A receipts and payments account lists cash that moved. An income and expenditure account lists income earned and expenses used in the year, after the accrual adjustments.
This lesson is part of clubs and societies accounts. The next step, calculating subscription income, shows the most common adjustment.
Which items reach income and expenditure?
Ask two questions of every line. Is it income or an expense, or is it a capital item such as equipment or a loan? If it is revenue, does any of it belong to another year?
Capital items never enter income and expenditure. They appear in the statement of financial position.
Worked example: Kelab Silat Bestari
The receipts and payments account of the club shows these items for the year.
| Item | Amount (RM) | In income and expenditure? |
|---|---|---|
| Subscriptions received | 4 800 | Yes, after adjusting for arrears and advance |
| Donations received | 600 | Yes |
| Hall hire paid | 2 000 | Yes, after adjusting for any owing |
| Equipment bought | 3 000 | No, a capital item |
| Loan received | 1 000 | No, a liability |
| Opening cash | 1 500 | No, a balance |
Suppose hall hire of RM200 is owing at year end. Hall hire in income and expenditure = 2 000 + 200 = RM2 200.
Suppose the equipment is depreciated at 10% on cost. Depreciation = 10% × 3 000 = RM300, and this appears as an expense. The RM3 000 purchase itself does not.
The mistake that costs marks
The slip is to copy every payment into expenditure. The RM3 000 equipment then appears as an expense, which makes the surplus look far lower than it is.
| Line | Wrong | Right |
|---|---|---|
| Equipment in income and expenditure | 3 000 | Depreciation 300 |
| Loan received in income | 1 000 | Not included |
| Hall hire | 2 000 | 2 200 |
The fix is to tick each line as income, expense, or capital before writing the new account.
Why can a club show a surplus and less cash?
Take the club above. Buying RM3 000 of equipment lowers the cash but is not an expense. The club may show a surplus while its cash is lower.
The accounts tell you different things, so a student must not treat them as the same statement.
Check yourself
A club’s receipts and payments account shows: electricity paid RM900, a new projector bought RM2 400, and donations received RM1 100. RM150 of electricity is owing. Which items reach income and expenditure, and for what amounts (ignore depreciation)?
Answer
Electricity: 900 + 150 = RM1 050, an expense. Donations: RM1 100, income.
The projector is a capital item, so it does not appear in income and expenditure. It would be shown in the statement of financial position, and only its depreciation would be an expense.
What to study next
Go on to calculating subscription income, then try the clubs and societies practice set. For a teacher to guide you, see online one-to-one Accounting tuition.