Subscriptions Account preparation

A club or society (e.g. a sports or social club) is a non-profit-making organisation run for the benefit of its members, not to make a profit for owners. Its main income is members' subscriptions (membership fees).

Like any business, a club applies the accruals (matching) concept: the income & expenditure account must show the subscriptions earned for the year, not simply the cash received. Members may:

• owe subscriptions at the year-end (arrears) — income earned but not yet received;
• pay in advance for next year (advance/prepaid) — cash received but not yet earned.

The subscriptions account is the working that adjusts the cash received for these timing differences to find the subscriptions income for the year. It is the single most common club-accounts task in the exam.

Two adjustments arise:

• Subscriptions in arrears — amounts owed by members at the year-end. The income is earned but the cash has not arrived, so arrears are a current asset (like a receivable). They are a debit balance on the subscriptions account.
• Subscriptions in advance (prepaid) — amounts paid by members for a future year. The cash has arrived but the income is not yet earned, so advances are a current liability (the club owes the membership). They are a credit balance.

In the subscriptions account:

	Debit (Dr)	Credit (Cr)
Opening	arrears (owed to club)	advance (owed by club)
Closing	advance c/d	arrears c/d
	Income & Expenditure (balancing figure)	Cash received

So opening arrears and closing advance are debits; opening advance and closing arrears are credits. (Arrears and advances swap sides between opening and closing because a closing balance is carried down to the opposite side.)

Prepare the subscriptions account as a T-account:

Debit side:

• Opening arrears (b/d) — owed by members at the start;
• Closing advance (c/d) — paid in advance at the end;
• the balancing figure is the subscriptions for the income & expenditure account (when it falls on the debit side).

Credit side:

• Opening advance (b/d) — paid in advance at the start;
• Cash/bank received during the year;
• Closing arrears (c/d) — owed by members at the end.

The account is then balanced. The subscriptions income transferred to the income & expenditure account is the figure that makes the two sides equal — usually:

$\text{Subscriptions income} = \text{Cash received} + \text{closing arrears} - \text{opening arrears} - \text{closing advance} + \text{opening advance}$

This formula is just the subscriptions account rearranged.

Two further points often appear:

• Irrecoverable (bad) subscriptions. If a member's arrears are not going to be paid and are written off, they are removed from arrears. The write-off is treated as an expense in the income & expenditure account (or netted against subscriptions), and the arrears asset is reduced.
• Subscriptions written off in advance prudently. Some clubs do not treat arrears as income until received (prudence) — but the syllabus default is the accruals treatment unless told otherwise.
• Life membership may be spread over several years rather than taken as income in one year (see the Life Memberships subtopic) — only the year's share is income.

On the statement of financial position:

• closing arrears appear as a current asset;
• closing advance appears as a current liability.

So the subscriptions account both feeds the income & expenditure account (the income figure) and leaves the year-end balances for the statement of financial position.