The correct option for the treatment of subscriptions in arrears is A: "Credited to the income and expenditure account and shown as a liability in the balance sheet." Detailed Explanation Understanding Subscriptions in Arrears: - Subscriptions in arrears refer to amounts that members or subscribers owe to an organization for services or benefits that have already been provided but have not yet been paid. This situation often arises in clubs, societies, or non-profit organizations where members pay annual fees. Why Option A is Correct: 1. Credited to the Income and Expenditure Account: - When subscriptions are in arrears, it means that the organization has recognized the income that it expects to receive from its members. Therefore, the amount of subscriptions in arrears is credited to the income and expenditure account. This reflects the income that has been earned but not yet received in cash. - For example, if a member owes $100 for their subscription, this amount is recognized as income even though it has not yet been collected.

1. Shown as a Liability in the Balance Sheet:
2. Since the organization has not yet received the cash for these subscriptions, it has a claim against the members. This claim represents a liability for the organization because it is an obligation that the members need to fulfill.
3. In the balance sheet, subscriptions in arrears are recorded as a liability under current liabilities, indicating that the organization expects to receive this amount in the near future.

Why Other Options are Incorrect: Option B: "Debited to the income and expenditure account and shown as an asset in the balance sheet." - This option is incorrect because debiting the income and expenditure account would imply that the organization is recognizing an expense rather than income. Subscriptions in arrears are not an expense; they are income that has not yet been received. - Additionally, showing subscriptions in arrears as an asset is misleading. Assets represent resources owned by the organization, while subscriptions in arrears are amounts owed to the organization, which are liabilities. Option C: "Credited to the income and expenditure account and shown as a liability in the balance sheet." - While this option correctly states that subscriptions in arrears are credited to the income and expenditure account and shown as a liability, it is not the best answer because it does not specify the nature of the liability. It is important to clarify that these are amounts owed by members, which is why option A is more precise. Option D: "Debited to the income and expenditure account and shown as a liability in the balance sheet." - This option is incorrect for the same reason as option B. Debiting the income and expenditure account would indicate an expense, which is not the case for subscriptions in arrears. They are income that has not yet been received, not an expense. Summary of Key Points:

• Subscriptions in arrears are amounts owed by members for services already provided.
• They are credited to the income and expenditure account as they represent income earned.
• They are shown as a liability in the balance sheet because they are amounts that the organization expects to receive.
• Understanding the correct treatment of subscriptions in arrears is crucial for accurate financial reporting in non-profit organizations.

Revision Summary:

• Subscriptions in arrears are amounts owed by members for services already provided.
• They are credited to the income and expenditure account, reflecting earned income.
• They are recorded as a liability in the balance sheet, indicating expected future cash inflows.
• Correct treatment ensures accurate financial statements and compliance with accounting principles.