Question

(Comparing Cash versus Accrual Reports) The Professional Persons Association of Middleton is a nonprofit organization that is subject to the provisions of Audits of Certain Nonprofit Organizations. That dues for members are $40 per year; the fiscal year ends on August 31. Prior to September 1, 2015, 410 members had paid their dues for the year ended August 31, 2016. Prior to September 1, 2016, 457 members had paid their dues for the year ended August 31, 2017; one of these died suddenly on August 30, 2016, and the governing board decided to return his check to his widow. During the fiscal year ended on August 31, 2016, 36 other members died; 15 members were dropped for nonpayment of dues; and 1 member was expelled – no dues refunds were made to the estates of the 36 decedents; a $20 refund was made to the person expelled. Offsetting these membership decreases, 123 new members joined in fiscal 2016; membership as of September 1, 2015, had been 2,980 persons. Members admitted during a year are charged dues for the full year.

The association has reported membership dues revenue on the cash basis in prior years. You bring to the attention of the governing board the requirement that financial statements should be on the accrual basis, unless cash basis statements are not materially different. Since you are so knowledgeable, the board asks you to compute membership dues revenue for fiscal 2016 on both the cash basis and the accrual basis and to report to them the amount on each basis and your conclusion as to whether the difference between the two is material.

(457 memebers are other than 2,980 persons.)

Answer 1

In cash basis revenue is account when actually recieved or paid and in accrual basis revenue is account when its due. Here we got some info regarding the dues recieved which we need to account as per both method

1. Cash basis

We have received advance payment for 457 member , in cash basis we will account this but not in accrual method because this is a income of 2017 so that due in next year.

Now out of these 457 one died and company refunded the money so we account for this and deduct it from revenue

We have paid 20$ to one memb which was expeeled we account for that because we paid him in this year and we also account this in accrual method also as it is related to current yr of 2016.

Some new memb joined -123 memb in this yr and paid also so we account this in both method cash as well accrual

Now we will calculate balance members i.e 2980-410(paid previous yr) -15 who didnt paid)=2555

So revenue in cash basis is as follows

=(457+2555+123-1)*40. - 1*20

=3134*40-(1*20)

=125340

Accrual method

410 memb paid in advance but due in current yr will be included in this

2555 balance same reason as above

+123 same reason as above i.e accrue this year or related to this year

-1*20 same reason

Revenue as per accrual method should be

=(410+2555+123)*40 - (1*20)

=(3088*40)-(1*20)

=123500

The difference between two is of 1840 .although it does not look big amount but if you see in other way it is equal to membership fee of 46 members hence you can say it is material but it is upto the company financials.