Subscription Income recognition

Subscription Income recognition

Didn't find your answer?

My current company runs a subscription business where customers pays for a 12 month subscription in advance. This however is recorded in full for the month and not split across 12 months. It's approaching year end in April 2016 and I'm hoping to do the correct way of recognising income.

If I split the income now, it would look surprising low for the month. Would it be better if I do it  as a year end adjustment instead? i.e. As 2014/15 has already been closed, so split from May 2015 and journal the unearned income into prepayments for next year. Is this the right way to do it?

Replies (10)

Please login or register to join the discussion.

By johngroganjga
11th Jan 2016 09:00

You need to speak to the person who you prepare the monthly figures for. No-one on AWeb is going to be able to guess what their preference might be.

Thanks (0)
avatar
By paulwakefield1
11th Jan 2016 09:11

To expand on John's point

Assuming the amounts are material, you should carry forward the unearned income at the year end.

What happens in the year, as John says, is an internal matter. One option which may get around the particular issue you identify of low income in the month of change is to adjust the year to date up to and including the previous month. Whether this solves your issue will depend on the nature of your monthly reporting. It will also be important that the management are told what has changed and the impact on the year to date figures.

It is unclear from your post as to whether the 2014/15 accounts took into account the deferred income or not. If no year end adjustment was made, a prior year adjustment may be required depending on the materiality of the amounts involved.

 

 

Thanks (0)
By cheekychappy
11th Jan 2016 09:13

Are you are working at the Sheffield Wildlife Trust?

If so, their website states that people that pay for annual membership will receive a membership pack as well as receiving publications throughout the year.

I would defer the unearned income for both management accounts and statutory accounts purposes.

Thanks (2)
By johngroganjga
11th Jan 2016 09:51

I think the OP already knows the income needs deferring. Their question is not whether to defer but how and when to reflect the change in the monthly management accounts.

Thanks (0)
Replying to Wilson Philips:
Portia profile image
By Portia Nina Levin
11th Jan 2016 12:30

Really John?

johngroganjga wrote:
I think the OP already knows the income needs deferring. Their question is not whether to defer but how and when to reflect the change in the monthly management accounts.

You must be frigging psychic!

Thanks (0)
avatar
By paulwakefield1
11th Jan 2016 12:28

Good point

I think I misread/misunderstood the scope of the final question.

Thanks (0)
By johngroganjga
11th Jan 2016 12:42

I am not sure where the confusion is. I am not guessing or assuming anything. The OP says they want to "do the correct way". They pre-suppose what the correct way is and do not ask for advice on whether their understanding of what is correct is or is not correct - possibly because it is self-evident.

The question is how and when to reflect the change in the management accounts, not whether to do so.

Thanks (0)
avatar
By User deleted
11th Jan 2016 23:30

Thanks for the responses.

I agree with your comments. As for management accounts & annual return purposes, I will need to defer the income accordingly to reflect the correct income recognition method. I was glad that the previous accountant mentioned that they have accounted for this in the c/f deferred income for 2015/16 by doing a YE adjustment for the 2014/15 accounts, so I don't have to worry and could go ahead with deferring income. Thanks all :)

Thanks (0)
avatar
By Golfemmo
14th Jan 2016 12:06

Subscription Income recognition

This is the same as deferred income and should be accounted for in the same way. I would brief the recipients of your management accounts as to why you recommend changing the management accounting methodology. Or prepare a bridge indicating how the two sets will differ.At year end I would hope that your auditors would insist in the change in treatment or would refuse to sign off the accounts as being true and fair

 

Thanks (0)
avatar
By Melody
14th Jan 2016 15:40

Restating monthly comparatives
There has probably been a year end adjustment each year to ensure the statutory accounts are correct, but it is much better also to defer income in the management accounts as you intend to do, so the directors don't get a surprise when they see the statutory accounts. Monthly trends will be smoothed out and it will also be possible to analyse the reasons for changes eg. more or fewer renewals/new subscriptions/price changes/publications going out or not.

If your management accounts include a comments section I would use that to explain what you have done. Or explain it in the board meeting if you get to attend these, or make sure the director you report to understands it well enough to explain to the others.

If your management accounts include previous year figures for comparison, it would help the directors if, for one year only, you also put in comparisons on the same basis, perhaps as an extra column. Either (easier) also state this year's month and YTD income and profit on the old basis to compare with last year or (more helpful but perhaps more work) restate last year's month and YTD income and profit on the same basis as this year.

Thanks (0)