Clubs & Societies (Cambridge International A-Level Accounting)

Spec point — the distinction between a receipts and payments account and an income and expenditure account

Clubs & societies

What types of businesses are clubs and societies?

• Clubs and societies are classed as non-trading organisations

• These types of businesses provide a service or facility for a fee called a subscription

• They do not operate with the sole aim of making a profit

  • The amount they gain is called a surplus
  • The amount they lose is called a deficit

What financial statements are prepared for clubs and societies?

• Clubs and societies do not always keep a full set of accounting records

• Their main accounting records tend to be

  • A receipts and payments account

    • This keeps track of the money that is paid and received
    • This is equivalent to the cash book for other businesses

  • Trading sections of statements of profit or loss for each one of any trading activities

    • Such as a café or a shop
    • These are prepared in the same way as for sole traders

  • An income and expenditure account

    • This shows the sources of income and expenses of the organisation
    • This calculates the surplus or deficit
    • This is equivalent to the statement of profit or loss for a sole trader

  • A subscription account

    • This calculates the fees that should have been received from members during the year

  • A statement of financial position

    • This is prepared in a similar way to that of sole traders
    • This states the assets, liabilities and accumulated fund

What are the differences between clubs and societies and profit-making businesses?

Sources of finance and fundraising for clubs

Spec point — how to evaluate possible sources of finance and methods of fundraising

Sources of finance and fundraising

What are the sources of finance for clubs and societies?

• Annual subscriptions

  • This is the main source of income
  • These are paid each year by the members
  • If the subscription is increased, then members might cancel their memberships

• Life memberships

  • These are larger amounts of money
  • However, the income is spread over a longer-term

• Donations

  • These are one-off gifts
  • General donations can be used for anything
  • Restricted donations are given for specific purposes

• Grants

  • These are funds from government bodies or other organisations

• Bank loans and overdrafts

  • These are borrowed and must be repaid, usually with interest

• Fundraising events

  • Organised events include special dinners, quiz nights, tournaments
  • Regular appeals include email campaigns and collection boxes
  • Crowdfunding is where an online platform is used to generate lots of donations from different people for a specific goal

• Trading activities

  • Clubs and societies might make profits from cafés, bars, shops, etc

How do I evaluate a source of finance or fundraising?

• Consider the cost

  • Does it need to be repaid?
  • Is interest charged?

• Consider the impact on the cash flow

  • Does it provide immediate cash?
  • Does it provide regular cash?

• Consider the impact on the accounts

  • How does it affect the income and expenditure account?
  • How does it affect the statement of financial position?

• Consider non-financial factors

  • Does it impact the quality of the membership?
  • Does it impact the reputation of the club or society?

Exam Hint When comparing different sources of finance, you should give a balanced argument for each one. Then make your recommendation clear with reasons.

Worked Example Town A Club is a non-profit organisation which offers wellbeing services to its members.

Currently, the club has 500 members and the annual subscription fee is $20.

The manager of Town A Club wants to purchase a new piece of equipment costing $5 000. To fund the purchase, the manager researches two options:

Option 1: Increase the annual subscription fee to $30.

Option 2: Take out a bank loan for $5 000.

Advise the manager which option they should use.

Answer:

Increasing the subscription fee generates more money that does not need to be repaid. However, there is a time delay to receiving that money. The club will have to wait a few months before having enough money to purchase the equipment. Also, the membership fee would be increased by 50%. This could lead to members choosing not to renew their membership.

Taking out a bank loan allows the manager to have the funds immediately to purchase the equipment. However, this money would need to be repaid and interest would be added to the money owed.

Overall, the manager should select option 2 because this would guarantee the funds to purchase the equipment. The equipment might lead to an increase in the number of memberships, which could contribute to the repayments of the loan.