BIwiki - Club Accounting - Avoid The Double Whammy

Club Accounting

AVOID THIS - Member Fees to Offset an Equally Allocated Expense

This example is about a club that has 12 members and a value of $132,000 as of January. At the February meeting, the partners decide to purchase a portable LCD projector so everybody can see and work on SSGs together at future meetings. The projector will cost the club $1200. The partners decide to split the cost equally. Each partner adds an extra $100 to the usual $100 investment contribution. The treasurer collects $2400, dutifully records a $100 PAYMENT and a $100 FEE for each member. A few days later the treasurer purchases the project and enters an “Equally Allocated Expense” for $1200. The club’s investments as of the February’s valuation are exactly the same in January. To view the transaction analysis, please download or open the attached PDF file.

The partners’ unit ownership levels are different for each of the three studies. In the first case, everybody owns an equal share in the club. Very few clubs actually fit into this model. It is the easy case. It works just like we expect. Each partner’s real share of the projector is $100. The second case is really more typical of my club. We have some partners that have been in the club for 13 years and some that have been with us for only 2 years. The expense analysis shows something that we did not expect. Senior members are paying much less of the expense than junior members. It gets worse. The third case contains a new member, member number 12. When you look at the new member's "Real Share" of the of the $1200 expense, you will see why Rip West calls this the "DOUBLE WHAMMY" effect. The new member pays almost $200. Remember, the original intent was to share the cost of the projector equally, $100 per partner.

Thank you.

Ron Cox, Treasurer

Triad Investors Club

BI wiki

Club Accounting - Avoid The Double Whammy

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