Subscriptions: Cash Received versus Income

Accounting for Clubs and Societies

Skill: Apply

Stimulus

Question

(a) Prepare the Subscriptions (Members' Fees) Account for the year ended 31 December 2024 and determine the amount that should be transferred to the Income and Expenditure Account.

(b) Is Puan Suraya's proposal to transfer the whole RM12,600 as subscription income correct? Justify your answer with figures.

(c) Explain why donations and new members' entrance fees are not entered in the Subscriptions Account.

Thinking steps

1. Identify the nature of each balance: subscriptions in arrears are an asset (members owe the club), while subscriptions in advance are a liability (the club owes membership to members).
2. Filter the receipts: only annual membership subscriptions enter the Subscriptions Account. Donations and entrance fees are other income and are excluded from this working.
3. Build the Subscriptions Account. Debit: opening arrears b/d + closing advance c/d + the balancing figure to I&E. Credit: opening advance b/d + cash received + closing arrears c/d.
4. Balance the account to obtain subscription income: 12,600 + 600 − 480 − 540 + 300 = RM12,480. Compare with the RM12,600 cash and pin down the RM120 difference.
5. Evaluate the treasurer's proposal by linking cause and effect: transferring cash (RM12,600) as income breaches the accrual basis and misstates the surplus/deficit.

Model answer

(a) Subscriptions (Members' Fees) Account for the year ended 31 December 2024:

Debit side: Balance b/d (subscriptions in arrears) RM480; Income and Expenditure Account (subscription income) RM12,480; Balance c/d (subscriptions in advance) RM540. Total RM13,500.

Credit side: Balance b/d (subscriptions in advance) RM300; Bank (subscriptions received) RM12,600; Balance c/d (subscriptions in arrears) RM600. Total RM13,500.

The amount that should be transferred to the Income and Expenditure Account is RM12,480 (the balancing figure).

(b) Not correct. RM12,600 is the cash RECEIVED, not the subscription income EARNED for 2024. It includes RM480 of last year's arrears now collected and RM540 paid early for 2025, but excludes RM600 of 2024 fees still owing and the RM300 of 2024 fees already received last year. Using the formula: Income = Cash received + closing arrears − opening arrears − closing advance + opening advance = 12,600 + 600 − 480 − 540 + 300 = RM12,480. So the correct subscription income is RM12,480, which is RM120 less than the cash received.

(c) Donations (RM2,000) and new members' entrance fees (RM900) are not annual membership subscriptions, so they are not recorded in the Subscriptions Account. Both are separate income sources credited directly in the Income and Expenditure Account (entrance fees treated as income per the club's policy). Putting them into the Subscriptions Account would overstate subscription income.