A prepaid annual membership can put cash in the bank months before the studio earns all the revenue. In this example, the January books close with USD 1,170 in cash and USD 10 in profit. A cleaning invoice has already reduced January profit, but its planned February 5 payment has not yet reduced the bank balance.
The useful next step is a dated cash schedule: identify what has already cleared the bank, list what is expected next, and carry the closing balance forward. The SEC's financial-statement guide explains why income and cash flow answer different questions and why changes in operating liabilities help reconcile them.
This article continues the small accrual example in the fitness studio bookkeeping walkthrough. All amounts are invented teaching assumptions in USD. It is a transaction slice, not a complete studio budget or a recommendation for membership pricing.
Establish the January cutoff
The example starts with zero balances. On January 1, 2026, one customer pays USD 1,200 for access from January 1 through December 31. The studio provides the same access service throughout twelve equal monthly service periods, so USD 100 is earned for January.
There is no joining fee, session package, bundled product or separate performance obligation. The example assumes no freezes, cancellations, refunds, discounts, payment fees, indirect taxes, financing adjustment or other transactions. The full USD 1,200 reaches the bank. These are accrual-accounting teaching assumptions; they do not establish a studio's tax treatment.
The accounting principle is supported by FASB's original Topic 606 amendments: paragraph 606-10-45-2 addresses payments before service, while Example 18 describes evenly provided health-club access. That illustration bills monthly; annual payment in advance is our own cash-timing assumption. The PDF is the original amendment, not the current consolidated Codification. Different contract terms require their own recognition analysis.
Four events determine the January close:
| Date in 2026 | Event | January accounting effect |
|---|---|---|
| January 1 | Collect the annual membership payment | Cash and deferred membership revenue increase by USD 1,200 |
| January 10 | Pay for supplies fully consumed in January | Cash decreases by USD 30; supplies expense is USD 30 |
| January 31 | Receive an unpaid invoice for cleaning completed in January, due February 5 | Cleaning expense and accounts payable increase by USD 60 |
| January 31 | Recognize January's access service | Deferred revenue decreases by USD 100; earned revenue increases by USD 100 |
The companion ledger posts activity only through January 31. The February 5 payment below is a plan prepared at January 31, not a transaction already recorded in that ledger.
Roll cash forward from the bank movements
For every row, use the same equation:
Closing cash = opening cash + receipts − payments.
The next row opens with the previous row's closing cash. Amounts below are USD; “actual” means a recorded movement in this fictional example, not a real studio's results.
| Date and status | Opening cash | Receipts | Payments | Closing cash |
|---|---|---|---|---|
| January 1, 2026 — actual membership receipt | 0 | 1,200 | 0 | 1,200 |
| January 10, 2026 — actual supplies payment | 1,200 | 0 | 30 | 1,170 |
| January 31, 2026 — actual close, no bank movement | 1,170 | 0 | 0 | 1,170 |
| February 5, 2026 — planned cleaning payment only | 1,170 | 0 | 60 | 1,110 |
January's bank calculation is USD 0 + USD 1,200 − USD 30 = USD 1,170. Neither recognizing the USD 100 revenue nor recording the unpaid USD 60 invoice moves cash on January 31.
For February 5, the forecast is USD 1,170 + USD 0 − USD 60 = USD 1,110, if that payment occurs and no other cash moves. Keep this row labeled planned until the payment is made and reconciled. If its date or amount changes, update the forecast and preserve the original plan for comparison.
Paying the cleaning invoice would reduce cash and clear accounts payable. It would not create a second cleaning expense, because the service was already expensed in January. Nor would paying that bill recognize February's USD 100 of membership revenue on February 5. February service recognition is outside this January ledger's cutoff.
Explain why cash and profit differ
January's income calculation uses the service earned and expenses incurred in that month:
| January result | Amount in USD |
|---|---|
| Earned membership revenue | 100 |
| Supplies expense | 30 |
| Cleaning expense, including the unpaid invoice | 60 |
| Total expenses | 90 |
| Profit: 100 − 90 | 10 |
At the same close, deferred membership revenue is USD 1,100, and accounts payable is USD 60. The balance sheet therefore reconciles:
USD 1,170 cash = USD 1,100 deferred revenue + USD 60 accounts payable + USD 10 current-period profit.
Starting from zero balances, the cash-to-profit bridge is:
USD 10 profit + USD 1,100 increase in deferred revenue + USD 60 increase in accounts payable = USD 1,170 increase in cash.
The deferred-revenue increase reflects cash collected for service still to be provided. The payable increase reflects an expense already counted in profit but not yet paid. These two timing differences explain the bank balance without treating the entire advance receipt as earned revenue.
The USD 1,100 deferred balance measures the remaining service obligation in this example. It is not automatically a refund amount or a prescribed cash reserve. Likewise, subtracting deferred revenue from the bank balance does not determine what an owner can safely withdraw: payment commitments and the cost of providing the remaining service still need a forecast.
Expand the small schedule into a useful studio plan
The forecast's USD 1,110 closing balance includes only the listed cleaning payment. It says nothing about whether the remaining year of access can be funded. To plan your studio's cash, add the commitments and expected collections that this teaching slice deliberately leaves out.
For each item, keep a date, an amount, the evidence behind it and a status. A signed lease, issued invoice, payroll schedule or processor settlement record gives you a different basis from a hoped-for new membership sale.
| Item to add | Planning question |
|---|---|
| Rent and facility bills | On which dates will the bank payments occur? |
| Payroll and contracted instruction | Which pay dates and scheduled classes create commitments? |
| Existing member collections | When is cash expected to settle, including failed or delayed payments? |
| Future prepaid memberships | Which receipts are supported, and what future service do they require? |
| Supplies, maintenance and equipment | Which purchases are committed, and which can be rescheduled? |
| Debt and other obligations | What principal, interest and other payments are due within the horizon? |
Use your records to estimate timing. Do not assume every gym has the same seasonal pattern or that a January receipt will repeat in every month. Revenue recognition of the existing prepaid membership does not itself create another bank receipt.
Choose a minimum cash balance based on your upcoming commitments and the scenarios you need to withstand. Test a later collection date or an additional necessary payment and see which week reaches that floor. A universal percentage of revenue or number of months cannot substitute for the dated obligations in your own plan.
Move the plan into the existing 13-week workbook
The 13-week cash-flow forecasting guide provides a workbook with separate Forecast, Baseline, Actuals and Variance sheets. Its shipped example uses a different company and different dates. It is not a prefilled fitness-studio continuation or an automatic bank connection.
Use its setup instructions to adapt the workbook:
- Replace the sample dates and amounts. Choose your forecast horizon, enter your reconciled opening bank cash, and replace the sample receipt and payment inputs with your own dated plan. Preserve the workbook's formula cells.
- Capture a dated baseline. Save the plan as values on Baseline and label its version and as-of date. Preserve it when expectations change so you can compare results with the plan you actually made.
- Replace the sample actuals. Clear the supplied company's entries and enter your own bank movements for completed weeks on Actuals. Line up the dates and reconcile closing cash with the bank. Enter a genuine zero where no cash moved; leave unobserved periods incomplete.
- Compare actuals with the baseline. Use Variance to identify differences in receipt amounts, spending and timing. Explain a late collection separately from a lost sale; they can require different revisions to the coming weeks.
- Update future estimates. Revise Forecast as evidence changes and follow the guide's instructions for rolling the horizon. Keep the baseline comparison available instead of overwriting it with actual results.
The cleaning bill illustrates the separation: it appears in the January accounts payable balance, in the plan for a February 5 outflow, and in bank actuals only after payment. Those are three views of the same obligation, not three expenses.
Keep cash planning connected to the books and the schedule
At each review, reconcile the opening bank balance, check upcoming collections and payments, and compare the newest forecast with your chosen cash floor. At month end, reconcile earned revenue, deferred revenue and unpaid bills as well. The bookkeeping walkthrough explains that close in detail.
For the separate question of how many memberships cover a month's service costs, use the fitness studio profitability example. Its monthly contribution and capacity model helps evaluate the membership target. This cash schedule tells you when the resulting commitments and receipts are expected to reach the bank.
