How to book incomes from a past accounting period?

[David Cousens]

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