Accounting the annual subscription for online software servi

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Chandra (Querist)
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30 April 2013 Company is providing online information sharing service by collecting annual Subscription. In this case
1. how to account this income as the amount collected for one year. Can we treat this as sales.
2. When to service tax?
3.How to issue the invoice to customers?(where we have to indicate the service tax portion collected)
4. If company collects the annual subscription in the month of February (feb13 to jan14) will it be considered as income for current financial year (12-13)?

I need clarity on the above questions.

Regards.

CA Ravi Kumar Murugesh

CA Ravi Kumar Murugesh (Expert)
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30 April 2013 1.This is not sale as this is a service provider company. This is to be treated as Income. One year subscription collected is to be shown as income, if that period falls with in that financial year.
2.Service tax has to be collected separately on this income, if not collected means, fees collected is to be devided with 112.36*12.36 and the service tax should be paid to gvot.
3.All invoices issued should show a separate indication about service tax collected.
4.Only that much income pertaining to the financial year is to be considered as income for that financial year under accrual basis of accounting. If your company is following cash basis of accounting, treatment will be different.

Chandra

Chandra (Querist)
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30 April 2013 Sir,

Thank you for your quick reply. I have few more queries.
1. I need journal entry for
- Receipt of Income
- Adjustment of Income towards expenses (monthly adjustment)
2. We will be issuing only one invoice when we receive payment by indicating the service tax portion. Can we record a sales to issue invoice. If not what should be the accounting entry in books of accounts.
3. Do we need to Adjust Income towards expenses (monthly adjustment) customer wise or one entry for all the customers is fine.

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Chandra

Chandra (Querist)
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30 April 2013 Sir,

Thank you for your quick reply. I have few more queries.
1.I need journal entry for
- Receipt of Income
- Adjustment of Income towards expenses (monthly adjustment)
2.We will be issuing only one invoice when we receive payment by indicating the service tax portion. Can we record a sales to issue invoice. If not what should be the accounting entry in books of accounts.
3.Do we need to Adjust Income towards expenses (monthly adjustment) customer wise or one entry for all the customers is fine.

Regards.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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14 July 2024 Let's address each of your queries step by step:

### 1. Journal Entries:

#### Receipt of Income:
When you receive income, typically for services rendered or goods sold, you would record it in your books. Assuming the income received is inclusive of service tax (considering GST now instead of service tax), here’s the journal entry:

- **For Cash Receipt:**
```
Bank Account Dr
Income Account Dr
GST Output (if applicable) Dr
To Sales (or Service Income) Account Cr
```

- **For Receipt of Cheque:**
```
Bank Account Dr
Income Account Dr
GST Output (if applicable) Dr
To Accounts Receivable (Customer) Cr
```

#### Adjustment of Income towards Expenses (Monthly Adjustment):
At the end of each month, you may need to adjust income towards expenses or provisions. This is typically done to match revenues with expenses incurred in the same period (accrual basis). Example journal entry for monthly adjustment:

- **Accrual of Expenses:**
```
Expenses Account Dr
To Income Account Cr
```

This entry reduces the income and recognizes the expense in the same accounting period.

### 2. Recording Sales and Issuing Invoice:

If you issue only one invoice when payment is received (which includes GST), you can still record the sale at the time the service is provided or goods are sold. The journal entry to record the sale when it occurs would typically be:

- **For Sale (Service Provided):**
```
Accounts Receivable (Customer) Dr
To Sales (or Service Income) Account Cr
To GST Output Cr
```

- This records the revenue (sales) and the corresponding GST (output tax) liability.

### 3. Adjusting Income towards Expenses (Customer-wise or General):

It depends on your accounting practices and the level of detail you need for tracking expenses against income. Generally:

- **Customer-wise Adjustment:** If you want to allocate expenses directly to specific customers, you would make adjustments accordingly. For example, if you incur specific costs directly related to serving a particular customer, you might allocate expenses customer-wise.

- **General Adjustment:** If expenses are more general or administrative in nature and not directly attributable to specific customers, you can make a general adjustment to allocate expenses across all income. This simplifies accounting but may not provide detailed customer profitability analysis.

### Conclusion:

- Ensure your journal entries accurately reflect the income received, adjustments towards expenses (monthly accruals), and the issuance of invoices.
- Customer-wise adjustments are useful for detailed tracking and analysis, but general adjustments can suffice for administrative or overhead expenses.
- Always comply with applicable tax laws and regulations when recording sales and GST.

For specific scenarios or detailed guidance tailored to your business, it's recommended to consult with a professional accountant or financial advisor. They can provide advice based on your specific circumstances and ensure compliance with accounting standards and tax regulations.