Godfrey Chirwa is treasurer of the Vardale Football League, an amateur competition of eleven clubs in Malawi. Each member club pays an annual subscription. ...

These three accounts convert cash figures onto the accruals basis. In each one the amount taken to the income and expenditure account is the balancing figure, so the safest method is to enter everything you are given, total the side that is complete, and let the other side follow.

Fix the direction of each balance before starting. Subscriptions in arrears are owed to the league, so they are a debit balance, an asset. Subscriptions in advance are owed by the league, a credit balance, a liability. Referees' fees owing are a credit balance. Insurance in advance is a debit balance.

(a) Subscriptions account for the year ended 30 June 2025 [10]

The credit side is complete at $780 + $41 600 + $240 + $1 540 = $44 160. Deducting the two known debit entries leaves the income for the season: $44 160 - $1 320 - $1 050 = $41 790.

The $240 owed by the club that folded is credited to this account and charged separately as expenditure. It is removed here because that money will never arrive, so it cannot remain among the arrears; but the season of competition was still provided to that club, which is why the income is recognised and then written off rather than simply ignored. The net effect on the surplus is $41 790 - $240 = $41 550.

(b) Referees' fees account [7]

The debit side totals $8 750 + $610 = $9 360, so the charge is $9 360 - $460 = $8 900. As arithmetic: $8 750 paid - $460 owing at the start + $610 owing at the end. The league officiated slightly more matches than it paid for, so the charge exceeds the cash by the $150 increase in the amount owing.

(c) Insurance account [5]

The debit side totals $540 + $3 260 = $3 800, so the charge is $3 800 - $720 = $3 080. Here the charge is less than the cash paid, because $180 more cover has been bought in advance than at the start of the season.

(d) Why a subscription paid early is a current liability [3]

The league has taken the club's money but has not yet given it what the money buys: a season of organised fixtures. Until those fixtures are provided, the league is under an obligation, and an obligation at the reporting date is a liability. If the league were to fold in July, it would have to return the $1 050 rather than keep it.

The accruals concept makes the same point from the income side. Income is recognised in the period in which it is earned, not the period in which the cash arrives, so a subscription for the 2025 to 2026 season cannot be income of the year ended 30 June 2025. Taking it into this year's income and expenditure account would overstate this year's result by $1 050 and understate next year's by the same amount. It is classed as current because the fixtures it pays for will be provided within the next twelve months.