Payments – cash basis, shows closing cash balance.
    • Income‑and‑Expenditure – accrual basis, shows net surplus.
  • The surplus from the I&E account is transferred to the Accumulated Fund (Surplus) line of the Statement of Financial Position.
  • Understanding the differences between cash and accrual accounting, and being able to prepare each statement accurately, is essential for the IGCSE Accounting exam.
Suggested diagram: Transactions → Journal entries → Receipts‑and‑Payments account → Income‑and‑Expenditure account → Statement of Financial Position.

Create an account or Login to take a Quiz

46 views
0 improvement suggestions

Log in to suggest improvements to this note.