Free membership recording

21

You should not. Accounting processes record only what is, not what might be.

You should read the responses already posted.

22

I read them and it is quite confusing since there are different points of view.
I at the end didn’t clearly understand. I guess I will apply a revenue recognition approach when awarding the price if it happens and make a promotional expense for the free membership pass

23

You need to talk to your accountant as there will be tax implications

24

The tax implication is ok for me as long as I am doing the correct thing in my books

25

The “different points of view” were different suggested methods to record (or not record) events that will have no impact, regardless of which point of view you adopt. They were originally offered under the assumption there would be no tax implications.

The correct thing in your books will depend on whether there are, in fact, tax implications. It is not a matter of doing your accounting correctly and then deciding what to do about taxes. You must answer the tax question first. To know whether there are tax implications, and what they are, you should talk with your accountant as @Joe91 suggested. That is not information you should get from anyone on the forum. But, if there are tax implications, we can tell you what to record and how to do it.

26

From an accounting perspective, you only have ONE alternative, do nothing as others have suggested.

The granting of the life time membership is a one off event which provides FREE entry as and when the customer decides. The gym hasn’t incurred any ACTUAL cost in creating that membership, therefore there aren’t any accounting outcomes.

Furthermore, you can’t create accounting transactions based on predicting the customer’s future behaviour - gym usage, After winning the life time membership, the customer may only use that membership for one week, one month, one year or decades. They may even move cities.

Besides, creating artificial income (valuing the members usage) is contrary to the accounting standards because you are bloating turnover with non-receivable revenue, regardless of it being offset by an artificial promotion expense.