How to handle unrestricted special contribution?

[Shelley]

I know you all must be tired of me by now.

I am trying to determine the best way to handle funds that come in from members of the youth group to pay for their part of trips and activities. I need to keep track of how much is collected and apply it accordingly to activities in the Youth account. These funds don't pay for the entire activity or trip, just helps to offset it. If I don't put these funds into the Youth account somehow, they look waaaay over budget when they aren't. I know the deacons are going to want to see how much the trip/activity actually cost, how much was collected for it, and how much the church paid for. We don't want this money to count as income in our budget. It is literally passing through, but not being paid to a non-profit organization.

I have thought about and applied some of the ways (Pass through and temporarily restricted.) I have learned over the last few days, but realize that isn't quite right. I currently have it set-up as a sub-account of the checking account the monies reside in, but am not sure this is the best way either. If it is, I am stuck on what account to credit when the funds come in. Do I need a matching income account? I am confused because it is not really income.

Help.....

Blessings,
Sehlley

[JohnDMeyers]

The general rule for using a pass-through account is when you are collecting money that is directly due to another non-profit organization. For example, a missions organization charges $2,500 for a trip. You can have your church members make out checks to your church, and you can cut a check to the other organization.

The general rule for using restricted accounts is when money comes in with a donor-requested restriction. For example, your church wants to take up a collection for a piano, or chairs, or a building, and people designate toward one of those things.

This sounds like neither.

It sounds like youth activities, in general, not another non-profit.

I would set up an income account for youth activities, and take in the money to your checking #1 account:
DB 01-1110-000 Checking #1
CR 01-4180-000 Youth activity income

We have a GROUP ACCOUNT for Youth things, and detail sub-accounts for the various categories of youth.

Now, you will also have a separate set of expense accounts. We structure our expense accounts with the same GROUP ACCOUNT and detail sub-accounts as the income.

There is no standard report that will put the youth income and youth expenses close together. You will have to get used to the standard Income and Expense Report that shows the income on top and expenses on bottom. It is a common frustration for us, and many other churches, but that's the proper way to report it.

[Shelley]

Thank you. So, if I am reading you correctly, I am going to have an account in income called "Youth" and just show it as income like I do "General Contributions?" Simple enough. The deacons will just have to train themselves to look for income and expenses in two different places.

Blessings,
Shelley

[JohnDMeyers]

That is correct.

[Jeff]

You can use sub-accounts to tie the income and expense accounts together. For example, you could use 01-4780-300 for youth trip income and 01-8780-300 for youth trip expenses. the sub-account '300' will allow you to tie the 2 accounts together.

Another choice you might consider is to create a contra expense account. Your chart of accounts would look something like this:

01-8780-300 - Group - Level 4- Youth Trips
01-8780-301 - Detail - Level 5 - Youth Trip Payments
01-8780-302 - Detail - Level 5 - Youth Trip Expenses

You could put the budget on the 01-8780-300 group account, the 01-8780-301 would show a negative balance and would offset the expenses shown in 01-8780-302.

The down side this would not increase the total income shown on the balance sheet, but it is not uncommon to show program expenses as a net of the amount received and spent.

The problem with either of these methods is when the time between collecting the money and using the money crosses and accounting year.

[debbieg]

Shelley,
I have gone through the exact same situation. As already stated here, there are pros and cons to each method. when we first started with PC, i set up separate income accounts for several of these things and used sub-accounts to tie them together. But for the average church member looking at a financial report, it needs to be kept simple. Showing income for "Youth Activiites" in one part of a report and then showing the regular budget expense section elsewhere, didn't really make it easy to see how we were doing in a particular area. Now I just post it directly against the expense account as a credit. For example, the "YOuth Activities" might have a budget line item of $500. If they decide to order Chinese food during bible study one night, the restaurant bill of $50 is entered as a debit against the "activities" account. They collect money from all the kids and get $40 (which is deposited separately from worship offerings). the $40 is entered as a credit against that same expense account. when I run the monthly financial expense report, it will look like $10 was spent for Youth Activities. And in fact, that is exactly what the cost to the church was. It doesn't really matter what the food really cost, just how much did the church have to spend on it.
This may not be proper, formal accounting but it makes things a lot easier to understand for the "average" member. It does cause an ugly problem when the expense was made in one year and reimbursement was done in the next. Luckily, this doesn't happen too often.
Debbie

[Eden Whitehead]

It does cause an ugly problem when the expense was made in one year and reimbursement was done in the next. Luckily, this doesn't happen too often.
Debbie

Debbie, it sounds like you have experienced this "ugly problem"! How did you resolve it?

I'd also be interested to hear what John M. or others have to say about the "proper, formal accounting" aspect of Debbie's approach. (It sure sounds easier than what I've been doing - pending resolution of the "ugly problem" - and makes a lot of sense!)

Thanks,
Eden

[JohnDMeyers]

My opinion is that you can do what Debbie is doing. I am not an accountant, so I don't have a perspective about right and wrong accounting. It will work.

The reason why I wouldn't do that is because I do like to know how much we spent on pizza, for example. By crediting the income to the expense account, it covers up the total expense of the pizza. It does introduce the frustration of having to look in two places to see the income in one place, and the expense in the other.

Debbie can also see this, if she runs an account activity on the expense account.

[Shelley]

Thank you all so much for continuing this discussion. I came back to the forum because I am very dissatisfied with the way I am doing it now. I have an income account called "Youth Collections" where I post all the money collected for various youth activities. Debbie's discussion of the ease of use for the average member is coming into play here. It is not so much having to look in two different places as the poor youth minister looks WAAAAY over budget and he is not. I need to get those funds collected for activities into the same place the expenses are so at first glance (which is what most everyone bothers to look at) shows a realistic picture of what the church is actually spending for youth activities.

Debbie can also see this, if she runs an account activity on the expense account.

John, are you saying the Account Activity report will show Debbie the total of how much was spent on pizza, how much the church kicked in, and how much was collected?

Jeff, thank you for your input as well. That way might work also. How much different is that than what Debbie describes. It sounds almost like the same thing. It is perfectly fine that the money collected for activities doesn't show as income, because to our minds it is not. It is sort of just passing through.

Blessings,
Shelley

[JohnDMeyers]

The account activity report will show the Credits and Debits to the account all in one list.

I don't think it's the ideal way to keep track of things, because the Income and Expense statement will only show the net of Credits and Debits.

[Shelley]

I am back to leaving the collections for youth activities and fundraisers as income. It is is just more logical to me. So, I haven't changed anything yet (money collected for youth activities is currently in an income account), but I am still running into the problem of a way to easily show the deacons who review expenses that we have collected income to offset most of the very high youth expenses.

Below is a quote from Jeff.

You can use sub-accounts to tie the income and expense accounts together. For example, you could use 01-4780-300 for youth trip income and 01-8780-300 for youth trip expenses. the sub-account '300' will allow you to tie the 2 accounts together.

I am a little bit lost. You know, that lack of experience and accounting thing. What is the benefit of using sub-accounts to tie the income and expense accounts together? How is that different than just an income account for Youth Collections 01-4050-000 and the Youth expense account 01-6440-000. If they are tied together as Jeff describes, can I just run reports for sub-accounts xx-xxxx-300? Should I have thought this far ahead (sub account numbers matching) with everything in my Chart of Accounts?

Lastly, if I create income sub-accounts to tie in with youth expense accounts can I just move the money from the current income account to the appropriate income sub-accounts with journal entries? I hate reversing transactions. It is so very cluttered. There are only 10 transactions to deal with. It could be worse.

Blessings,
Shelley

[NeilZ]

Shelly,

using a sub-account allows you to use the Sub Account Report which is not available for primary account numbers, that is, those ending in -000.

You can specify in the report to pull only sub accounts with a 300 suffix, this will only pull data on those youth accounts you have ending in that number.

So, if you have the income and expense linked in such a way, you can show the finance committee that yes, youth is spending $300, but we've also received $350 to offset that cost; all on one sheet of paper.

[Shelley]

Well, that is just too cool and certainly sounds like the solution I am seeking. Thank you for the explanation and thank you Jeff for bringing it up.

Blessings,
Shelley

[Eden Whitehead]

Well, that is just too cool and certainly sounds like the solution I am seeking. Thank you for the explanation and thank you Jeff for bringing it up.

Blessings,
Shelley

Shelley, Some time down the line, if it's not too inconvenient, I'd be interested in hearing how that works out for you.

Thanks,
Eden

[Shelley]

I will keep you posted.