prepare receipts and payments accounts

Topic 5.4 – Clubs and Societies

Learning Objectives

• Explain the difference between a Receipts & Payments (R & P) account and an Income & Expenditure (I & E) account.
• Prepare a Receipts & Payments account on a cash basis.
• Prepare an Income & Expenditure account on an accrual basis.
• Make the typical year‑end adjustments required for clubs (accrued, prepaid, irrecoverable debts, etc.).
• Prepare a simple Statement of Financial Position (SFP) for a club.
• Calculate the accumulated fund (retained surplus) at year‑end and show how it links to the next year’s R & P account.
• Use the exact Cambridge terminology throughout.

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1. Receipts & Payments Account (R & P)

1.1 What is it?

A Receipts & Payments account records **only cash movements** – money that has actually been received or paid during the period. It is prepared on a cash basis and therefore does **not** show profit or loss; it simply shows the club’s cash position.

1.2 Key Features

• Only cash transactions are recorded – no credit sales, purchases, accruals or pre‑payments.
• All amounts are shown at their actual cash value.
• Opening cash balance = closing cash balance of the previous year.
• Closing cash balance = opening balance + total receipts – total payments.

1.3 When to Prepare

1. At the end of the club’s financial year.
2. Whenever the committee needs a clear picture of cash movements (e.g., before a fundraising event).

1.4 Steps to Prepare

1. Gather all cash receipts (membership fees, donations, fundraising income, etc.).
2. Gather all cash payments (rent, equipment, event costs, salaries, etc.).
3. Enter the **Opening cash balance** at the top of the receipts side.
4. List receipts on the left‑hand side and payments on the right‑hand side, grouping similar items together.
5. Total the receipts and total the payments.
6. Calculate the closing cash balance:
   Closing cash balance = Opening cash balance + Total receipts – Total payments
7. Enter the closing cash balance at the bottom of the payments side; this becomes the opening cash balance for the next year.

1.5 Common Pitfalls (Box)

1.6 Standard Format

Receipts	Amount (£)	Payments	Amount (£)
Opening cash balance		Opening cash balance
Membership fees		Rent
Donations		Equipment purchase
Fundraising income		Event expenses
Other receipts		Stationery & sundry
Total receipts		Total payments
		Closing cash balance

1.7 Worked Example – Receipts & Payments

ABC Drama Club – year ended 31 July

• Opening cash balance: £500
• Receipts:
  • Membership fees – £1,200
  • Donations – £300
  • Fundraising (bake sale) – £450
• Payments:
  • Rent of rehearsal hall – £400
  • Costumes – £250
  • Advertising – £150
  • Miscellaneous expenses – £100

Receipts	Amount (£)	Payments	Amount (£)
Opening cash balance	500	Rent of rehearsal hall	400
Membership fees	1,200	Costumes	250
Donations	300	Advertising	150
Fundraising (bake sale)	450	Miscellaneous expenses	100
Other receipts	0	Other payments	0
Total receipts	2,450	Total payments	900
		Closing cash balance	1,050

Verification: 500 + 2,450 – 900 = £1,050

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2. Income & Expenditure Account (I & E)

2.1 What is it?

An Income & Expenditure account shows the club’s **financial performance** for the period on an accrual basis. It records:

• All income earned (whether cash has been received or not).
• All expenses incurred (whether cash has been paid or not).

It is the club equivalent of a profit‑and‑loss account and is used to calculate the surplus (or deficit) for the year.

2.2 Key Differences from a Receipts & Payments Account

Aspect	Receipts & Payments (R & P)	Income & Expenditure (I & E)
Basis of recording	Cash only	Accrual (cash + accrued/pre‑paid items)
Purpose	Shows cash position	Shows profit or surplus for the year
Opening figure	Opening cash balance	Opening accumulated fund (capital)
Closing figure	Closing cash balance	Closing accumulated fund (capital)

2.3 Steps to Prepare

1. Start with the **closing cash balance** from the R & P account.
2. Make the required year‑end adjustments (see Section 3) to convert cash figures into accrual figures:
   • Add accrued income (income earned but not yet received).
   • Deduct prepaid income (cash received for a later period).
   • Add accrued expenses (expenses incurred but not yet paid).
   • Deduct prepaid expenses (cash paid for a later period).
   • Deduct irrecoverable debts (bad‑debt allowances).
3. Enter the **Opening accumulated fund** (the closing accumulated fund from the previous year) on the debit side.
4. List all income items on the debit (left) side and all expense items on the credit (right) side, using the adjusted figures.
5. Total both sides and calculate the **surplus** (or deficit).
6. Add the surplus to the opening accumulated fund to obtain the **Closing accumulated fund**.
7. Remember: the Closing accumulated fund becomes the **Opening cash balance** in the next year’s R & P account.

2.4 Common Pitfalls (Box)

2.5 Standard Format

Income (Debit)	Amount (£)	Expenditure (Credit)	Amount (£)
Opening accumulated fund		Rent
Membership fees		Equipment purchase
Donations		Event expenses
Fundraising income		Stationery & sundry
Accrued income		Accrued expenses
Pre‑paid income (deduction)		Pre‑paid expenses (deduction)
Irrecoverable debts (deduction)		Other expenses
Total income		Total expenditure
		Surplus (deficit)
		Closing accumulated fund

2.6 Worked Example – Income & Expenditure

Using the same data as the ABC Drama Club R & P example, assume the following year‑end adjustments:

• £50 of membership fees earned in July but not yet received (accrued income).
• £30 of hall hire paid in June for August (pre‑paid expense).
• £20 of unpaid equipment repair (accrued expense).

Income (Debit)	Amount (£)	Expenditure (Credit)	Amount (£)
Opening accumulated fund	0	Rent	400
Membership fees	1,200	Equipment purchase	250
Donations	300	Event expenses	150
Fundraising income	450	Miscellaneous expenses	100
Accrued membership fees	50	Pre‑paid hall hire (deduction)	(30)
Other income	0	Accrued equipment repair	20
Total income	2,000	Total expenditure	890
		Surplus for the year	1,110
		Closing accumulated fund	1,110

The **closing accumulated fund of £1,110** will be entered as the **opening cash balance** in the next year’s Receipts & Payments account.

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3. Typical Year‑End Adjustments for Clubs

Adjustments are required **only** for the Income & Expenditure account. They convert cash figures from the R & P account into accrual figures.

Adjustment Type	Effect on I & E	Example
Accrued income	Increase income (debit) – cash not yet received.	£50 of membership fees earned in the last month but not received.
Pre‑paid income	Decrease income (debit) – cash received for a later period.	£80 received for a charity event scheduled for next year.
Accrued expenses	Increase expenses (credit) – goods/services used but not yet paid.	£20 unpaid repair bill for stage lighting.
Pre‑paid expenses	Decrease expenses (credit) – cash paid for a later period.	£30 hall hire paid in June for August.
Irrecoverable debts	Deduct from income (debit) – donations or fees that will not be collected.	£15 unpaid membership fee declared as bad debt.

How to Record an Adjustment (Journal‑style for teaching)

Accrued income          Dr   £50
    Income – Membership fees   Cr   £50

After making the journal entry, reflect the adjusted amount in the Income & Expenditure account.

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4. Statement of Financial Position (SFP) for a Club

The SFP gives a snapshot of the club’s financial position at year‑end. For most IGCSE clubs it contains three sections:

1. Assets – cash, bank, prepaid expenses, equipment, etc.
2. Liabilities – amounts owed to others (e.g., unpaid invoices, accrued expenses).
3. Accumulated fund (capital) – the club’s retained surplus.

Standard Format (simplified)

Statement of Financial Position – as at 31 July 20XX
Assets	£
Cash in hand	1,050
Bank balance	2,000
Pre‑paid expenses	30
Equipment (net of depreciation)	500
Total assets	3,580
Liabilities	£
Accrued expenses	20
Outstanding membership fees	50
Total liabilities	70
Accumulated fund (capital)	3,510
Total liabilities & capital	3,580

The **Accumulated fund** shown here is the same figure that appears as the “Closing accumulated fund” in the Income & Expenditure account.

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5. Quick Recap – How the Three Statements Link

1. Prepare the Receipts & Payments account → gives the closing cash balance.
2. Make year‑end adjustments and prepare the Income & Expenditure account → gives the surplus and the closing accumulated fund.
3. Transfer the closing accumulated fund to the Statement of Financial Position as the capital component.
4. The closing accumulated fund also becomes the opening cash balance for the next year’s Receipts & Payments account.

Following these steps ensures full compliance with the Cambridge IGCSE Accounting (0452) syllabus for section 5.4.