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Difficulty: EasyAccounting Treatment of Subscriptions

Harmony Youth Association received N70,000\text{N}70,000 in cash as subscription fees from its members during the financial year. At the end of the year, subscriptions amounting to N8,000\text{N}8,000 remained due but unpaid. What is the total subscription income to be credited to the Income and Expenditure Account for the year?

  1. A
    N62,000\text{N}62,000
  2. B
    N70,000\text{N}70,000
  3. N78,000\text{N}78,000Answer
  4. D
    N8,000\text{N}8,000

Answer

N78,000\text{N}78,000
Under the accrual concept of accounting, subscription income recognized in the Income and Expenditure Account must reflect all revenue belonging to the financial year. This is calculated as subscriptions received in cash (N70,000\text{N}70,000) plus subscriptions in arrears at the end of the year (N8,000\text{N}8,000), yielding a total subscription income of N78,000\text{N}78,000.

Step-by-Step Solution

1
Identify the total subscription cash received during the year.
Cash received = N70,000\text{N}70,000
This is the initial cash inflow recognized in the Receipts and Payments Account.
2
Add the subscriptions due but unpaid (in arrears) at the end of the year.
N70,000+N8,000=N78,000\text{N}70,000 + \text{N}8,000 = \text{N}78,000
Under the accrual concept, income earned during the period must be recognized regardless of whether cash has been received.

Key Concept

Accounting Treatment of Subscriptions under Accrual Basis
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Topics

Accounting Treatment of Subscriptions

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