I am currently doing my BA6 and getting close to exam time, I have completed my first mock exam in manual.
I am struggling to get the whole subscriptions bit.
I lost marks on a question of what is chargwd to the Income & Expenses account.
I have been told by my training provider that it is what should of been received "sales" which makes sense to me.
But........
i get lost when it comes to arrears and prepayments of subscriptions
if I am charging the full amount of what should of been paid then why do I balance the subscription account with arrears and advance payments and then have a figure that is sent to the income & expenses account?
Don't let the detail of accruals and prepayments give you grief. Just always think about what you are attempting to achieve in that only payments and receipts that relate to the current period should be recognised through the P&L in the current period. Thats all that the whole concept is trying to achieve.
Once you focus upon what you are attempting to achieve rather than the mechanics of how to get there it will all start to drop into place.
For a more specific answer bit more info required. What sort of subscription is it :
what is the payment timing and frequency?
Payment in advance?
Commitment to pay in advance?
What period has been enforcably commited to? (the difference between whether a commitment needs to be recognised in advance or not).
Never heard of a received sale before? The vendor has made a sale, you have made a purchasee, the only question mark over the transaction is how much of it should be recognised through P&L and how much is recognised on the B/S (well, all of it is, but some of it is but some of it may be recognised only on the balance sheet for this period).
talk later,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
It's for subscriptions on not for profit clubs etc...
I'm getting confused around what gets charged to the Income and Expense account, as in my mock I did the calculations of owed subs and prepaid subs and what was received though the accounts and was told it was wrong and that it is the amount that should of been received.
Then in a different working they put the calculations into the income and Expenese account I have asked in the calculations always equal what should have been paid from all members subs if no arrears or prepayments but they won't give me a straight answer.
Sorry, I may have mistunderstood the scenario in my original reply are you saying that this is subscriptions that you are receiving rather than paying?
In which case assuming that the accounts are being prepared on an accruals basis the amount that you recognise as income is the amount that you should have receieved in the period even where some income is not received until a later period.
Basically the opposit of the scenario that I was talking about earlier when I thought that you were refering to prepayments in relation to expenses.
If the subscriptions cross a period end then the subscription to be recognised is the amount relating to the current period with the remainder being accrued income.
so, imagine a subscript of £120 that crosses a period end with 8 months worth of subscription in the prior period and 4 months of the subscription relating to this period then in the prior period you would recognise £80.
The £40 remaining belongs in the current period but there will also be a further subscription amount for the current period. Lets take that as £144 this year. So 144/12*8=96 plus the £40 worth of subscription carried forwards from the prior period would be £136 to be recognised through the P&L for the current period.
It doesn't matter under accruals accounting what is actually received. Its how much should have been received that is recorded. (and bad debts are reduced as an expense).
If you still don't understand your training providers guidance then PM their guidance, the mock question and your answer over and when I get chance to have a look I'll try and explain anything that your having issue with. (don't post it on here though as some training providers get in a right old strop about that sort of thing),
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I may not be able to pick it up until late tomorrow afternoon so no rush Eilef.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
