Accounting For Subscriptions Revenue – Learn Journal Entries For Membership, Software or Magazine or Digital Subscription Receivables & Receipts
Let’s say you run a subscription –based business where members or customers make an upfront payment into your account to enjoy a particular product or service for a specified period, you need to understand that it is different from a one-time sale of a product. In accounting, recognising the full amount paid as an income will definitely be an error as you can only recognise revenue for services rendered not from advanced payment.
Here are steps to treat subscription revenue using a scenario.
A newspaper company publishes a magazine on latest technology innovations disruption ideas. Members pay on a monthly, quarterly or yearly basis to get latest publications. If a long time subscriber decides to pay $1000 for 10-month issues, what are the relevant accounting entries in the books of account?
The accounting treatment for this transaction is CR subscription (liability account) and DR your bank account with the amount paid by the customer or member. Then, you can amortise the value for the period covered and DR your subscription (liability) account and CR your subscription revenue account with the amount recognised for the period.
Sometimes, the customer may cancel the subscription and request for a refund, in which case, you CR your bank account and DR subscription (liability) account with the remaining part.
Hope you find this accounting for subscription revenue useful? Read more tips on accounting treatment for business transactions here