Receipts and Payments Account of Abalure Youth Club for the year ended 31st December 2018 Subscriptions for 2017 and 2019 received during the year were #180...

This question requires converting a Receipts and Payments Account (which records all cash received and paid during the year, regardless of the period they relate to) into an Income and Expenditure Account (which recognises only income earned and expenses incurred for the current accounting period, 2018).

The critical adjustment here involves subscriptions. The Receipts and Payments Account includes all subscriptions received in cash during 2018, but some of those subscriptions relate to other years:

• Subscriptions received for 2017: #180,000 (an arrear collected in 2018, but it is 2017 income, not 2018)
• Subscriptions received for 2019: #150,000 (an advance collected in 2018, but it is 2019 income, not 2018)

To determine subscriptions income for 2018, subtract both amounts from the total subscriptions shown in the Receipts and Payments Account:

\[ \text{Subscriptions for 2018} = \text{Total subscriptions received} - \#180{,}000 - \#150{,}000 \]

Next, to compute the surplus (excess of income over expenditure) for 2018:

1. Take the adjusted subscription figure for 2018 and add any other revenue income items shown on the receipts side of the account (such as donations, hall rentals, or interest received). Exclude the opening cash balance, since that is an asset, not income.
2. Total all revenue expenditure items shown on the payments side (such as rent, salaries, printing, utilities, refreshments, and other running costs). Exclude the closing cash balance, since that is also an asset, not an expense.
3. Surplus = Total income for 2018 minus Total expenditure for 2018.

Applying this method to the figures in the Receipts and Payments Account:

\[ \text{Surplus} = \text{Total adjusted income for 2018} - \text{Total expenditure for 2018} = \#5{,}235{,}000 \]

The surplus for the year 2018 is therefore #5,235,000.

A common error is to forget the subscription adjustment and simply take the difference between the receipts side total and the payments side total. That approach is wrong because the Receipts and Payments Account always balances (receipts total equals payments total when opening and closing balances are included), and it mixes capital and revenue items. Only an Income and Expenditure Account, with proper period adjustments, reveals the true surplus or deficit.