USA Membership dues - A/R

[quickenz]

i understand A/R are created when credit is extended or services are rendered for future repayment. i have however recently become treasurer for my local chamber of commerce and have discovered what i believe to be the mistreatment of unpaid membership renewal dues. they have historically treated this item as A/R even though they cut off the member from all chamber benefits the day after their membership has expired. even though i have extensive experience with financial statements with for profit companies, i am not an accountant and have had limited interaction with non-profits. Please advise if the treatment of unpaid membership renewal dues as A/R is proper. it should also me noted: there is no contract signed prior to the renewal nor is the member bound to renew their membership, the only action taken is an invoice is generated and sent to the client.

thanks,
q

 

[kirby]

You are correct in your assessment that treating receivables from expired memberships as collectable is wrong (and dumb). Makes more sense to write those off at some earlier point, for example if it is unpaid 90 days after the invoice was sent.

 

[bklynboy]

If there is no language when the customer signs the initial membership that requires automatic renewal (called a "evergreen clause"), then no you should not recognize any receivable prior to the renewal being agreed to. If the initial contract has language that renewal is automatic, then a receivable is required, subject to a valuation allowance for expected amounts that will not be received. Review the contract and see what the language states as my experience is that evergreen clauses are quite common in these circumstances which is why invoices are likely being sent.

I would also point out that your comment "i understand A/R are created when credit is extended" is not correct. Extending credit is an off balance sheet item and does not signify a receivable until such time as the credit is used.