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Question

Difficulty: MediumIncome and Expenditure Account

Match each non-profit organization financial transaction with its correct accounting treatment regarding the Income and Expenditure Account and Balance Sheet.

  • Subscriptions received in advance for the next financial periodExcluded from the Income and Expenditure Account and listed as a current liability
  • Depreciation charge on clubhouse equipment for the current yearDebited to the Income and Expenditure Account as a revenue expense
  • Net proceeds earned from an annual fundraising concertCredited to the Income and Expenditure Account as revenue income
  • Purchase of a new computer system for club administrationExcluded from the Income and Expenditure Account and capitalized as a non-current asset

Answer

Subscriptions received in advance match with Excluded from the Income and Expenditure Account and listed as a current liability; Depreciation charge on equipment matches with Debited to the Income and Expenditure Account as a revenue expense; Net proceeds from fundraising match with Credited to the Income and Expenditure Account as revenue income; Purchase of a new computer system matches with Excluded from the Income and Expenditure Account and capitalized as a non-current asset.
The correct matches follow accrual accounting and capital/revenue principles for non-profit organizations. Subscriptions in advance are unearned income (current liability), depreciation is an operating expense (debited to I&E), net fundraising proceeds are revenue income (credited to I&E), and computer equipment acquisition is a long-term capital expenditure (non-current asset on the Balance Sheet).

Step-by-Step Solution

1
Analyze subscription receipts under the accrual basis of accounting.
Subscriptions collected for future periods are unearned income and must be treated as current liabilities on the Balance Sheet.
The Income and Expenditure Account records strictly income earned relating to the current accounting period.
2
Identify non-cash revenue expenditures incurred during the period.
Depreciation of fixed assets is debited to the Income and Expenditure Account as an operating expense.
Revenue expenditure incurred to provide club services during the financial year reduces the net surplus.
3
Determine the proper accounting entry for net event income.
Net surplus from social or fundraising activities is credited as revenue income in the Income and Expenditure Account.
Operational income earned during the period supports the non-profit entity's ongoing activities.
4
Distinguish between capital expenditure and revenue expenditure.
Purchases of long-term assets such as office computers are recognized as non-current assets on the Balance Sheet.
Capital expenditures provide economic benefits across multiple future accounting periods.

Key Concept

Distinction between Revenue and Capital items in Non-Profit Organization Accounts
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Topics

Income and Expenditure Account

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