How to prepare a subscriptions account

Step by step

1. Start with subscriptions received. Enter the cash received from members during the year.
2. Adjust for arrears. Add subscriptions owing at the year end and remove those owing at the start.
3. Adjust for advances. Remove subscriptions received in advance at the year end and add those brought forward from last year.
4. Find the income for the year. The adjusted figure is the subscriptions income for the period.
5. Take it to income and expenditure. Enter the year's subscription income in the income and expenditure account.

Worked example

Cash received is RM4,000. Add RM300 owing now and remove RM200 paid in advance. Subscription income is RM4,100.

Understanding the method

A club does not measure income by the cash that reaches its bank. It measures the membership income that belongs to this financial year. This is the accruals concept.

A member might pay early for next year or pay late for last year, and the cash figure mixes these together. The subscriptions account separates them.

Think about what each balance means. Subscriptions in arrears are money members still owe the club. That is an asset, so it is a debit.

Subscriptions received in advance are money the club holds for a service not yet provided. That is a liability, so it is a credit.

So the account opens with last year's arrears on the debit side and last year's advances on the credit side. The cash received during the year goes on the credit side, because it settles what members owed. The balancing figure is the income earned, and it is transferred to the income and expenditure account.

Questions may give the opening and closing arrears and advances plus the cash, and ask for income. Or they may give the income and ask for the cash received or a missing balance.

Put in what you are given and treat the unknown as the balancing figure. Subscriptions written off as irrecoverable never became cash, so they are removed from the account.

Here is an example for a sports club. At the start of the year members owe RM600, and the club holds RM200 paid in advance.

During the year it banks RM9,400. At the year end, members owe RM750 and RM300 has been received in advance for next year.

Debit side: arrears b/d RM600, income (balancing figure), advances c/d RM300. Credit side: advances b/d RM200, cash RM9,400, arrears c/d RM750.

The credit side totals 200 + 9,400 + 750 = RM10,350. So the income is 10,350 − 600 − 300 = RM9,450.

The short method gives the same answer: cash 9,400 + closing arrears 750 − opening arrears 600 − closing advances 300 + opening advances 200 = RM9,450. Closing arrears then appear as a current asset in the statement of financial position, and closing advances as a current liability.

Common mistakes: forgetting that an opening advance becomes income of the current year, and confusing arrears with advances because both are loosely called outstanding. Another is treating a life membership or joining fee as ordinary subscription income when the question wants it spread over several years or shown separately. Decide asset or liability for each amount.

If you are unsure which side arrears and advances go on, we can help. One of our teachers can set out the subscriptions account with you and practise a few club questions. Book a trial class

Related skills

• How to prepare an income and expenditure account
• How to prepare a receipts and payments account
• How to adjust for accrued and prepaid income

The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.