Accrued and Prepaid Subscriptions
Subscriptions are recorded on an accruals basis, not a cash basis. Two important adjustments are:
- Subscriptions in arrears (accrued) — subscriptions earned but not yet received. This is an asset (members owe the club).
- Subscriptions in advance (prepaid) — subscriptions received early for next year. This is a liability (the club owes services).
Key idea
Subscription for the Income and Expenditure Account = Cash received + closing arrears + opening prepaid − opening arrears − closing prepaid.
Example
A club received subscriptions of RM5,000. Opening arrears RM300, closing arrears RM450; opening prepaid RM200, closing prepaid RM150. Subscription for the year = 200 + 5,000 + 450 − 300 − 150 = RM5,200.
| Members' Subscriptions Account | |
| Balance b/d (arrears) 300 | Balance b/d (prepaid) 200 |
| Income & Expenditure 5,200 | Bank (received) 5,000 |
| Balance c/d (prepaid) 150 | Balance c/d (arrears) 450 |
| 5,650 | 5,650 |
Writing off Arrears
Sometimes some members never pay their arrears and the club decides to write off the amount as uncollectible. When this happens, the amount is credited in the Subscriptions Account and treated as an expense or deducted from subscription income, depending on the club's policy. Careful treatment of arrears and prepayments ensures that the subscription income transferred to the Income and Expenditure Account reflects the subscriptions actually earned for the current year, not merely the cash received. This matching principle is what distinguishes the accruals basis from the cash basis. In practice the treasurer opens the account with the opening arrears and prepaid balances, enters the cash received during the year, records the closing balances, and takes the transfer to the Income and Expenditure Account as the balancing figure that makes both sides agree.
Remember
Closing arrears is a current asset; closing prepaid subscriptions are a current liability in the Statement of Financial Position.