Subscription Accounting

Subscription Accounting: We know that subscription is the main source of income for an NPO. It is basically the amount that is paid by the members of an NPO for continuing their membership with the organization. This payment is made periodically (generally yearly) by the members. In order to understand the meaning of subscription, let us take a real-life scenario.

Suppose Rahul is a school-going boy, who after appearing in his class-Xth board exams decided to take membership of a non-profit Rotary Club in his town. The Club offered Rahul his Gym membership by paying Rs 15,000 for 6 months. The offer was accepted by Rahul and he duly paid the entire amount, this amount is the Subscription received by the Gym Owner, and by receiving this amount he is bound to give all facilities of his Gym to Rahul. Thus, it can be said that a subscription is a periodical receipt contributed by members of the organization.

Subscription Accounting Treatment

Subscription being an income of an NPO is shown on the Receipts side of the R&P A/c. Further, as it is a revenue item in nature, so subscription is also shown on the Income side of the I&E A/c. However, at this point, two points are worth noting.

1. In R&P A/c, the amount of subscriptions that appears is actually the total amount of subscriptions that have been received during the current accounting period. That is, in other words, the subscriptions in R&P A/c can be related to the previous year, or to the current year, and as well as to the next year.

2. On the other hand, subscriptions shown in the I&E A/c is that amount which is related exclusively to the current year only.

i. Subscriptions received for the previous year and/or for the next year are never recorded in the I&E A/c

ii. Even though the current year’s subscriptions remain outstanding or have been received in advance (in the previous year), then also subscription is shown with the full amount for the current year in the I&E A/c.

Also, Read

Interest on Capital

Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.

Interest on Drawings

Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.

What is Operating Profit?

Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.

Balance Sheet

The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period

Profit and Loss Account

A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.

What are Adjusting Entries?

In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.

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