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Difficulty: MediumAccounting Treatment of Subscriptions

Apex Professionals Guild provided the following details regarding its subscription accounts for the financial year ended 31 December 2025:

- Subscriptions in arrears on 1 January 2025: N12,000\text{N}12,000
- Subscriptions received in advance on 1 January 2025: N8,000\text{N}8,000
- Total subscription cash received during 2025: N165,000\text{N}165,000
- Subscriptions in arrears on 31 December 2025: N15,000\text{N}15,000
- Subscriptions received in advance on 31 December 2025: N10,000\text{N}10,000

What amount should be credited to the Income and Expenditure Account as subscription income for the year ended 31 December 2025?

  1. A
    N170,000\text{N}170,000
  2. N166,000\text{N}166,000Answer
  3. C
    N164,000\text{N}164,000
  4. D
    N156,000\text{N}156,000

Answer

N166,000\text{N}166,000
Under the accrual basis of accounting, subscription income recognized in the Income and Expenditure Account reflects income relating strictly to the current financial year. Starting from total cash received of N165,000\text{N}165,000, we add subscriptions received in advance at the start of the year (N8,000\text{N}8,000) and subscriptions in arrears at the end of the year (N15,000\text{N}15,000), then deduct subscriptions in arrears at the start of the year (N12,000\text{N}12,000) and subscriptions received in advance at the end of the year (N10,000\text{N}10,000). This gives N165,000+N8,000+N15,000−N12,000−N10,000=N166,000\text{N}165,000 + \text{N}8,000 + \text{N}15,000 - \text{N}12,000 - \text{N}10,000 = \text{N}166,000.

Step-by-Step Solution

1
Identify cash received during the period
Total cash received = N165,000\text{N}165,000
Cash received forms the baseline figure in the subscription account.
2
Add income items relating to the current year
Add opening advance (N8,000\text{N}8,000) + closing arrears (N15,000\text{N}15,000) = N23,000\text{N}23,000
Subscriptions paid in advance last year relate to this year, and subscriptions owed at the end of this year belong to this year.
3
Deduct income items relating to other periods
Deduct opening arrears (N12,000\text{N}12,000) + closing advance (N10,000\text{N}10,000) = N22,000\text{N}22,000
Subscriptions owed at the beginning belong to last year, and subscriptions paid in advance at year-end belong to next year.
4
Compute final subscription income for the Income and Expenditure Account
N165,000+N23,000−N22,000=N166,000\text{N}165,000 + \text{N}23,000 - \text{N}22,000 = \text{N}166,000
Accrual concept requires adjusting cash received to reflect earned subscription income for the accounting period.

Key Concept

Accrual adjustment for subscription income in non-profit organizations
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Topics

Accounting Treatment of Subscriptions

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