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CMA Intermediate · Financial Accounting · Financial Statements of Not-for-Profit Organisations

A club's Receipts and Payments Account for the year shows subscriptions received of ₹4,80,000. Which statement about this item is correct when preparing the Income and Expenditure Account?

Subscriptions received in cash must be adjusted to accrual basis. Only the amount relating to the current year is credited to the Income and Expenditure Account, after allowing for outstanding subscriptions and advance or arrear receipts, since the Receipts and Payments Account is cash based.

  1. AThe figure is taken as it is, because receipts are always income of the year
  2. BOnly the subscriptions received for the current year, adjusted for arrears and advances, are credited as incomeCorrect
  3. CSubscriptions are never shown in the Income and Expenditure Account
  4. DThe whole amount is treated as capital receipt and added to the Capital Fund

Explanation

The Income and Expenditure Account is on accrual basis, so the cash figure must be adjusted: add current-year dues outstanding and subtract amounts relating to prior years or received in advance. Taking the cash figure as it stands ignores these adjustments.

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