The Matching Concept

The matching concept is that revenue should be matched to related expenses and reported in the same period(s) that the related expenses are incurred. Consider membership dues. It is usually for a one-year term of membership, and the benefits to the member are expenses to the chamber throughout the term. If you comply with the matching concept, then rather than recognizing a member’s dues as revenue all at once at the beginning of the term, you would recognize the dues in monthly increments throughout its term in order to match it to related expenses. If you choose to comply with the matching concept and defer dues revenue, this section describes how to do it.

Setting Up Deferred Dues

First, set up a liability account titled “Deferred Dues” (or some similar title). Then, for all invoices that you create for membership dues and for all credit memos that write-off membership dues, post their membership dues line items to “Deferred Dues.” Then at the end of each month, create an adjustment transaction in your accounting software that transfers a prorated amount for the month from “Deferred Dues” to “Earned Dues.” Thus, membership dues are recognized in monthly increments throughout the year.

Calculating Prorated Dues

CC-Assist has a special report called the “Prorated Dues Report” that calculates the prorated amount of dues within a specified period of time so that you know how much to transfer from “Deferred Dues” to “Earned Dues.” You can choose either the “Summary” or “Detail” version of this report.

To print the Deferred dues revenue report,

  1. Go to the G/L Accounts module.
  2. Display the Output menu and choose “Prorated Dues Report.” This displays a dialog box with which you specify the period through which you want prorated dues amounts calculated.
  3. Specify the period of time you want and choose the “OK” command button. This displays the Print Job dialog box from which you can continue with the printing of the report.

The prorated amounts shown on this report are calculated as follows.

“Membership Dues” line items are used in dues invoices and dues credit memos. Both contain a “from” date and a “through” date which define the period of time associated with the item’s debit or credit amount.

The Prorated Dues report selects all dues-type items for which any part of their period falls within the specified report period. It calculates a prorated amount for each selected amount as the portion of the line item’s total amount associated with the specified report period. This calculation is based on the ratio of the number of days in the item’s period that fall within the specified report period to the total number of days in the item’s period.

For example, if a line item’s period is the twelve months 1/01/2007 through 12/31/2007, and the Prorated Dues Report is run through 07/31/2007, then the ratio used to calculate the prorated amount is 212/365. If the line item’s amount is $100.00, then the prorated amount is 212/365 x $100.00 = $58.08.

When the “Prorated Dues Report” is run, the “through” date should be the end of the month through which dues amounts should be earned. The difference between the Prorated amounts specified on the “Prorated Dues Report” and the ending balance of the “Earned Dues” account in your accounting software will be the amount of your adjustment from deferred dues to earned dues.