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The Nonprofit Minute – Cynthia Cox – Prepaid Tuition and Other Receipts, by Cox and Associates CPAs, LLC

The Nonprofit Minute – Cynthia Cox – Prepaid Tuition and Other Receipts is a FREE course courtesy of Cox and Associates CPAs, LLC

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Hi. I’m Cynthia Cox, with Cox and Associates, CPAs LLC, and this is The Nonprofit Minute. What do you do with prepaid income?
It’s a little bit of a misnomer there.
But, when you have income that’s paid in advance for tuition, camp fees, maybe it’s a fundraising gala, what do you do with that income?
Where do you record it?
Well, first, let’s talk about what Generally Accepted Accounting Principles do with unearned income.
It’s the proper term, according to GAAP.
If you have said in your contract on your tuition that it is refundable up to the first day of school or another condition is met, whatever that condition you set is, then, that is unearned income on your general ledger until that condition is met.
And another thing, usually there’s a registration fee, or an application fee, associated with that tuition or that camp.
Those are typically non-refundable and go in tuition in the current year, and then the tuition or those type of fees are refundable and those would be an unearned income.
But, let’s talk pragmatically because that’s the theory.
How do you as an organization handle fees paid in advance?
The most important concept is you have to hold that money in reserve in your bank account to be used when those expenses come along and can be matched with the income.
You need to make sure that you protect yourself.
Don’t spend that money ahead!
But, keep that money for when you need it.
And, that’s wise counsel in cash management.
The moral of this story is watch what accounting period you record your income in.
Follow those accounting rules.
But, most importantly, make sure your cash follows the expenses and you keep things in reserve.
I’m Cynthia Cox with Cox and Associates CPAs LLC, and we look forward to serving you and helping you have good cash flow management.

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