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Question

Difficulty: EasyAccounting Treatment of Subscriptions

Metro Social Club received N80,000\text{N}80,000 cash for subscriptions during the year ended 31 December 2025. Included in this amount was N5,000\text{N}5,000 paid by members in advance for the year 2026. What amount should be credited to the Income and Expenditure Account as subscription income for 2025?

  1. N75,000\text{N}75,000Answer
  2. B
    N85,000\text{N}85,000
  3. C
    N80,000\text{N}80,000
  4. D
    N5,000\text{N}5,000

Answer

N75,000\text{N}75,000
Subscription income for the current financial year is calculated by taking total cash received for subscriptions and deducting subscriptions received in advance for future periods (N80,000−N5,000=N75,000\text{N}80,000 - \text{N}5,000 = \text{N}75,000). Under the accrual concept, only income earned in the current period is credited to the Income and Expenditure Account.

Step-by-Step Solution

1
Identify total cash received for subscriptions during the year.
Total subscriptions cash received = N80,000\text{N}80,000
This is the gross amount collected in the Receipts and Payments Account.
2
Deduct subscriptions received in advance for the year 2026.
N80,000−N5,000=N75,000\text{N}80,000 - \text{N}5,000 = \text{N}75,000
In accordance with the accrual concept, income received in advance for a future period must be excluded from current year revenue.

Key Concept

Accounting treatment of subscriptions received in advance
Estimated Time:45s
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Topics

Accounting Treatment of Subscriptions

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