I wish to be able to provide my club members with a bonus to use later as a reward if they e.g. pay their membership fee in full by the due date (February each year). I used to discount the fee by e.g. $10.00 if they paid early but I no longer wish to offer a discount but offer a bonus to use later. So, what I want to do is if they pay the membership fee on time is give them $10.00 towards their uniform costs which are not invoiced until later that year. I thought I could just create a credit, but I wasnt sure about crediting for an item that was to be purchased in the future. I also thought I may be able to create a uniform item with negative dollar value if thats possible and invoice that resulting in account going into credit. In effect I am trying to basically give them a $10.00 discount of a future purchase and am trying to work out where & how to record it. I also thought I may be able to create all those early payers as suppliers and for me to purchase this bonus from them and then later be able to offset it against what they owe. I believe these pending bonus payments would show up as a liability until used and then show as a “uniform credit” or some other title when used. Any ideas and help greatly appreciated. I am a novice at this and feeling my way.
The trouble with what you want to do is that your “bonus” is not a financial transaction. No money comes into or goes out of the company. From an accounting viewpoint, you don’t owe the club members anything, because they sold you nothing. They have simply fulfilled the conditions you set for receiving a future discount, and then only if something in the future will actually be purchased by the member from the club. You cannot even extend a discount if the uniform is purchased by the member from an outside supplier.
As for creating early members as suppliers, that will not work. You are not purchasing anything from them.
As for treating these bonuses as liabilities, that isn’t a valid way to think of things either. You don’t owe the member anything because they have not provided anything to you.
The easiest thing to do is treat the bonus as a discount, which is what it is (again, assuming the member is actually buying from the club).
All this assumes the members are not investors in the club entitled to a share of any earnings. That would be a completely different situation in which capital accounts might be appropriate. But it doesn’t sound like that is your situation.
The credit to the member is actually a debit (expense) to the club.
Credit - Membership Fees 100
Debit - Uniform Discount 10 (previously renewal discount)
Therefore as the member is actually paying 100 you can’t “create the credit” as per each member, however:
Yes, initially the bonus would be shown as a potential club liability to the member (not as an actual credit to the member) which is later transferred to the member as a “credit” when the uniform is purchase. On the receipt of the membership you would take up that future liability via a contra entry.
Credit - Accounts Payable - Member X - 100
Debit - P&L - Uniform Discount - 10
Credit - BS - Liability - Future Uniform Credits - Member X - 10
(The Future Uniform Credits account would be setup as a control account made up of Special Accounts so that individual future “credit” for a member can be tracked)
Then when the uniform is purchased the Sales Invoice to Member X would be:
Credit - Uniform Sales - 80
Debit - BS - Liability - Future Uniform Credits - Member X - 10
So that they only owe 70 - and the bonus liability has been extinguished.
If a member don’t collect their bonus within the year, then that liability would be cleared back to the P&L - Uniform Discount account.
A liability does exist. The club does owe the member the bonus as the member did provide by paying their membership in full by the due date - so there exists a contract with a future obligation (liability).
The offer - pay on time to receive a bonus
The acceptance - paying on time
The consideration - membership fee