When set up for accrual accounting, QuickBooks will recognize revenue as of the transaction date assigned. For example, if an annual dues invoice is dated January 1st, QuickBooks will recognize all the revenue on that day.
We have found that there are many different approaches to recognizing dues revenue. Ultimately the "right way" will be the one that works best for you as well as for your CPA.
Below, we have outlined a few of the methods our customers use for recognizing dues revenue. The information is provided to serve as a starting point as you look to develop your own dues revenue recognition procedures.
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Mapping Dues to Deferred Revenue Accounts
Before we can talk about recognizing deferred revenue, we have to make sure that settings are in order, both in QuickBooks and in Novi.
Each member type will have a series of dues rules that may or may not apply to particular members based on the conditions set for the dues rule.
In addition to conditions and dues formulas, each dues rule must be mapped to a QuickBooks item (Product or Service). Novi will use this mapping to create the line items on your dues transactions.
For most of the revenue recognition approaches discussed below, the items mapped to your dues rules should be mapped to a deferred revenue account in quickbooks.
Here's an example of the mapping:
Liability Account >> Item (Product/Service) >> Dues Rule
Deferred Dues >> New Supplier Dues >> New Supplier
Pay attention to the transaction date assigned to renewal transactions. This is assigned for each member type on the Member Types > Settings tab. Most of our Novi customers set the transaction date to coincide with the first day of the new term. To do this, set the transaction date for renewals to "1 day after expiration."
Tips:
Make sure that you have QuickBooks items in place for each type of dues income that you would like to track separately. Novi will allow you to map many dues rules to a single QuickBooks item, so it's up to you how detailed or streamlined you'd like your accounting to be.
Typically, deferred revenue is managed in QuickBooks Online using a series of Other Current Liability GL accounts. Many of our customers will have a deferred account for each one of their income accounts.
Calendar Year Dues, Recognized Monthly
Novi AMS customers who process dues renewals once per year based on a calendar date typically set members to expire on 12/31 of each year, so their membership terms run from 1/1 to 12/31. In almost every instance, this term will also coincide with their fiscal year.
Learning from Your Peers
Mark Sullivan, Controller for the Atlanta Apartment Association has extensive experience with both Novi AMS and QuickBooks. His organization runs on an accrual basis, and his dues renew on a calendar year that coincides with his organization's fiscal year. He manages his organization's monthly revenue recognition using a Deferred Dues Realization Report Template that he created. Mark shared the report with us so that our other Novi customers could benefit from it.
You can learn more about Mark's process and hear from other Novi customers in this revenue recognition deep dive:
The Process
Monthly journal entries pull the revenue out of the deferred liability account and recognize it in the appropriate GL account, in the appropriate month.
Using the template below throughout the entire year, AAA uses their Deferred Dues Realization Report to calculate how much dues revenue needs to be recognized each month.
The Report
Download example Year-End Completed Report (pictured above)
In this report, rows 10 - 31 represent new dues income and renewal dues income by month. Throughout the year, each month, add your dues income to column B ("amount"), and then formulas throughout the spreadsheet will automatically calculate how much to be recognized each month.
Using rows 33 and 34 (or row 35 if you don't track new and renewing dues income separately), you'll quickly know how much revenue to recognize each month.
Report Tips
Each month, save the report with a new name to keep snapshot of your work in case you ever need to go back.
Customize the report to fit your needs. For example, use the cells below each month to track your Journal Entry numbers.
If your dues renew based on a different calendar date, this section will still apply as long as long as you adjust the dates.
A huge thank you, again, to Mark and the Atlanta Apartment Association for sharing this report!
Calendar Year Dues, Recognized Annually
Associations with calendar year dues renewals that wish to recognize revenue on an annual basis have a couple of options. Many of our Novi customers will simply set the dues transaction date for renewals to be "1 day after the expiration date" which is effectively the first day of the membership period.
Some organizations will chose to date the dues transaction earlier than the expiration date. In this case, you'll want to use deferred revenue (liability accounts) to capture that revenue and recognize it once the dues period begins.
Things to Consider
When members join towards the end of one year, how do you want to recognize that revenue? Do you leave the revenue in that first calendar year? Or do you push some of it into the next? You may want to discuss this with your accountant.
If your calendar year membership period does not line up with your fiscal year, you may want to scroll down to the "Anniversary Dues, Recognized Annually" section for inspiration.
Anniversary Dues, Recognized Monthly
For accrual based organizations whose dues renew on an anniversary basis, your revenue recognition will look somewhat different. We have worked with a number of our customers to come up with the following set of best practices. Please note that every organization is different, so it's important that you find the workflow that is right for you... and one that is approved by your CPA.
Basic Workflow
Map your dues items (products & services) to deferred revenue accounts
Each month, run a Sales by Product/Service Detail report in QuickBooks on an accrual basis.
Enter the sales for each product into a spreadsheet like the one below. The spreadsheet should take that month's sales for each item and spread them out over 12 months.
Create a journal entry that recognizes that month's revenue based on the numbers in the spreadsheet. The journal entry will debit the deferred revenue liability account and credit your dues revenue account.
Tips
Many of our customers will take monthly snapshots of a report like this so that they always have a historical record to lean on. Some may even drop a copy of the excel file onto the journal entry itself in QuickBooks.
If your revenue recognition process seems overly complex or burdensome, talk to your CPA or auditors about finding a more straightforward solution. We have seen a number of accountants work with their customers to simplify workflows, especially when they determine that changes are immaterial.
Revenue Recognition in QuickBooks Online Advanced
In late 2022, QuickBooks launched native revenue recognition in their QuickBooks Online Advanced platform. Once the setting is enabled, QuickBooks will allow you to setup a service interval and duration for each item. From there, QuickBooks will automatically create journal entries based on a set frequency and reconcile at the end of every month.
Items can be Identified for Revenue Recognition
Recognition Schedules are Created for Invoices and Sales Receipts
Major Downside - Credit Memos are Manual
Native revenue recognition is in its infancy within QuickBooks. The Novi team was able to meet one of the Intuit team members who lead the design effort in December of 2022. We were thrilled to see the feature being introduced, even if it was just for their premium "Advanced" customers. However, we voiced our concern when we learned that the feature had not been ported to credit memos or refund receipts.
Given that QuickBooks' schedules do not factor in your credit memos, you would need to do some manual accounting work to accommodate for them. This manual work is the reason why the Novi team isn't actively recommending this Native QuickBooks feature just yet.
Learn more from the Intuit team
Revenue Recognition with a 3rd Party App
There are a number of QuickBooks apps available that are designed to automatically recognize revenue according to rules that you can setup. These are designed to remove the manual work from the revenue recognition process. The apps require you to provide detailed instructions, and they automate the process from there.
We know that a number of our customers have explored this option for their organizations in the past, yet we're unaware of any who have decided to take this route. Many shared feedback that they believed full automation of revenue recognition was overkill. Some said it wasn't worth the prices, and others said that they didn't trust automation with such an important task.
If you decide to look into automation, please be sure to let us know. If you find an app that works well, other Novi customers may be able to benefit from it.
ASC 606 - Recognizing Dues in Line With Member Benefits
Some larger associations may be instructed by their CPA to follow ASC 606. At its core, this is a GAAP (Generally Accepted Accounting Principles) principle that would require an organization to map out dues revenue recognition inline with the timing of the benefits the organization provides.
For instance, if your organization provided all members with a free conference registration in the month of June, ASC 606 would require that you recognize more revenue in June than in other months that have fewer member benefits delivered.
Most of our Novi customers provide relatively consistent member benefits throughout the year, so all of the monthly revenue recognition examples above assume that each month assumes 1/12 of the year's benefits. If your revenue recognition schedule needs to vary from month to month to comply with ASC 606, you will need to incorporate that math into your own revenue recognition spreadsheet and system.
Accrual Organizations Recognizing Dues on a Cash Basis
Nearly all of our Novi customers choose to auto-renew members. In Novi, this process creates a dues invoice and advances the expiration dates for renewing members. Given that member benefits typically start on the first day of the membership term regardless of whether the dues invoice has been paid, this process works exceptionally well for organizations working on an accrual basis.
A small segment of our customers who work on an accrual basis have been asked by their auditors to recognize dues revenue only when it has been paid. These auditors contend that the organization's dues invoices are in fact "offers to renew" and therefore should not be recognized until the member pays. Often, auditors will take this approach when an organization has an exceedingly high percentage of members who choose not to renew.
Sales by Product/Service on a Cash Basis
To track dues items that have been paid (vs simply billed), you will want to run the Sales by Product/Service Detail or Summary report in QuickBooks and set it to cash basis.
Earning is Not Collecting
Most auditors will argue that in order for accrual based organizations to recognize dues revenue on a cash basis, services must be withheld until payment is made. If your process is to begin offering member benefits regardless of the payment status of the invoice, you will likely be in conflict with accrual accounting practices which require you to book the revenue when it's earned, not when it's collected.
Given that Novi will auto-advance member expiration dates, you may want to use Novi's group functionality to lock down certain member benefits to members who have paid their dues.
Allowance for Doubtful Accounts
If your business practice is to begin delivering benefits at the start of the term, you may want to talk to your CPA about setting up an allowance for doubtful accounts as an alternative to recognizing dues on a cash basis. This approach can be used by organizations working on an accrual basis that want to account for a certain percentage of dues invoices that are traditionally left unpaid.
Member Initiated Renewals
If your organization has significant churn (drops) each year, automated renewals may not be the best option. Instead, you may want to set your member types to renew only when a member or admin initiates a renewal. This is essentially the classic process of sending out emails and other marketing materials that ask your expiring members to opt into the renewal.
Taking a member-initiated approach would remove the accounting concern that a certain number of dues invoices may not be paid. It would also avoid the scenario where a large chunk of membership dues may be carried as accounts receivable.
Additional Resources