1. The treasurer of the Long Lane Football Club has prepared a receipts and payments account, but members have complained about the inadequacy of such an account.
She therefore asks an accountant to prepare a trading account for the bar, and an income and expenditure account and a balance sheet.
The treasurer gives the accountant a copy of the receipts and payments account together with information on assets and liabilities at the beginning and end of the year.

2. Long Lane Football Club Receipts and Payments Account for the year ended 31 December 2006
Bank balance at
524
Payment for bar supplies
38,620
Subscriptions received for
Wages:
2005 (arrears)
1,400
Groundsman and assistant
19,939
2006
14,350
Barman
8,624
2007 (in advance)
1,200
Bar expenses
234
Bar sales
61,280
Repairs to stands
740
Donations received
800
Ground upkeep
1,829
Secretary’s expenses
938
Transport costs
2,420
Bank balance at
6,210
79,554

3. Additional information
Inventory in the bar – at cost
4,496
5,558
Owing for bar supplies
3,294
4,340
Bar expenses owing
225
336
Transport costs -
265

4. Additional information
The land and football stands were valued at 31 December 2005 at: land $40,000; football stands $20,000; the stands are to be depreciated by 10 per cent per annum;
The equipment at 31 December 2005 was valued at $2,500 and is to be depreciated at 20% per annum;
Subscriptions owing by members amounted to $ 1,400 on 31 December 2005, and $ 1,750 on 31 December 2006.

5. The first step is to prepare Statement of Affairs as at 31.12.2005
Non-current assets
Land
40,000
Stands
20,000
Equipment
2,500
62,500
Current assets
Inventory in bar
4,496
AR for subscriptions
1,400
Cash at bank
524
6,420
Total assets
71,920

6. The first step is to prepare Statement of Affairs as at 31.12.2005
Current liabilities AP
3,294
Bar expenses owing
225
Total liabilities
(3,519)
Net assets
65,401
Accumulated fund

7. The second step is to prepare bar trading account for the year ending 31.12.2006
Sales
61,280
Less: COGS:
Inventory
4,496
Add Purchases
39,666
Less Inventory
(5,558)
(38,604)
Gross profit
22,676
Less: bar expenses
345
Barman’s wages
8,624
(8,969)
Net profit to Income and expenditure account
13,707

8. Explanations Question: How did we get the figure for the Purchases?
Answer: Receipts and Payments account shows that “payment for bar supplies” is $38,620; (paid figure);
However, in the notes we see “owing for bar supplies” for 2005 – $3,294 and 2006 $ 4,340 figures;
We calculate the amount of purchases due for this year. Yet, the paid amount has last year’s unpaid purchases (which was actually paid this year) and not paid purchases for this year.

9. Explanations
To calculate the amount of purchases for this year we from $38,620 deduct $3,294 (as this for last year which we should not mix) and add unpaid purchases of this year - $ 4,340.
$38,620 - $3,294 + $ 4,340 = 39,666 .

10. Explanations
To calculate bar expenses we take the paid sum from Receipts and Payments account, which is $234;
This sum contains $225 of expenses due for last year; so we deduct this amount in order to see how much we paid for this year.
Then we add unpaid amount from extra information because we need the total sum due but not only the paid one.
$234 - $225 + $336 = $345

11. Explanations
To calculate the amount of subscription due to this year we do follow the same principle but take into account that we are dealing with an income not a liability;
Any unpaid amount is our AR, while overpaid one is unearned revenue (thus a liability);
Assume in Receipts and Payments account you see $16,950;

12. Explanations
$16,950 consists of $1,400 which was due last year, so deduct we are calculating for this year only;
In addition, there is another sum – 1,200 paid in advance for the next year; Again deduct as we need the subscription for this year;
You get now $14350 – the sum you really received for this year.
However, in the extra note they say that $1750 was not yet paid to us. Now we will add that to $14,350 to get the full sum;