Examkin

Accounting for Non-Profit Organizations

65 questions

All types65Multiple choice28True / False4Numeric19Matching14
Question 1Question →

Match each financial accounting term related to non-profit organizations on the left with its correct feature or functional equivalent on the right.

Click a left item, then click its matching right item

Items

Accumulated Fund
Income and Expenditure Account
Receipts and Payments Account
Subscriptions

Matches

Show answer & explanation

Answer

Accumulated Fund matches with 'Equivalent to owner's capital, representing the net assets of the organization'; Income and Expenditure Account matches with 'Prepared on an accrual basis to measure operational surplus or deficit'; Receipts and Payments Account matches with 'A summary cash account recording all cash inflows and outflows regardless of period'; Subscriptions matches with 'Regular recurring membership fees serving as the main source of operational revenue'.
Each item accurately pairs the non-profit financial component with its primary feature: Accumulated Fund represents net asset capital, Income and Expenditure Account measures accrual-based surplus/deficit, Receipts and Payments Account summarizes cash activity, and Subscriptions provide recurring membership revenue.

Step-by-Step Solution

1
Identify the nature of equity in non-profit organizations
Accumulated Fund is identified as total assets minus total liabilities, taking the place of Capital in profit-making entities.
Non-profit organizations do not have owners or share capital, so equity is retained as accumulated surplus.
2
Analyze the financial statements used by non-profit organizations
The Income and Expenditure Account uses accrual concepts to derive surplus/deficit, while the Receipts and Payments Account is a pure cash summary.
Distinguishing between cash-basis summaries and accrual-basis performance accounting is essential for financial reporting.
3
Determine the role of member contributions
Subscriptions represent recurring revenue receipts from members.
Subscriptions fund day-to-day operations and are recorded in the Income and Expenditure Account after adjusting for prepaid/accrued balances.

Key Concept

Features and Financial Structure of Non-Profit Organizations
Question 2Question →

Match each financial item of a non-profit organization with its correct accounting treatment in the Receipts and Payments Account.

Click a left item, then click its matching right item

Items

Life membership fees received in cash for future accounting periods
Depreciation charged on clubhouse equipment for the year
Subscriptions due from members but remaining unpaid at year-end
Payment made by cheque for purchasing new clubhouse furniture

Matches

Show answer & explanation

Answer

Life membership fees received in cash are recorded on the receipts side regardless of period; depreciation on equipment is excluded as a non-cash expense; unpaid subscriptions due are excluded because no cash was received; payment for new furniture is recorded on the payments side as a capital cash expenditure.
The Receipts and Payments Account is a summarized Cash Book. It includes all actual cash inflows and outflows (capital or revenue, for past, present, or future periods) while strictly excluding non-cash transactions (like depreciation) and accruals (like outstanding subscriptions).

Step-by-Step Solution

1
Identify the fundamental principle governing the Receipts and Payments Account
The Receipts and Payments Account is a summarized Cash Book operating strictly on a cash basis, recording all cash inflows (debit) and cash outflows (credit) regardless of accounting period or capital/revenue classification.
Understanding the cash-basis nature determines which items belong in the account.
2
Analyze life membership fees received in cash and furniture payment made by cheque
Life membership fees involve actual cash receipt (record on Receipts side); payment for furniture involves actual cash payment via bank (record on Payments side). Both are included despite being capital transactions.
The Receipts and Payments Account does not distinguish between capital and revenue transactions as long as actual cash/bank flows occur.
3
Analyze depreciation and unpaid subscriptions due
Depreciation is a non-cash charge, and unpaid subscriptions are accrued income with no cash movement. Both items are excluded from the Receipts and Payments Account.
Non-cash items and accruals/prepayments are excluded because the account is not prepared on an accrual basis.

Key Concept

Scope and Exclusions of Receipts and Payments Account
Question 3Question →

During the financial year ended 31st December 2025, Horizon Professionals Club received ₦450,000 in cash as subscription fees from its members. This total included ₦40,000 for subscriptions in arrears from 2024 and ₦30,000 for subscriptions paid in advance for 2026. Subscriptions owing by members for 2025 at the end of the year amounted to ₦50,000. What is the total amount to be credited to the Income and Expenditure Account as subscription income for 2025?

Show answer & explanation

Answer: ₦430,000

Answer

The total amount to be credited to the Income and Expenditure Account as subscription income for 2025 is ₦430,000.
The Income and Expenditure Account recognizes revenue on an accrual basis. Starting from cash received of ₦450,000, subtracting prior year arrears of ₦40,000 and prepaid subscriptions of ₦30,000 leaves ₦380,000 cash earned for 2025. Adding the ₦50,000 currently owing yields ₦430,000 earned subscription income for 2025.

Step-by-Step Solution

1
Identify cash received during the current year
Cash received = ₦450,000
This is the baseline starting figure extracted from the Receipts and Payments Account.
2
Deduct receipts belonging to other financial periods
Adjusted Cash = ₦450,000 - ₦40,000 (2024 arrears) - ₦30,000 (2026 advance) = ₦380,000
Under accrual accounting principles, revenue belonging to prior or future periods must be excluded from the current year's income.
3
Add income earned in the current year but not yet received in cash
Total Subscription Income = ₦380,000 + ₦50,000 (2025 arrears) = ₦430,000
Subscriptions in arrears for the current year represent earned revenue and must be credited to the Income and Expenditure Account.

Key Concept

Accrual basis adjustment of subscription income for Non-Profit Organizations
Estimated Time:1m 30s
Question 4Question →

Apex Cultural Society received 850,000850,000 in cash subscription fees during the financial year ended 31st December 2025. Additional subscription records reveal the following balances:

- Subscriptions in arrears on 1st January 2025: 60,00060,000
- Subscriptions received in advance on 1st January 2025: 40,00040,000
- Subscriptions in arrears on 31st December 2025: 75,00075,000
- Subscriptions received in advance on 31st December 2025: 50,00050,000

What is the exact amount in Naira to be credited to the Income and Expenditure Account as subscription income for the year ended 31st December 2025?

Show answer & explanation

Answer: 855000

Answer

The amount to be credited to the Income and Expenditure Account as subscription income for the year ended 31st December 2025 is 855,000855,000.
The Income and Expenditure Account operates on the accrual concept, taking into account income earned for the specific financial year regardless of cash timing. Calculating current subscription income requires adding opening prepaid subscriptions (40,00040,000) and closing accrued subscriptions (75,00075,000) to cash received (850,000850,000), while subtracting opening accrued subscriptions (60,00060,000) and closing prepaid subscriptions (50,00050,000), yielding 855,000855,000.

Step-by-Step Solution

1
Identify cash received during the period
Subscriptions cash received = 850,000850,000
This represents the total cash inflows recorded in the Receipts and Payments Account.
2
Add amounts attributable to the current period
Add opening advance (40,00040,000) and closing arrears (75,00075,000)
Subscriptions paid in advance at the beginning of the year belong to the current year's income, while subscriptions owing at the end of the year were earned during the current year.
3
Subtract amounts not attributable to the current period
Deduct opening arrears (60,00060,000) and closing advance (50,00050,000)
Subscriptions owing at the start of the year belong to the previous year, while subscriptions prepaid at the end of the year belong to the next accounting period.
4
Calculate net subscription revenue
850,000+40,000+75,000−60,000−50,000=855,000850,000 + 40,000 + 75,000 - 60,000 - 50,000 = 855,000
Applies accrual concept rules to align income earned with the current financial period.

Key Concept

Accrual Accounting Adjustments for Subscription Revenue in Non-Profit Entities
Question 5Question →

Lakeside Tennis Club provided the following financial information regarding subscriptions for the year ended 31 December 2025:

- Subscriptions received in cash during the year: N150,000\text{N}150,000
- Subscriptions in arrears on 1 January 2025: N12,000\text{N}12,000
- Subscriptions received in advance on 1 January 2025: N8,000\text{N}8,000
- Subscriptions in arrears on 31 December 2025: N18,000\text{N}18,000
- Subscriptions received in advance on 31 December 2025: N10,000\text{N}10,000

What is the total subscription income to be credited to the Income and Expenditure Account for the year ended 31 December 2025?

Show answer & explanation

Answer: N154,000\text{N}154,000

Answer

N154,000\text{N}154,000
Under the accrual concept, subscription income for the period is calculated as cash received during the year minus subscriptions in arrears at the start of the year plus subscriptions in advance at the start of the year plus subscriptions in arrears at the end of the year minus subscriptions in advance at the end of the year: N150,000−N12,000+N8,000+N18,000−N10,000=N154,000\text{N}150,000 - \text{N}12,000 + \text{N}8,000 + \text{N}18,000 - \text{N}10,000 = \text{N}154,000.

Step-by-Step Solution

1
Identify cash received during the year
Cash received = N150,000\text{N}150,000
This is the starting cash figure from the Receipts and Payments Account.
2
Adjust for opening balances
N150,000−N12,000+N8,000=N146,000\text{N}150,000 - \text{N}12,000 + \text{N}8,000 = \text{N}146,000
Opening arrears belong to the previous period and must be deducted; opening advance belongs to the current period and must be added.
3
Adjust for closing balances
N146,000+N18,000−N10,000=N154,000\text{N}146,000 + \text{N}18,000 - \text{N}10,000 = \text{N}154,000
Closing arrears represent income earned in the current period but unpaid (add); closing advance represents income received for the next period (deduct).

Key Concept

Accounting Treatment of Subscriptions in Non-Profit Organizations
Question 6Question →

During the year ended 31 December 2025, Midland Officers Club received N240,000\text{N}240,000 in cash as subscription payments from its members. Additional information regarding subscriptions is provided below:

- Subscriptions in arrears on 1 January 2025: N25,000\text{N}25,000
- Subscriptions in advance on 1 January 2025: N18,000\text{N}18,000
- Subscriptions in arrears on 31 December 2025: N32,000\text{N}32,000
- Subscriptions in advance on 31 December 2025: N15,000\text{N}15,000

What amount (in Naira) should be credited to the Income and Expenditure Account as subscription income for the year ended 31 December 2025?

Show answer & explanation

Answer: 250000

Answer

The amount credited to the Income and Expenditure Account as subscription income for the year ended 31 December 2025 is N250,000\text{N}250,000.
Under accrual accounting principles for non-profit entities, subscription income recognized in the Income and Expenditure Account represents the total revenue earned for that specific financial year. Starting with cash received of N240,000\text{N}240,000, we subtract opening arrears of N25,000\text{N}25,000 (income from prior year), add opening advance of N18,000\text{N}18,000 (income prepaid for current year), add closing arrears of N32,000\text{N}32,000 (earned but unpaid current income), and subtract closing advance of N15,000\text{N}15,000 (income prepaid for next year). This yields N250,000\text{N}250,000.

Step-by-Step Solution

1
Record total subscription cash received during the financial year.
Cash received = N240,000\text{N}240,000
This forms the base figure for calculating the earned subscription income under accrual accounting.
2
Adjust for opening balances (1 January 2025).
Deduct opening arrears (N25,000\text{N}25,000) and add opening advance (N18,000\text{N}18,000).
Subscriptions in arrears at the start belong to the prior period, while subscriptions in advance at the start were paid for the current period.
3
Adjust for closing balances (31 December 2025).
Add closing arrears (N32,000\text{N}32,000) and deduct closing advance (N15,000\text{N}15,000).
Closing arrears represent current period income earned but uncollected, whereas closing advances represent money received for the next financial year.
4
Compute the net subscription income.
N240,000−N25,000+N18,000+N32,000−N15,000=N250,000\text{N}240,000 - \text{N}25,000 + \text{N}18,000 + \text{N}32,000 - \text{N}15,000 = \text{N}250,000
The final adjusted figure reflects the total subscription revenue applicable strictly to the current accounting year.

Key Concept

Accrual concept applied to non-profit subscriptions account
Estimated Time:2m 0s
Question 7Question →

The following financial information was extracted from the books of Unity Recreation Club for the year ended 31st December 2025:

- Subscriptions received in cash: ₦640,000
- Subscriptions accrued as at 1st January 2025: ₦50,000
- Subscriptions received in advance as at 1st January 2025: ₦35,000
- Subscriptions accrued as at 31st December 2025: ₦65,000
- Subscriptions received in advance as at 31st December 2025: ₦40,000
- Rent paid in cash: ₦180,000
- Rent prepaid as at 31st December 2025: ₦20,000
- General expenses paid: ₦210,000
- Depreciation on equipment for the year: ₦45,000

What is the net surplus (in Naira) to be reported in the Income and Expenditure Account for the year ended 31st December 2025?

Show answer & explanation

Answer: 235000

Answer

The net surplus to be reported in the Income and Expenditure Account for the year ended 31st December 2025 is ₦235,000.
The correct net surplus of ₦235,000 is derived by calculating total revenue earned minus total revenue expenses incurred during the year. Subscription Income earned equals ₦640,000 + ₦35,000 (opening advance) - ₦50,000 (opening accrual) + ₦65,000 (closing accrual) - ₦40,000 (closing advance) = ₦650,000. Total expenditure equals Rent of ₦160,000 (₦180,000 - ₦20,000 prepayment) + General Expenses of ₦210,000 + Depreciation of ₦45,000 = ₦415,000. Net Surplus = ₦650,000 - ₦415,000 = ₦235,000.

Step-by-Step Solution

1
Determine the Subscription Income for the year using accrual adjustments
Subscription Income = ₦650,000
Opening advance (₦35,000) and closing accrual (₦65,000) are added to cash received (₦640,000), while opening accrual (₦50,000) and closing advance (₦40,000) are deducted.
2
Calculate the adjusted Rent Expense for the period
Rent Expense = ₦160,000
Prepaid rent at year-end (₦20,000) represents an unexpired cost for the next period and must be deducted from cash paid (₦180,000).
3
Sum all revenue expenditures for the period
Total Expenditure = ₦415,000
Total revenue expenses comprise Rent Expense (₦160,000), General Expenses (₦210,000), and non-cash Depreciation (₦45,000).
4
Deduct Total Expenditure from Total Income to calculate Net Surplus
Net Surplus = ₦235,000
Surplus is the excess of total revenue income (₦650,000) over total revenue expenditure (₦415,000).

Key Concept

Income and Expenditure Account Net Surplus Determination
Question 8Question →

The following balances were extracted from the financial records of Unity Recreation Club as at 1st January 2025:

ItemAmount (\text{N})
Club Equipment350,000
Cash at Bank45,000
Subscriptions in Arrears12,000
Prepaid Insurance5,000
Subscriptions received in Advance8,000
Accrued Electricity Expense4,000
Trade Creditors for Bar Supplies15,000

What is the accumulated fund of the club as at 1st January 2025?

Show answer & explanation

Answer: \text{N}385,000

Answer

The accumulated fund of Unity Recreation Club as at 1st January 2025 is \text{N}385,000.
The accumulated fund is equivalent to capital in a profit-oriented business and is computed by subtracting total liabilities from total assets on a Statement of Affairs. Total assets comprise Club Equipment (\text{N}350,000), Cash at Bank (\text{N}45,000), Subscriptions in Arrears (\text{N}12,000), and Prepaid Insurance (\text{N}5,000), giving \text{N}412,000. Total liabilities comprise Subscriptions in Advance (\text{N}8,000), Accrued Electricity (\text{N}4,000), and Bar Creditors (\text{N}15,000), giving \text{N}27,000. Subtracting liabilities from assets yields \text{N}385,000.

Step-by-Step Solution

1
Identify and sum all total assets at the start of the period
\text{Total Assets} = 350,000 \text{ (Equipment)} + 45,000 \text{ (Bank)} + 12,000 \text{ (Subscriptions in Arrears)} + 5,000 \text{ (Prepaid Insurance)} = \text{N}412,000$
Subscriptions in arrears represent amounts owed to the club (debtors/asset) and prepaid expenses represent future economic benefits (asset).
2
Identify and sum all total liabilities at the start of the period
\text{Total Liabilities} = 8,000 \text{ (Subscriptions in Advance)} + 4,000 \text{ (Accrued Electricity)} + 15,000 \text{ (Bar Creditors)} = \text{N}27,000$
Subscriptions received in advance represent unearned revenue (liability) and accrued expenses/creditors represent obligations owed by the club.
3
Calculate the accumulated fund using the fundamental accounting equation for non-profit entities
\text{Accumulated Fund} = \text{Total Assets} - \text{Total Liabilities} = 412,000 - 27,000 = \text{N}385,000$
The accumulated fund represents the net asset position (capital equivalent) of a non-profit organization.

Key Concept

Accumulated Fund in Non-Profit Organizations
Question 9Question →

The financial records of Unity Social Club for the year ended 31st December 2025 reveal the following balances and transactions:

Transaction / ItemAmount (₦)
Bank balance (1st January 2025)45,000
Cash in hand (1st January 2025)12,000
Subscriptions received in cash (including ₦15,000 for 2024 and ₦20,000 for 2026)240,000
Subscriptions accrued and unpaid (31st December 2025)18,000
Donation received for building fund150,000
Sale of old office equipment (Book value ₦30,000)35,000
Life membership fees received in cash50,000
Rent paid in cash (including ₦8,000 prepaid for 2026)96,000
Rent accrued and unpaid (31st December 2025)10,000
Salaries and wages paid in cash110,000
Purchase of new furniture paid in cash80,000
Depreciation on furniture for the year16,000
Honorarium paid to secretary25,000
Outstanding invoice for printing and stationery5,000

What is the total closing cash and bank balance to be shown in the Receipts and Payments Account as of 31st December 2025?

Show answer & explanation

Answer: ₦221,000

Answer

The closing cash and bank balance in the Receipts and Payments Account is ₦221,000.
The Receipts and Payments Account functions strictly on a cash basis. The calculation begins with the total opening cash and bank balances (₦57,000), adds all actual cash received (₦240,000 subscriptions + ₦150,000 building donation + ₦35,000 sale of equipment proceeds + ₦50,000 life membership fees = ₦475,000), and subtracts all actual cash paid out (₦96,000 rent + ₦110,000 salaries + ₦80,000 furniture purchase + ₦25,000 honorarium = ₦311,000). Accrued items, prepayments adjustments, and non-cash charges (depreciation, outstanding invoice) are ignored. This yields a closing balance of ₦57,000 + ₦475,000 - ₦311,000 = ₦221,000.

Step-by-Step Solution

1
Calculate the total opening cash and bank balance
₦45,000 + ₦12,000 = ₦57,000
Both opening cash in hand and opening bank balance form the opening balance of the Receipts and Payments Account.
2
Sum all cash receipts during the year (including capital receipts and receipts for past/future periods)
₦240,000 (Subscriptions) + ₦150,000 (Building Fund Donation) + ₦35,000 (Equipment Sale Proceeds) + ₦50,000 (Life Membership Fees) = ₦475,000
Receipts and Payments Account records all actual cash inflows regardless of whether they are capital or revenue in nature.
3
Sum all cash payments during the year (including capital expenditure and payments for future periods)
₦96,000 (Rent paid) + ₦110,000 (Salaries) + ₦80,000 (Furniture purchased) + ₦25,000 (Honorarium paid) = ₦311,000
Receipts and Payments Account records all actual cash outflows regardless of whether they are capital or revenue in nature.
4
Exclude non-cash items and accrued/outstanding amounts
Excluded items: Accrued Subscriptions (₦18,000), Accrued Rent (₦10,000), Depreciation (₦16,000), Outstanding Printing Invoice (₦5,000)
Non-cash items and unpaid accruals do not involve actual movement of cash and are therefore excluded from the Receipts and Payments Account.
5
Compute the closing cash and bank balance
Closing Balance = Opening Balance (₦57,000) + Total Cash Receipts (��475,000) - Total Cash Payments (₦311,000) = ₦221,000
The Receipts and Payments Account acts as a summarized Cash Book where Receipts + Opening Balance - Payments = Closing Cash/Bank Balance.

Key Concept

The Receipts and Payments Account is a real account summarized from cash transactions. It records all cash received and paid during an accounting period regardless of whether the transactions are capital or revenue, or relate to past, present, or future periods. Non-cash expenses and accrued items are strictly omitted.
Estimated Time:3m 0s
Question 10Question →

During the financial year ended 31st December 2025, Apex Social Club received ₦150,000 as entrance fees, ₦80,000 as general donations, a legacy of ₦200,000 specifically earmarked for the construction of a new sports pavilion, and a special donation of ₦120,000 for purchasing club equipment. According to the club's financial policy, 60% of all entrance fees should be capitalized. What total amount should be credited to the Income and Expenditure Account for the year?

Show answer & explanation

Answer: ₦140,000

Answer

The total amount credited to the Income and Expenditure Account for the year is ₦140,000.
The correct figure of ₦140,000 is derived by recognizing only revenue items in the Income and Expenditure Account. Entrance fees are 40% revenue income (40%×₦150,000=₦60,00040\% \times ₦150,000 = ₦60,000), and general donations of ₦80,000 are revenue receipts (₦60,000+₦80,000=₦140,000₦60,000 + ₦80,000 = ₦140,000). Specific legacies (₦200,000) and special donations for equipment (₦120,000) are capital receipts credited directly to reserve/fund accounts in the Statement of Financial Position.

Step-by-Step Solution

1
Calculate the revenue portion of entrance fees to be credited to the Income and Expenditure Account.
Revenue Entrance Fees = (100%−60%)×₦150,000=40%×₦150,000=₦60,000(100\% - 60\%) \times ₦150,000 = 40\% \times ₦150,000 = ₦60,000
By policy, 60% of entrance fees must be capitalized (credited to the Statement of Financial Position / Accumulated Fund), leaving 40% to be recognized as revenue income.
2
Identify revenue income items among donations and legacies.
General Donations = ₦80,000 (Revenue Income). Specific Legacy = ₦200,000 (Capital Receipt). Special Equipment Donation = ₦120,000 (Capital Receipt).
General donations with no specific conditions are treated as revenue income. Legacies and donations earmarked for specific capital projects or asset acquisitions are capital receipts and credited directly to specific fund accounts in the Statement of Financial Position.
3
Sum all revenue income items to determine the total credit to the Income and Expenditure Account.
Total Credit = ₦60,000 (Revenue Entrance Fees)+₦80,000 (General Donations)=₦140,000₦60,000 \text{ (Revenue Entrance Fees)} + ₦80,000 \text{ (General Donations)} = ₦140,000
Only revenue items belong in the Income and Expenditure Account.

Key Concept

Accounting Treatment of Entrance Fees, Specific Legacies, and Special Donations in Non-Profit Organizations
Estimated Time:2m 0s
Question 11Question →

The following balances were extracted from the financial records of Horizon Athletic Club as of 1st January 2024:

ItemAmount (N\text{N})
Clubhouse building500,000
Sports equipment180,000
Cash at bank45,000
Subscriptions in arrears12,000
Prepaid insurance8,000
Accrued wages15,000
Subscriptions received in advance10,000

Calculate the accumulated fund of the club as of 1st January 2024 in Naira (N\text{N}).

Show answer & explanation

Answer: 720000

Answer

The accumulated fund of Horizon Athletic Club as of 1st January 2024 is N720,000.
The accumulated fund of a non-profit organization is determined by taking the total value of assets and subtracting all liabilities as of a specific date. Adding all asset balances (Clubhouse building N500,000\text{N}500,000, Sports equipment N180,000\text{N}180,000, Cash at bank N45,000\text{N}45,000, Subscriptions in arrears N12,000\text{N}12,000, and Prepaid insurance N8,000\text{N}8,000) gives total assets of N745,000\text{N}745,000. Summing liability items (Accrued wages N15,000\text{N}15,000 and Subscriptions received in advance N10,000\text{N}10,000) gives total liabilities of N25,000\text{N}25,000. Subtracting liabilities from assets results in N745,000−N25,000=N720,000\text{N}745,000 - \text{N}25,000 = \text{N}720,000.

Step-by-Step Solution

1
Calculate Total Assets as of 1st January 2024
Total Assets = N745,000
Assets comprise non-current assets (Clubhouse building N500,000; Sports equipment N180,000), current assets (Cash at bank N45,000; Prepaid insurance N8,000), and accrued income due to the club (Subscriptions in arrears N12,000).
2
Calculate Total Liabilities as of 1st January 2024
Total Liabilities = N25,000
Liabilities include expenses owing by the club (Accrued wages N15,000) and income collected for subsequent periods (Subscriptions received in advance N10,000).
3
Deduct Total Liabilities from Total Assets to compute Accumulated Fund
Accumulated Fund = N720,000
Accumulated Fund represents the capital equivalent for non-profit entities, computed as Total Assets minus Total Liabilities at the opening date.

Key Concept

Accumulated Fund in Non-Profit Organizations
Question 12Question →

Unity Social Club provides the following information regarding its bar operations for the year ended 31st December 2025:

- Bar takings (sales): ₦150,000
- Bar inventory (1st January 2025): ₦20,000
- Bar inventory (31st December 2025): ₦25,000
- Payments made to bar suppliers: ₦80,000
- Bar creditors (1st January 2025): ₦12,000
- Bar creditors (31st December 2025): ₦15,000
- Bar steward salary paid: ₦10,000
- Bar steward salary accrued (31st December 2025): ₦2,000

What is the net bar profit to be transferred to the Income and Expenditure Account?

Show answer & explanation

Answer: ₦60,000

Answer

The net bar profit to be transferred to the Income and Expenditure Account is ₦60,000.
To find the net bar profit transferred to the Income and Expenditure Account, total purchases are calculated first as ₦80,000 + ₦15,000 - ₦12,000 = ₦83,000. Cost of goods sold is ₦20,000 + ₦83,000 - ₦25,000 = ₦78,000, yielding a bar gross profit of ₦150,000 - ₦78,000 = ₦72,000. Deducting the accrued bar steward salary expense (₦10,000 + ₦2,000 = ₦12,000) gives the correct net profit of ₦60,000.

Step-by-Step Solution

1
Calculate total bar purchases
Total Purchases = ₦80,000 (payments) + ₦15,000 (closing creditors) - ₦12,000 (opening creditors) = ₦83,000
Creditors adjustments must be applied to cash payments to determine total credit purchases.
2
Calculate cost of goods sold (COGS)
COGS = ₦20,000 (opening inventory) + ₦83,000 (purchases) - ₦25,000 (closing inventory) = ₦78,000
Cost of goods sold represents the net cost of inventory consumed during the period.
3
Calculate bar gross profit
Bar Gross Profit = ₦150,000 (bar takings) - ₦78,000 (COGS) = ₦72,000
Gross profit is revenue generated minus direct cost of goods sold.
4
Calculate total bar expense and net profit
Bar Steward Salary Expense = ₦10,000 + ₦2,000 = ₦12,000; Net Bar Profit = ₦72,000 - ₦12,000 = ₦60,000
Accrued expenses must be added under the accrual concept before deducting total expenses from gross profit.

Key Concept

Bar Trading Account Net Profit Determination
Question 13Question →

During the year ended 31st December 2025, Harmony Social Club received N120,000\text{N}120,000 in cash from its members as subscriptions. At the end of the year, subscriptions amounting to N15,000\text{N}15,000 were still owing by members for the current year. What is the total amount to be credited to the Income and Expenditure Account as subscription income for the year?

Show answer & explanation

Answer: N135,000\text{N}135,000

Answer

N135,000\text{N}135,000 should be credited to the Income and Expenditure Account as subscription income for the year.
According to the accrual principle, revenue earned in a financial period must be recognized in that period's Income and Expenditure Account. The total subscription income is calculated by taking the cash received (N120,000\text{N}120,000) and adding the subscriptions owing at year-end (N15,000\text{N}15,000), yielding N135,000\text{N}135,000.

Step-by-Step Solution

1
Identify total subscription cash received during the financial year
Cash received = N120,000\text{N}120,000
This forms the cash base for subscriptions collected in the period.
2
Add subscriptions in arrears (accrued income) at the end of the year
Total Subscription Income = N120,000+N15,000=N135,000\text{N}120,000 + \text{N}15,000 = \text{N}135,000
Under the accrual concept, income earned during the accounting period must be recognized regardless of whether cash has been received.

Key Concept

Accrual basis accounting for subscriptions in non-profit organizations
Question 14Question →

The following financial positions were extracted from the books of Metro Executive Club as at 1st January 2025:

- Club House (Cost): ₦850,000
- Equipment (Net Book Value): ₦200,000
- Bar Inventory: ₦45,000
- Subscriptions owing by members for 2024: ₦18,000
- Subscriptions received in advance for 2025: ₦12,000
- Accrued electricity bill: ₦7,500
- Prepaid insurance premium: ₦4,000
- Bank overdraft: ₦35,000
- Cash in hand: ₦8,500

What is the value (in ₦) of the Accumulated Fund of Metro Executive Club as at 1st January 2025?

Show answer & explanation

Answer: 1071000

Answer

The Accumulated Fund of Metro Executive Club as at 1st January 2025 is ₦1,071,000.
The Accumulated Fund is calculated using the fundamental statement of affairs equation: Accumulated Fund = Total Assets - Total Liabilities. Summing all asset items gives ₦850,000 (Club House) + ₦200,000 (Equipment) + ₦45,000 (Bar Inventory) + ₦18,000 (Subscriptions owing) + ₦4,000 (Prepaid insurance) + ₦8,500 (Cash in hand) = ₦1,125,500. Summing all liability items gives ₦12,000 (Subscriptions in advance) + ₦7,500 (Accrued electricity) + ₦35,000 (Bank overdraft) = ₦54,500. Subtracting liabilities from assets yields ₦1,125,500 - ₦54,500 = ₦1,071,000.

Step-by-Step Solution

1
Calculate Total Assets as at 1st January 2025
Total Assets = ₦1,125,500
Assets comprise non-current assets at net book value (Club House ₦850,000 and Equipment ₦200,000), current assets (Bar Inventory ₦45,000 and Cash in hand ₦8,500), accrued income (Subscriptions owing ₦18,000), and prepaid expenses (Prepaid insurance ₦4,000).
2
Calculate Total Liabilities as at 1st January 2025
Total Liabilities = ₦54,500
Liabilities represent amounts owed or unearned income, including income received in advance (Subscriptions in advance ₦12,000), accrued expenses (Electricity bill owing ₦7,500), and short-term bank borrowing (Bank overdraft ₦35,000).
3
Compute Accumulated Fund using the Accounting Equation
Accumulated Fund = ₦1,071,000
For a non-profit organization, the capital equivalent is the Accumulated Fund, calculated as Total Assets minus Total Liabilities: ₦1,125,500 - ₦54,500 = ₦1,071,000.

Key Concept

Calculation of Accumulated Fund via Statement of Affairs for Non-Profit Organizations
Question 15Question →

Match each non-profit organization financial item with its appropriate accounting treatment in relation to the Income and Expenditure Account.

Click a left item, then click its matching right item

Items

Subscriptions received in advance for the upcoming financial period
Surplus of income over expenditure generated during the current period
Honorarium paid to a guest facilitator by a professional body
Donation received specifically for constructing a sports pavilion

Matches

Show answer & explanation

Answer

Subscriptions received in advance match with current liability classification; Surplus matches with credit transfer to Accumulated Fund; Honorarium matches with debit to Income and Expenditure Account; Specific donation matches with direct capital fund treatment.
The Income and Expenditure Account operates on the accrual basis of accounting, matching revenue income earned against revenue expenditure incurred for the financial period. Capital receipts such as specific donations bypass this account, while unearned income is carried forward as a liability.

Step-by-Step Solution

1
Differentiate between capital receipts and revenue receipts for non-profit entities.
Specific-purpose donations are capital receipts, while general subscriptions earned and honoraria are revenue items.
The Income and Expenditure Account records only revenue items belonging strictly to the current accounting period.
2
Apply accrual adjustments to revenue receipts.
Unearned income such as prepaid subscriptions must be excluded from the Income and Expenditure Account and recognized as a liability.
Revenue must be matched to the accounting period in which it is earned.
3
Determine the accounting treatment of operational expenses and final net balance.
Revenue expenses like honoraria are debited to the Income and Expenditure Account, and the resulting surplus is added to the Accumulated Fund.
Operational costs reduce current period surplus, and accumulated surplus increases organizational equity/capital.

Key Concept

Classification of revenue versus capital items and accrual concepts in the Income and Expenditure Account
Question 16Question →

Sunrise Recreation Club received ₦500,000 as entrance fees during the financial year. According to the club's constitution, 60% of entrance fees are to be capitalized, with the remainder recognized as revenue income. What amount (in ₦) should be credited to the Income and Expenditure Account for the year?

Show answer & explanation

Answer: 200000

Answer

₦200,000 should be credited to the Income and Expenditure Account.
When a non-profit organization's policy specifies that a portion of entrance fees should be capitalized, only the remaining percentage is treated as revenue income. Subtracting the 60% capital portion leaves 40% for revenue income. 40% of ₦500,000 equals ₦200,000, which is credited to the Income and Expenditure Account.

Step-by-Step Solution

1
Determine the proportion of entrance fees treated as revenue income
40% (since 60% is capitalized, 100% - 60% = 40%)
Only the non-capitalized portion of entrance fees is recognized as revenue income in the Income and Expenditure Account.
2
Calculate the monetary amount of the revenue portion
���200,000
40% of ₦500,000 = 0.40 × 500,000 = ₦200,000

Key Concept

Treatment of Entrance Fees in Non-Profit Organizations
Question 17Question →

Apex Recreation Club received N50,000\text{N}50,000 in cash as total subscriptions from its members during the year. Subscriptions in arrears at the start of the year were N5,000\text{N}5,000, while subscriptions paid in advance at the start of the year were N4,000\text{N}4,000. At the end of the year, subscriptions in arrears were N6,000\text{N}6,000, and subscriptions paid in advance were N3,000\text{N}3,000. What amount in Naira will be credited to the Income and Expenditure Account as subscription income for the year?

Show answer & explanation

Answer: 52000

Answer

52000
According to the accrual concept of accounting, subscription income credited to the Income and Expenditure Account reflects income earned for the current financial period regardless of cash receipt timing: Subscription Income = Cash Received (N50,000) + Opening Advance (N4,000) + Closing Arrears (N6,000) - Opening Arrears (N5,000) - Closing Advance (N3,000) = N52,000.

Step-by-Step Solution

1
Start with cash subscriptions received during the period
N50,000
This is the actual cash collected and recorded in the Receipts and Payments account.
2
Add subscriptions received in advance at the beginning of the period and accrued subscriptions at the end of the period
N50,000 + N4,000 + N6,000 = N60,000
Advance subscriptions from the start belong to the current year, and accrued subscriptions at year-end represent current year income earned but not yet collected.
3
Deduct subscriptions accrued at the beginning of the period and subscriptions received in advance at the end of the period
N60,000 - N5,000 - N3,000 = N52,000
Opening accrued subscriptions were earned in the previous period, and closing advance subscriptions belong to the subsequent accounting period.

Key Concept

Subscription Account Accrual Adjustments
Question 18Question →

Metro Social Club received N80,000\text{N}80,000 cash for subscriptions during the year ended 31 December 2025. Included in this amount was N5,000\text{N}5,000 paid by members in advance for the year 2026. What amount should be credited to the Income and Expenditure Account as subscription income for 2025?

Show answer & explanation

Answer: N75,000\text{N}75,000

Answer

N75,000\text{N}75,000
Subscription income for the current financial year is calculated by taking total cash received for subscriptions and deducting subscriptions received in advance for future periods (N80,000−N5,000=N75,000\text{N}80,000 - \text{N}5,000 = \text{N}75,000). Under the accrual concept, only income earned in the current period is credited to the Income and Expenditure Account.

Step-by-Step Solution

1
Identify total cash received for subscriptions during the year.
Total subscriptions cash received = N80,000\text{N}80,000
This is the gross amount collected in the Receipts and Payments Account.
2
Deduct subscriptions received in advance for the year 2026.
N80,000−N5,000=N75,000\text{N}80,000 - \text{N}5,000 = \text{N}75,000
In accordance with the accrual concept, income received in advance for a future period must be excluded from current year revenue.

Key Concept

Accounting treatment of subscriptions received in advance
Estimated Time:45s
Question 19Question →

Unity Social Club received a donation of ₦500,000 specifically intended for the construction of a new library building. What is the correct accounting treatment for this donation in the club's financial statements?

Show answer & explanation

Answer: Credit it to a Special Building Fund account as a capital receipt

Answer

The donation should be credited to a Special Building Fund account in the Statement of Financial Position as a capital receipt.
Donations designated for a specific capital purpose, such as constructing a building, are capitalized and credited directly to a dedicated capital fund account in the Statement of Financial Position (Balance Sheet).

Step-by-Step Solution

1
Identify the nature of the receipt
The donation is tied to a specific project (construction of a library building).
Specific donations carry a legal or constitutional restriction on how the funds must be spent.
2
Determine accounting classification (Capital vs Revenue)
Specific donations are classified as capital receipts rather than general revenue income.
Capital receipts create or add to long-term funds or non-current asset financing rather than supporting day-to-day operational activities.
3
Select the correct accounting record and statement placement
Credit the Special Library/Building Fund account shown on the liabilities side of the Balance Sheet (Statement of Financial Position).
This keeps the funds earmarked until utilized for the intended capital asset construction.

Key Concept

Accounting Treatment of Specific Donations in Non-Profit Organizations
Estimated Time:45s
Question 20Question →

Elite Debaters Club received N60,000\text{N}60,000 in cash as subscription payments from its members during the year ended 31 December 2025. At the end of the year, subscriptions amounting to N8,000\text{N}8,000 were still owing by members. What is the total subscription income to be credited to the Income and Expenditure Account for the year ended 31 December 2025?

Show answer & explanation

Answer: N68,000\text{N}68,000

Answer

N68,000\text{N}68,000
The Income and Expenditure Account operates on the accrual concept of accounting, recognizing income earned during the accounting period irrespective of when cash is received. Subscriptions owing by members at the end of the year (N8,000\text{N}8,000) represent earned income for the current financial year and must be added to cash received (N60,000\text{N}60,000), yielding a total subscription income of N68,000\text{N}68,000.

Step-by-Step Solution

1
Identify cash received for subscriptions during the year
N60,000\text{N}60,000
This is the actual cash inflow recorded in the Receipts and Payments account.
2
Add subscriptions owing (accrued) at the end of the year
N60,000+N8,000=N68,000\text{N}60,000 + \text{N}8,000 = \text{N}68,000
Under the accrual basis of accounting, income earned during the period but not yet received must be included in the Income and Expenditure Account.

Key Concept

Accrual basis adjustment for non-profit organisation subscription income
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Accounting for Non-Profit Organizations Practice Questions — JAMB UTME | Examkin