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Bookkeeping for Member Dues | Supporting Strategies

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Bookkeeping Tips for Nonprofit Membership Organizations

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Membership dues are a great source of income for nonprofits. Learn what you need to know about deferred revenue with these nonprofit bookkeeping tips.

Paid memberships can be both a blessing and a curse for nonprofit organizations. They're a blessing because they provide much-needed revenue. But they can be a curse from a bookkeeping standpoint because memberships can be classified as deferred revenue, and accounting for deferred revenue can be complicated.

Deferred Membership Revenue, Explained
So what exactly do we mean by deferred revenue? Basically, that's money that you receive in advance for a product or service. Let's say, for simplicity's sake, that your nonprofit derives a substantial portion of its operating revenue from annual memberships. Let's also say that a vast majority of those are either started or renewed during an annual membership drive in January. In other words, most of your membership revenue arrives all at once at the beginning of the year — in exchange for a benefit that won't be fully discharged until the end of the year.

Cash-based Accounting
There are two ways to document revenue: cash accounting and accrual accounting. With cash accounting, you simply record your revenue as it arrives; then you spend it however and whenever you wish to pay various bills. (Many smaller for-profit businesses operate this way and do just fine, although they're generally receiving payments for goods or services, not membership fees.)

Accrual-based Accounting
With accrual accounting, you recognize the income when it is earned rather than when cash is received. Investopedia offers this definition: “Accrual accounting measures a company's performance and position by recognizing economic events regardless of when cash transactions occur, whereas cash accounting only records transactions when payment occurs.” Using accrual accounting, an annual membership fee of, say, $120 that you receive on January 1 would go on the books as $10 of revenue at the end of January. Another $10 of revenue would go on the books at the end of February and so on through the end of December.

Audit-ready Financials
What type of accounting should you use at your nonprofit? Talk to your CPA. There may be nonprofit audit requirements and/or tax implications to consider. Your CPA can advise you on the accounting method that would be best to use at your nonprofit. Your bookkeeping services provider will then work with your CPA to prepare audit-ready books for your nonprofit — with proper revenue recognition for memberships.

At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.

Elliot Hershik

Author:

Elliot Hershik

General Manager Elliot Hershik, Supporting Strategies | Chicago Far West Suburbs, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.