Question

Globo Gym charges a $500 initiation fee and $1100 for one year of membership, which gives members access to its facilities. On August 31, 2019, Michelle joins the gym for the first time, paying both the initiation fee and the one year membership fee. One year later, Michelle renews her membership for another year at $1100. What entries should Globo Gym make on 8/31/19, 9/30/19, 8/31/20 and 9/30/20?

Answer 1

Answer -Globo Gym should in the first year recognise the intiation fee and one year membership over one year of membership. So here it would recognise $500+$1100 i.e $1600 over first one year and monthly should recognise $133.33.

Below is the journal entry that would be posted by Globo gym on the various dates

Date	Particular	Dr	Cr
08/31/2019	Cash/Bank A/c Dr To Deferred income A/c (Being payment of fees by Michelle, the cash has been received but it is not a revenue for Globa GYM so posted through deferred income)	$1600	$1600
09/30/2019	Deferred Income A/c Dr   To Membership Income To recognise revenue as one month revenue has been accrued i.e $1600/12, so this journal to be recorded every month till Aug 2020)	$133.33	$133.33
08/31/20	Cash/Bank A/c Dr To Deferred income (To recognise revenue for next year membership i.e $1100)	$1100	$1100
08/31/20	Deferred income A/c Dr To membership income (To record the revenue for first year fee	$133.33	$133.33
09/30/20	Deferred income A/c Dr To membership Income (To recognise the monthly revenue $1100/12)	91.67	91.67

Hope you understand the journal, I have provided comment for each of the journal for better understanding. If you still find issue in understanding the journal then please let me know.