Subscriptions and expenses are common transactions in accounting, especially for businesses, clubs, societies, and non-profit organizations. Proper accounting treatment ensures that financial statements present a true and fair view of the organization's financial position. This chapter explains the meaning, recognition, journal entries, and accounting treatment of subscriptions and expenses
1. Accounting Treatment of Subscriptions
Meaning
A Not-for-Profit Organization (NPO) collects membership fees from its members in the form of subscriptions, which are its main source of income. The total subscription received during the accounting period is recorded in the Receipts and Payments Account on a cash basis. However, only the subscription relating to the current accounting year, whether received or not, is shown on the Income side of the Income and Expenditure Account. Outstanding subscriptions are shown as an asset in the Balance Sheet, while subscriptions received in advance for the next year are shown as a liability. This treatment follows the accrual basis of accounting.
Types of Subscriptions
- Subscription received during the current year.
- Subscription outstanding (due but not received).
- Subscription received in advance.
- Subscription relating to previous years.
- Subscription received for future years.
Format showing the calculation of Subscription:
It can also be calculated by preparing Subscription A/c:
Illustration:
A. Through given Data/Figures:
Subscription received during the year ended on 31st March, 2022 as:
There are 210 members in the Organization. The annual subscription for the members is ₹75 each member. Subscription outstanding for the year 2020-21 were ₹ 800.
From the following information calculate and show the treatment of the amount of subscription to be shown in Income and Expenditure A/c and Balance Sheet.
Solution:
Subscription receivable for 2021-2022 = Number of Members X Annual Subscription
= 210 X 75
= ₹15,750
Subscriptions Outstanding (For Current Year) = Subscription Receivable - Subscription Received
= ₹15,750 - ₹11,750
= ₹4,000
Working Notes:
1. Subscription outstanding for 2020-2021
= ₹800 - ₹550(received in 2021-2022)
=₹250
B. Through Receipt and Payment Account:
From the Extract of the Receipts and Payments Account and additional information, compute the amount of subscriptions for the year ended on 31st March, 2022 of the Geeks Foundation and show the treatment in the Final Accounts of the Organization:
Additional Information:
1. The annual subscription fee is ₹200 each. There are 275 members in the Evergreen Organization.
2. Outstanding Subscription on 1.4.2021 were ₹1,300.
Solution:
2.Accounting Treatment of Expenses
Meaning
Not-for-Profit Organizations incur various expenses for carrying out their day-to-day activities. The total amount of expenses paid during the accounting period is recorded on the Payments side of the Receipts and Payments Account. However, only revenue expenses relating to the current accounting year are shown on the Expenditure side of the Income and Expenditure Account. Common examples of such expenses include salary, rent and taxes, electricity charges, printing and stationery, postage, and other administrative expenses. This treatment follows the accrual basis of accounting, ensuring that only the expenses of the current year are recognized.
Types of Expenses
- Revenue Expenses
- Capital Expenses
- Outstanding Expenses
- Prepaid Expenses
Statement showing Treatment for Expenses:
Illustration:
A. Through given Data/Figures:
From the following information, calculate and show the treatment of expenses :
Geeks Foundation made miscellaneous expenses during the year ended on 31st March, 2021, amounting to ₹1,20,000. Prepaid and unpaid expenses were:
Solution:
B. Through Receipt and Payment Account:
From the following extract of Receipts and Payment Account of Geeks Foundation, compute the treatment of salaries for the year ending on 2021-2022 :
Additional Information:
1. Salary paid in advance in 2020-21 amounts to ₹ 4,150
2. Salary unpaid on 2020-21 is ₹1,300
3. Prepaid Salary in 2021-22 amounts to ₹1,450
4. Outstanding Salary in 2021-22 is ₹1,000
Solution:
