Membership dues are a primary source of revenue for associations and other membership-based organizations. Here’s how to recognize this revenue properly.
Membership dues likely make up a large portion of your association’s revenue. They allow your organization to provide compelling membership benefits and form a community of like-minded individuals united by their shared professions or interests.
However, recognizing dues revenue can be a complex process. As Strategic Association Solutions’ Accounting for Nonprofits guide explains, “Members pay dues on a recurring basis. That means membership-based organizations need to understand how to manage recurring payments, recognize deferred revenue, and keep track of lapsed memberships and unpaid dues.”
This guide will provide some membership dues revenue recognition best practices so your association can stay organized, remain compliant, and adhere to nonprofit accounting standards.
Membership dues are considered an exchange transaction, meaning that your members pay dues, and in exchange, your association provides membership benefits. Under Accounting Standards Codification Topic 606 (ASC 606) issued by the Financial Accounting Standards Board (FASB), organizations accounting for exchange transactions must break down these transactions into separate performance obligations.
In this case, performance obligations are each benefit you provide to members. These may include:
Let’s look at performance obligation allocation in practice. If your annual membership dues are $275, you may determine that:
Dividing revenue this way allows you to recognize revenue when associated benefits are delivered, which we’ll review in the next section.
Although members typically pay their dues upfront, you must recognize revenue over time. Until you deliver a certain membership benefit, the dues associated with that benefit are deferred revenue, a liability you’ll track in your balance sheet or Statement of Financial Position.
To properly recognize revenue over time, track performance obligation fulfillment, and update your financial statements accordingly. For example, let’s say your association’s dues are $200 per year, with $100 covering two major annual conferences, $60 covering your monthly newsletter, and $40 covering a quarterly industry benchmarking report.
In this scenario, one of the conferences happens in March, which is also when you send the year’s first quarterly report. Therefore, you would recognize:
On the other hand, you would only recognize $5 for the monthly newsletter in April, as that is the only benefit you would deliver that month. In both cases, you would move the correct amount from deferred revenue on your Statement of Financial Position to revenue within your Statement of Activities.
In an ideal situation, all of your members would pay the full dues amount. However, in certain circumstances, you may provide refunds or have members who lapse early and cancel their remaining dues payments.
The best way to prepare for these scenarios is by creating a refund policy. Developing standard operating procedures for refund acceptance, processing, and recording allows you to confirm:
Whether your association offers partial refunds, prorated refunds, or no refunds
Document all successful refund approvals and transactions, and adjust deferred revenue accordingly. If your association typically receives numerous refund requests, consider setting aside reserve funds to buffer against refunds in your budget.
To ensure you recognize membership due revenue properly, leverage solutions that will support this process. Protech’s association management software guide explains that this type of platform will help you “[t]rack financial performance and analyze data for opportunities to improve efficiency,” whereas accounting software can automate dues recognition for you.
By using these tools, your team will:
Additionally, incorporating these tools into your tech stack will enhance your association’s overarching strategy. In particular, an AMS that integrates with your other platforms helps you manage member relationships, plan events, deliver member benefits, promote your membership program, and analyze program metrics to maximize revenue and engagement.
