INCOME AND EXPENDITURE ACCOUNT



INCOME AND EXPENDITURE ACCOUNT(with answers)

A conventional trading and profit and loss account is not an appropriate form in which to present the final accounts of a non-trading entity. Clubs, institutions, societies, professional bodies and similar concerns not formed with the intention of profit making will usually prepare an income and expenditure account. Occasionally it may be called a revenue account.

Differences between ‘A Receipts and Payment Account’ and

‘An Income and Expenditure Account’

| | |

|Receipts and Payment Account |Income and Expenditure Account |

| | |

|1. a summary of cash transactions and the resultant cash or bank |1. a balance representing the surplus or deficit of income over |

|balance |expenditure for the period under review |

| | |

| |2. contains all income and revenue expenditure attributable to the period |

|2. contains only part of the income or expenditure for the period, |of the account, whether received or paid or not. |

|i.e., the part actually received or paid. It may also contain receipts | |

|and payments belonging to preceding or succeeding periods. | |

| | |

| | |

|3. contains both capital and revenue items if received or paid. |3. contains revenue items only. |

| | |

|4. virtually a summarised statement of cash book | |

| |4. virtually a Trading and Profit and Loss Account. |

There are a few points in particular that should be noted when attempting an income and expenditure question in an examination.

1. In large clubs it is usual to prepare special Trading Accounts to show the results of bar trading, sale of refreshments and similar operations.

2. The capital account is sometimes described as an Accumulated Fund. A surplus of income over expenditure for the period is added to this fund, and a deficit is deducted.

3. Depreciation of fixed assets may or may not be required. If depreciation is required there will be some indication of this, though it may be implicit rather than explicit.

4. If receipts are described as ‘bar receipts’ or ‘dance receipts’ or other ‘special effort receipts’, careful scrutiny is recommended to see if expenses are similarly identified. If is quite probable that the examiner is looking for a separate ‘bar account’ or ‘dance account’, the profit and loss on which should be transferred to the main income and expenditure account. Marks will be list if the individual items are simply listed in the income and expenditure account. In the case of a bar account, stocks at the beginning and the end of the year should of course be included, as should items such as barman’s wages.

5. A payment for life membership should not be treated as income solely in the year in which the member paid the money. It should be credited to a Life Membership Account, and transfers should be made to the credit of the income and expenditure account of an appropriate amount annually.

6. Entrance fees paid on application for membership should not be treated as income solely in the year in which the member is admitted. It should be credited to Entrance Fees Account and transfers should be made from that account to the income and expenditure account of an appropriate amount annually.

Accounting treatments for subscriptions

e.g 1. The club has 10 members at present and the annual subscription for each member is $100 each.

Case 1 – all members duly paid their subscriptions.

Subscription

I&E a/c $1 000 | Bank (10x$100) $1 000

Case 2 – only 9 members paid their subscriptions.

Subscription

I & E a/c 1 000 | Bank (9x$100) 900

| In arrear c/d 100

1 000 | 1 000

|

In arrear b/d 100

Journal entries for year end adjustments:

Dr. Subscription in arrear 100

Cr. Subscription 100

To record the unpaid subscription for one member.

Case 3 – all members duly paid their subscriptions and one of them also paid for the next year.

Subscription

I & E a/c 1 000 | Bank (11x$100) 1 100

In advance c/d 100 |

1 100 | 1 100

| In advance b/d 100

Journal entries for year end adjustments:

Dr. Subscription 100

Cr. Subscription in advance 100

To record the subscription paid in advance for one member.

e.g 2. The cash receipts for members’ subscription amounted to $4 388 for the year ended 30 September 1998. The following valuations are also available:

As at 30 September 1997 1998

Subscriptions in arrears $150 $ 90

Subscriptions in advance 75 35

You are required to prepare the subscription account for the year ended 30 September 1998.

Subscription account

In arrear b/d 150 | In advance b/d 75

I&E a/c (b.f.) 4 368 | Bank 4 388

In advance c/d 35 | In arrear c/d 90

4 553 | 4 553

e.g 3. The subscriptions received from members for the year ended 31 December 1998 are shown as follows:

Subscriptions received for:

1997 55

1998 1 236

1999 40

Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December 1998. Subscriptions owing for more than one year would be treated as uncollectible.

You are required to prepare the subscription account for the year ended 31 December 1998.

Subscription

In arrear b/d 65 | In advance b/d 0

| Bank – 1997 55

I & E a/c (b.f.) 1 302 | - 1998 1 236

| - 1999 ___44 1 335

| Bad debts 10

In advance c/d 44 | In arrear c/d 66

______ | _____

1 411 | 1 411

Illustration One (Amended from 1998 Section A Question 3)

The treasurer of the Leisure Club has prepared the following receipts and payments account for the year ended 31 December 1997:

Receipts and payments account

| |$ | | |$ |

|Balance b/d |15 330 | |Bar purchases |61 250 |

|Subscriptions |49 000 | |Bar wages |7 420 |

|Bank interest |92 | |Administration expenses |42 270 |

|Bar sales |97 500 | |Insurance |6 250 |

| | | |Balance c/d |44 732 |

| |161 922 | | |161 922 |

Additional information:

i) The following balances were extracted from the club’s books at 31 December 1996:

$

Accrued bar wages 455

Bar debtors 1 000

Club premises 300 000

Creditors for bar supplies 8 190

Bar stock 9 425

Prepaid insurance 600

Subscriptions in arrears 2 405

Subscriptions in advance 1 120

ii) Depreciation is to be charged on the cost of club premises at 5% per annum.

iii) Bar stock at 31 December 1997, amounted on $9 620.

iv) Accrued bar wages, prepaid insurance, bar debtors and creditors for bar supplies amounted to $390, $400, $1 200 and $7 215 respectively at 31 December 1997.

v) Subscriptions in advance and in arrears amounted to $2 600 and $1 360 respectively at 31 December 1997.

You are required to prepare for the Leisure Club:

a) A statement showing the accumulated funds of the club as at 1 January 1997, and

b) A bar trading account for the year ended 31 December 1997, and

c) An income and expenditure account for the year ended 31 December 1997,

d) A balance sheet as at 31 December 1997.

Answers:

a) A statement showing the accumulated funds of the club as at 1 January 1997:

|Assets: |$ |$ |

|Club premises | |300 000 |

|Bar debtors | |1 000 |

|Bar stock | |9 425 |

|Prepaid insurance | |600 |

|Subscriptions in arrears | |2 405 |

|Cash and Bank | | 15 330 |

| | |328 760 |

|Liabilities: | | |

|Accrued bar wages |455 | |

|Creditors for bar supplies |8 190 | |

|Subscriptions in advance |1 120 | 9 765 |

|Balance of the accumulated funds as at1.1.1997 | |318 995 |

b)

|Leisure Club |

|Bar trading account for the year ended 31 December 1997 |

|Opening stock |9 425 |Sales (W1) |97 700 |

|Purchases (W2) |60 275 | | |

| |69 700 | | |

|Less: closing stock |9 620 | | |

|Cost of goods sold |60 080 | | |

|Gross profit c/d |37 620 | |______ |

| |97 700 | |97 700 |

|Bar wages (W3) |7 355 |Gross profit b/d |37 620 |

|Net profit |30 265 | |______ |

| |37 620 | |37 620 |

Workings:

1.

|Bar debtors |

|1997 | | |1997 | |

|Jan 1 Balance b/d |1 000 | |Dec 31 Cash / Bank |97 500 |

|Dec 31 Total sales (b.f.) |97 700 | | 31 Balance c/d | 1 200 |

| |98 700 | | |98 700 |

2.

|Bar creditors |

|1997 | | |1997 | |

|Dec 31 Cash / Bank |61 250 | |Jan 1 Balance b/d |8 190 |

|Dec 31 Balance c/d |7 215 | |Dec 31 Total purchases (b.f.) |60 275 |

| |68 465 | | |68 465 |

3.

|Bar wages |

|1997 | | |1997 | |

|Dec 31 Cash / Bank |7 420 | |Jan 1 Accrued b/d |455 |

|Dec 31 Accrued c/d |390 | |Dec 31 Bar trading (b.f.) |7 355 |

| |7 810 | | |7 810 |

c)

|Leisure Club |

|Income and expenditure account for the year ended 31 December 1997 |

|Expenditure | |Income | |

|Administration expenses |42 270 |Subscription (W4) |46 475 |

|Insurance (W5) |6 450 |Bar profit |30 265 |

|Depreciation |15 000 |Bank interest received |92 |

|Surplus of income over expenditure |13 112 | |______ |

| |76 832 | |76 832 |

Workings :

4.

|Subscription |

|1997 | | |1997 | |

|Jan 1 In arrear b/d |2 405 | |Jan 1 In advance b/d |1 120 |

|Dec 31 I&E a/c (b.f.) |46 475 | |Dec 31 Bank / Cash |49 000 |

| 31 In advance c/d |2 600 | | 31 In arrear c/d |1 360 |

| |51 480 | | |51 480 |

5.

|Insurance |

|1997 | | |1997 | |

|Jan 1 Prepaid b/d |600 | |Dec 31 I&E a/c (b.f.) |6 450 |

|Dec 31 Cash / Bank |6 250 | | 31 Prepaid b/d |400 |

| |6 850 | | |6 850 |

d)

|Leisure Club |

|Balance Sheet as at 31 December 1997 |

|Fixed assets | | |Accumulated funds | | |

|Club premises | |300 000 |At 1 January 1997 | |318 995 |

|Accumulated depreciation | | 15 000 |Add: Surplus for the year | | 13 112 |

| | |285 000 | | |332 107 |

|Current assets | | |Current liabilities | | |

|Bar stock |9 620 | |Bar creditors |7 215 | |

|Bar debtors |1 200 | |Accruals |390 | |

|Prepaid insurance |400 | |Subscription in advance |2 600 |10 205 |

|Subscription in arrear |1 360 | | | | |

|Cash and Bank |44 732 | 57 312 | | |_______ |

| | |342 312 | | |342 312 |

Illustration Two (Amended from 1987 Section A Question 4)

The Treasurer of the International Club submitted the following receipts and payments account to club members covering the year to 31 December 1986:

Receipts and Payments Account

|Receipts |$ | |Payments |$ |

|Bank b/f |62 500 | |Printing and stationery |110 000 |

|Subscriptions received: | | |Bar purchases |132 000 |

|For current year |232 000 | |New equipment bought |150 000 |

|In advance |8 000 | |Wages for bar staff |215 000 |

|For previous years |10 000 | |Sundry expenses |110 700 |

|Bar takings |318 600 | | | |

|Sale of equipment |35 000 | | | |

|Bank c/f |51 600 | | |_______ |

| |717 700 | | |717 700 |

Additional information:

i) The following balances were extracted from the club’s books:

| |At 31.12.86 |At 31.12.85 |

|Bar stock |$ 36 000 |$ 28 000 |

|Bar debtors |4 100 |5 200 |

|Bar creditors |3 200 |6 300 |

|Stationery stock |800 |600 |

|Sundry expenses accrued |700 |200 |

| | | |

ii) The discounts allowed, discounts received and bad debts during the year were $1 000, $2 000 and $3 000 respectively.

iii) On 1 January 1986 the club’s only equipment was sold. The net book value of the equipment was $20 000.

iv) Depreciation on the new equipment was estimated at $30 000.

v) The subscription in advance at 31 December 1985 was $900 and all the subscriptions for the previous years were collected. The subscription in arrears on 31 December 1986 amounted to $3 000.

You are required to prepare for the Leisure Club:

a) A statement showing the accumulated funds of the club as at 31 December 1985, and

b) A bar trading account for the year ended 31 December 1986, and

c) An income and expenditure account for the year ended 31 December 1986,

d) A balance sheet as at 31 December 1986.

Answers:

a) A statement showing the accumulated funds of the club as at 31 December 1985:

|Assets: |$ |$ |

|Equipment | |20 000 |

|Bar debtors | |5 200 |

|Bar stock | |28 000 |

|Stationery stock | |600 |

|Subscriptions in arrears | |10 000 |

|Cash | | 62 500 |

| | |126 300 |

|Liabilities: | | |

|Bar creditors |6 300 | |

|Sundry expenses accrued |200 | |

|Subscriptions in advance | 900 | 7 400 |

|Balance of the accumulated funds as at 31.12.1985 | |118 900 |

b)

|International Club |

|Bar trading account for the year ended 31 December 1986 |

|Opening stock |28 000 |Sales (W1) |321 500 |

|Purchases (W2) |130 900 | | |

| |158 900 | | |

|Less: closing stock |36 000 | | |

|Cost of goods sold |122 900 | | |

|Gross profit c/d |198 600 | |_______ |

| |321 500 | |321 500 |

|Bar wages |215 000 |Gross profit b/d |198 600 |

| |_______ |Net loss | 16 400 |

| |215 000 | |215 000 |

Workings:

1.

|Bar debtors |

|1986 | | |1986 | |

|Jan 1 Balance b/d |5 200 | |Dec 31 Bank |318 600 |

| | | |31 Discounts allowed |1 000 |

| | | |31 Bad debts |3 000 |

|Dec 31 Total sales (b.f.) |321 500 | | 31 Balance c/d | 4 100 |

| |326 700 | | |326 700 |

2.

|Bar creditors |

|1986 | | |1986 | |

|Dec 31 Bank |132 000 | |Jan 1 Balance b/d |6 300 |

| 31 Discounts received |2 000 | | | |

|31 Balance c/d |3 200 | |Dec 31 Total purchases (b.f) |130 900 |

| |137 200 | | |137 200 |

c)

|International Club |

|Income and expenditure account for the year ended 31 December 1986 |

|Expenditure | |Income | |

|Loss from bar |16 400 |Subscription (W3) |235 900 |

|Printing and stationery (W4) |109 800 |Discounts received |2 000 |

|Sundry expenses (W5) |111 200 |Profit on disposal of equipment |15 000 |

|Discounts allowed |1 000 |Deficit of expenditure over income |18 500 |

|Bad debts |3 000 | | |

|Depreciation | 30 000 | |_______ |

| |271 400 | |271 400 |

Workings :

3.

|Subscription |

|1986 | | |1986 | | |

|Jan 1 In arrear b/d |10 000 | |Jan 1 In advance b/d | |900 |

|Dec 31 I&E a/c (b.f.) |235 900 | |Dec 31 Bank - current |232 000 | |

| | | | - in advance |8 000 | |

| | | | - previous | 10 000 |250 000 |

| 31 In advance c/d |8 000 | | 31 In arrear c/d | |3 000 |

| |253 900 | | | |253 900 |

4.

|Printing and stationery |

|1986 | | |1986 | |

|Jan 1 Stock b/d |600 | |Dec 31 I&E a/c (b.f.) |109 800 |

|Dec 31 Bank |110 000 | | 31 Stock b/d |800 |

| |110 600 | | |110 600 |

5.

|Sundry expenses |

|1986 | | |1986 | |

|Dec 31 Bank |110 700 | |Jan 1 Accrued b/d |200 |

|Dec 31 Accrued c/d |700 | |Dec 31 I&E a/c (b.f.) |111 200 |

| |111 400 | | |111 400 |

d)

|International Club |

|Balance Sheet as at 31 December 1986 |

|Fixed assets | | |Accumulated funds | | |

|Equipment | |150 000 |At 1 January 1986 | |118 900 |

|Accumulated depreciation | | 30 000 |Less:Deficit for the year | | 18 500 |

| | |120 000 | | |100 400 |

|Current assets | | |Current liabilities | | |

|Bar stock |36 000 | |Bar creditors |3 200 | |

|Bar debtors |4 100 | |Accruals |700 | |

|Stationary stock |800 | |Subscription in advance |8 000 | |

|Subscription in arrear | 3 000 | 43 900 |Bank overdraft |51 600 | 63 500 |

| | |163 900 | | |163 900 |

Exercise One

The following is a summary of the receipts and payments of the Victory Club during the year ended 30 September 1998:

Victory Club

Receipts and Payments Account

For the year ended 30 September 1998

----------------------------------------------------------------------------------------------------------------------

Cash and Bank balances b/d $1 247 Rent $1 524

Sales of annual dinner tickets 990 Purchase of office equipment 870

Members’ subscriptions 4 388 Donations to charities 287

Life membership 200 Meeting expenses 559

Donations 150 Expenses of annual dinner 1 213

Heating and lighting 446

Stationery and printing 320

Cash and Bank balances c/d 1 756

6 975 6 975

The following valuations are also available:

As at 30 September 1997 1998

Subscriptions in arrears $150 $ 90

Subscriptions in advance 75 35

Stocks of stationery 67 83

Meeting expenses prepaid 150 0

Heating and lighting accrued 110 83

On 1 October 1997 the Victory Club owned office equipment costing $2 500 which had been depreciated by $500. The policy of the club is to depreciate office equipment at 10% per annum using the straight line method applied on a full year basis. The club did not sell any office equipment during the year ended 30 September 1998.

Life membership was introduced for the first time in the current year. The payment for each member amounted to $100 and it would be spread over 5 years.

You are required to prepare an Income and Expenditure Account for the Victory Club for the year ended 30 September 1998 and a Balance Sheet as at that date

Victory Club

Income and Expenditure Account

For the year ended 30 September 1998

Income:

Life membership

Subscriptions

Donations

Expenditure:

Rent

Donations to charities

Meeting expenses

Expenses over ticket sales of annual dinner

Heating and lighting

Stationery and printing

Depreciation

Surplus of income over expenditure

Victory Club

Balance Sheet as at 30 September 1998

Fixed assets:

Office equipment

Less: Accumulated depreciation

Current assets:

Stock of stationery

Subscriptions in arrear

Cash and bank

Less: Current liabilities

Subscription in advance

Accruals

Accumulated fund:

Beginning balance

Add: Surplus

Ending balance

Life membership account ________

Workings:

1. Subscription

In arrear b/d | In advance b/d

I & E a/c | Bank

In advance c/d | In arrear c/d

|

2. Meeting expenses

Prepaid b/d | I & E a/c

Bank/Cash |

|

3. Annual dinner

Bank-expenses | Bank-sales of tickets

| Excess of expenses

| over sales revenue |

4. Heating and Lighting Bank | Accrual b/d

Accrual c/d | I & E a/c

|

5. Stationery and printing Stock b/d | I & E a/c

Bank/Cash | Stock c/d

|

6. Accumulated Fund as at beginning of year:

Assets: Cash and bank $

Subscriptions in arrear

Stock of stationery

Meeting expenses prepaid

Office equipment

Liabilities: Subscriptions in advance

Heating and lighting accrued

Exercise Two

Long Lane Football Club

Receipts and Payments Account

For the year ended 31 December 1998

---------------------------------------------------------------------------------------------------------------------------

Bank Balance 1.1.1998 $ 524 Payment for bar supplies $ 3 962

Subscriptions received for: Wages:

1997 55 Groundsman and assistant 939

1998 1 236 Barman 624

1999 40 Bar expenses 234

Bar sales 5 628 Repairs to stands 119

Donations received 120 Ground upkeep 229

Secretary's expenses 138

Transport costs 305

_____ Bank Balance 31.12.1998 1 053

7 603 7 603

1. Assets and liabilities at the beginning and end of the year:

31.12.1997 31.12.1998

Stocks in the bar - at cost $ 496 $ 558

Owing for bar supplies 294 340

Bar expenses owing 25 36

Transport costs owing - 65

2. The land and football stands were valued at 31 December 1997 at:

Land at cost of $4 000

Football stands at cost of $5 000 less accumulated depreciation of $3 000

The stands are to be depreciated by 10% per annum on reducing balance method.

3. The equipment at 31 December 1997 was valued at cost of $1 000 less depreciation to date of $500, and is to be depreciated at 25 per cent per annum on straight line method.

4. Four-fifths of the bar expenses were actually spent on the improvement of the equipment on 1 January 1998.

5. It was found repairs to stands included $100 cost of additions to stands.

6. Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December 1998. Subscriptions owing for more than one year would be treated as uncollectible.

You are required to prepare a Bar Trading Account, an Income and Expenditure Account for the year ended 31 December 1998 and a Balance Sheet as at that date.

Long Lane Football Club

Bar Trading Account for the year ended 31 December 1998

Bar sales

Beginning stock

Add: purchases

Less: ending stock

Cost of goods sold

Gross profit

Bar wages

Bar expenses

Net profit from bar

Income and Expenditure Account for the year ended 31 December 1998

Income

Subscriptions

Profit from the bar

Donations received

Expenditure

Wages

Repairs to stands

Ground upkeep

Secretary's expenses

Transport costs

Depreciation - Stands

- Equipment

Bad debts

Surplus of income over expenditure

Balance Sheet as at 31 December 1998

Fixed assets:

Cost Depreciation Net book value

Land

Stand ________ _________ ________

Current assets:

Stock of bar supplies

Subscriptions in arrear

Cash at bank

Less: Current liabilities

Bar creditors

Bar expenses owing

Transport costs owing

Subscription in advance

Accumulated fund:

Beginning balance

Add: Surplus

Ending balance

Workings:

1. Bar creditors

|

|

|

2. Bar expenses |

|

|

3. Subscription In arrear b/d | In advance b/d

| Bank - 1997

I & E a/c | - 1998

| - 1999

| Bad debts

In advance c/d | In arrear c/d

|

4. Transport costs |

|

|

5. Accumulated Fund as at beginning of year:

Assets: Land $

Stands

Equipment

Stock in bar

Bank

Subscriptions in arrear

Liabilities: Bar creditors

Bar expenses owing

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