Bookkeeping Tips for Nonprofit Membership Organizations

Revenue from membership dues acts as a good source of income for nonprofits. But at times paid membership can act both as blessing and curse for a nonprofit organization. Let us know why it acts both ways for a nonprofit organization. They are very good sourcing of revenue thus they are important and a blessing. But in cases if a membership is proven as deferred revenue, it could soon turn into a curse for an organization. Moreover deferred revenue accounting is a very complicated as well.

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Deferred Membership Revenue, Explained

One should have an idea about what exactly is deferred money. If you receive the money in advance for a service or a product, that money is referred as deferred money. Let’s consider an example to understand this term more clearly. Suppose your nonprofit organization generates major chunk of money through annual membership program.  The huge amount of operating revenue is generated with the help of that annual membership. Moreover, the membership can be renewed or majority of it being started in the month of January. So, major chunk of the annual membership revenue is coming in the very beginning of the year. So basically your nonprofit organization is earning a major part of revenue at the very starting of the year. What about the benefits in return? Members could avail those benefits over the course of one year. That means the members has to remain connected over a year to avail the benefits.

Cash-Based Accounting

An important question is that through how many ways through which you can document your revenue correctly. So there are two important ways which are used to document the revenue namely accrual accounting and revenue accounting.

Further let’s exactly understand what happens with cash and accrual accounting. Cash accounting lets you record all the revenues simply as they arrive, this basically means that one can record the inflow of transaction as it happens and then one is free to spend the way he want. A lot of small businesses are happy to use this method where they have to record for selling goods or service.

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Accrual-Based Accounting

Accrual accounting is very much different from the cash accounting. Here you will end recognizing the amount of cash you have earned instead of noting down the cash inflow. A more precise explanation of this could be understood with a fact that accrual accounting would end up ascertaining and recognizing the economic condition of your organization. It will judge the performance of the organization and help to ascertain the revenue. Suppose your nonprofit organization receive an annual amount of 100 dollars for an year, so through accrual accounting, it would rather show a revenue of 8 dollars generated for the month though that membership and another 8 dollar for the succeeding month.

Audit Ready Financials

One should ascertain what type of accounting is being used at the nonprofit organization. One should have a good conversation with his CPA and understand what the requirements are in accordance with the nonprofit audit and what the other tax implication that should be considered is. The CPA has the kind of expertise you need to ascertain what exactly is required to be done. What are the accounting methods that should be looked upon in order to settle the account of your nonprofit organization in the right way?

We at MD Bookkeeping Doctor, LLC are one of the best Bookkeeping Service in Washington DC, we not only provide you the best Bookkeeping tips, but will also help you assist in taking the right decision in making your nonprofit organization choose the best way to document account and other necessary tips to make your model work.

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