Payment vs Fees
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Payment vs Fees There can be a real imbalance caused by classifying members
contributions as fees, if the amounts so classified don't approximate the
expenses that they are meant to cover.
A question was recently asked ......
Can any one tell me why when you enter dues
for two people say, $500 and $1000 plus a $25 fee from each, the cash balance is
proportional to the amount you have contributed. If you with draw $25 for a club
expense the member with the higher amount get less taken out. I know this may
sound crazy but this is driving me nuts.
Ok, one step at a time. Able contributes $500 and gets 50
units. Baker contributes $1,000 and gets 100 units. Now, each of them put in $25
as fees. Let's look at where we are at this point. No units were issued for the
$50 in fees. So we have total assets of $1,550, of which Baker owns 2/3 or
1033.33, and Able owns 1/3 or 516.67. Whenever fees are put in, the members with
higher ownership get the most benefit. Now, if we pay out expenses of $50, Baker
gets hit with 2/3 or 33.33, and Able is stuck with 1/3 or 16.67. Subtract these
amounts from the results right after the fee was deposited, and you get Baker
with 1,000 and Able with 500.
So what has happened. They each put in $25 and a $50 expense
was incurred. Since they are worth what they were at the start, you could say
they have borne the $50 expense equally. That is what the use of fees is
designed to do.
But, in the example that you gave, the expenses were only half
of the fees that were contributed by each member. So Baker, in effect, got some
of Able's fee money. This points out that if you are trying to have each member
pay an equal share of certain expenses, it is very important that you do not
assess fees for more than those expenses. Otherwise, the rich get rich and the
poor get poorer.
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