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How to Account for Membership Dues

The rollout of FASB’s Accounting Standards Update (ASU) 2020-05 – Revenue from Contracts with Customers (Topic 606) and International Financial Reporting Standard (IFRS) 15: Revenue from Contracts with Customers implemented changes in which membership dues revenue is recognized. 

Under the new standard, the member benefits specified in the membership agreement embody goods and/or services that the nonprofit has promised to transfer to members. These promises are deemed “performance obligations”, and the transaction price for each good/service must be accounted for when recording membership dues.

For example, if an association charges annual membership dues of $250 and as part of their annual dues members receive four journals throughout the year and free admission to the organization’s annual fundraising event, the cost associated with each of these goods and services must be calculated and accounted for separately. Assuming the organization normally charges $20 per journal and admission to the annual fundraising event is typically sold at $50, the $250 annual membership due would be initially accounted for as such:

Debit

Credit

Cash

$250

Deferred Revenue -Membership Dues

$120

Deferred Revenue – Publication Sales

$80

Deferred Revenue – Event Fees

$50

Previously, generally accepted accounting principles would simply classify the full $250 payment as deferred membership dues, and each month, the accountant would recognize 1/12th of the total dues ($250) as revenue.  Now, because the dues are bifurcated based on the benefit received by the member, the accountant would recognize 1/12th of the deferred membership dues each month, recognize $20 in publication sales in the month in which the member receives one of the journals, and $50 in the month in which the fundraising event takes place.  

Although this new accounting standard does require organizations to more carefully exam their member benefits and add a value to each benefit and some additional work for the accountant in processing the monthly revenue recognition since the revenue will vary each month depending on the benefit provided to the member, the organization (and public) will be able to more easily articulate how revenue is being generated for the organization.  

Given that assigning a value to each member benefit may be less straightforward than the example presented above, it is important for organizations to fully document how they derive the value of each benefit.  This will be especially important during the organization’s annual financial audit where justification may be requested by the auditors. In most cases, organizations should try and look at the value that would be charged to non-members for that particular good and/or service being received by the members as a part of their membership dues.


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