(a) Explain the following terms used in not-for-profit making organizations.
i. Accumulated fund
ii. Subscription in arrears
iii. Receipts and Payment Accounts
iv. Income and Expenditure Accounts
v. Entrance fees
(b) Distinguish between shares and debentures
Explanation
(a) i. Accumulated Fund
- It is the capital for a not-for-profit-making organization.
- It is the difference between the total assets and total liabilities of a not-for-profit making organization at any point in time.
ii. Subscription in Arrears: It is the amount of subscription that is outstanding or had not been paid by a member at the time of preparing the accounts of the club. This is classified as a current asset in the balance sheet.
iii. Receipts and Payments Account
- It is the equivalent of the cash book of a profit-making organization.
- The debit side shows details of opening cash/bank balances and all cash receipts while the credit side indicates all cash/bank payments and their closing balances
iv. Income and Expenditure Account:
- It is the equivalent of the profit and Loss Account of a profit-making organization.
- It records only revenue expenditure and revenue receipts and it discloses a balance as surplus or deficit. (
v. Entrance Fees:
- These are amounts payable when a person first joins a club.
- These are normally included as income in the year that they are received. However, the club may capitalize it and spread it over a number of years
(b) Distinction between Shares and Debentures;
i. Shares are fractions or proportions of members' interest or investments in a company, While debentures are written acknowledgement of a long term loan given to a company.
ii. Shares attract dividends; while debentures attract fixed interest.
iii. Holders of shares are part owners of the Company, while holders of debentures are creditors to the company.
iv. The interest payable on debentures is compulsory, while the dividend payable on shares depends on the availability of profits.