How to book incomes from a past accounting period?

[Jonas Wagner]

Hi,

thanks a lot to David, John and Michael for the helpful answers! This has
been really enlightening for me, and I've changed the accounts today to
reflect what I learned. Special thanks because the question is not
particularly related to GnuCash, but got answered nevertheless.

A little bit of background on the association: it is a non-profit student
association in Switzerland. After reading David's mail, I verified that
Swiss law does not enforce any particular type of accounting. It only
requires that some "appropriate" form of bookkeeping is done. Our
association statutes further require that the bookkeeping be verified by an
independent person once a year.

I think that we're currently using a mix between an accrual and cash-based
accounting (if such a thing exists). Some examples:

There is one account per committee member who spends money. I use "Bank"
accounts for this because I don't want to use GnuCash vendors (too
complicated?), but they are a sort of A/Payable. Consider that Jenny, a
committee member, buys food on 2013-10-15 for one of our events. She gives
me the shop receipt some days after this, and I create a transaction from
"People:Jenny" to "Expenses:Food" on 2013-10-15. Some (hopefully short)
time later I reimburse the person. Once that payment is approved by the
association's president and processed by the bank, I create a transaction
such from "Assets:Association's Bank Account" to "People:Jenny" on <date
when payment was processed by the bank>.

Now for the membership fees, I created a real A/Receivable account
according to David's advice, because it seems overkill to use the same
system as above and have one account per member.

Other transactions are booked whenever we pay a bill or receive some money,
i.e., based on cash.

The system has worked well enough so far, but I'm open for suggestions for
improvements.

Thanks again for all the help!
Jonas


On Wed, Oct 23, 2013 at 2:10 PM, David Cousens <davidcousens at bigpond.com>wrote:

> Hi Jonas
> This is really an accounting issue and not a GnuCash issue per se. The
> answer may depend upon specific requirements either in legislation and or
> practice in the jurisdiction in which your association is resident.
>
> In terms of Generally Accepted Accounting Practice, the income should be
> recorded in the period in which it is earned, i.e. in this case against the
> year for which the membership was due, not the year in which the cash is
> received from the member. In practice this could be achieved by creating an
> Accounts Receivable (AR) entry in the year in which the membership was due.
> As the AR is an asset account, its closing balance is carried forward into
> the next year as the opening balance of AR in that year. When the cash for
> the membership owed is received it is credited to AR and debited to the
> Bank
> Account in the following year or subsequent years. I.e. it does not appear
> in the income earned for that following year or subsequent years.
>
> The problem with this is that if the member never pays their dues, then the
> income in the year in which the membership was due is overestimated. ( Not
> seriously if only one member defaults but potentially so if a large number
> of members do.) This is generally treated in accounting for receivables by
> creating an Allowance for Unpaid Debts which is a contra account to the
> Accounts Receivable account (i.e. its balance is summed with the AR balance
> to give a net AR balance) and a corresponding Unpaid Debts Expense account.
>
>
> Usually historical information is used to estimate the  amount Unpaid Debts
> for a period, e.g. as a percentage of the AR balance or by using debt
> ageing
> methods. This is credited to the Allowance for Unpaid Debts account and
> credited to the Unpaid Debts Expense account, i.e. the estimated bad debts
> are written off as a business expense. This reduces the Accounts Receivable
> balance carried forward into the next period and reduces the income for the
> current period ( when the membership was due) since
> profit/surplus=income-expenses.  This is generally carried out weekly,
> monthly or quarterly depending on the business cycle and final adjustments
> are done at the EOY to correct for any under or overestimate of the bad
> debts c.f. the actual bad debts for the period. This way the income figures
> more accurately reflect what the organisation actually receives throughout
> the period.
>
> This procedure could be adapted for accounting for unpaid membership dues,
> particularly where dues become due at individual times during the year and
> not just on a fixed date. Some organisations also require intervening
> unpaid
> dues to be paid up before a lapsed membership is due, which probably should
> be recorded through an AR type mechanism.  If your organisation is an NPO,
> then some adjustments in terminology may be required, e.g. profit/loss ->
> surplus/deficit etc.
>
> Hope this helps
> David Cousens
>
>
> -----Original Message-----
> From: Jonas Wagner [mailto:j.b.w at gmx.ch]
> Sent: Thursday, 17 October 2013 6:21 PM
> To: gnucash-user at gnucash.org
> Subject: How to book incomes from a past accounting period?
>
> Dear Gnucash users,
>
> a new season just started for an association I'm part of. I created a new
> Gnucash file for the new season's finances.
>
> Now I occasionally receive money that "belongs" to the past season. For
> example, somebody who forgot to pay their membership fees last year pays
> the
> double amount this year. What is the best way to handle this?
>
> What I tried:
>
> * Equity:Past season
>   - Overdue membership fee for John Smith: $20 (to Income:Membership fees)
>
> * Income:Membership fees
>   - Overdue membership fee for John Smith: $-20 (from Equity:Past season)
>   - Membership fee John Smith (past season): $20
>   - Membership fee John Smith (current season) $20
>
> This seems to work, as it leaves me with the correct total of $20 in
> Income:Membership fees and somehow documents past year's money.
>
> I think the question is more general than that, though: How to handle
> transitions between accounting periods? Should I book incomes from past
> years under incomes? Or are they equity? A/R? Or something else?
>
> Thanks for your help?
> Jonas
>
>
>