User Support Forum

New PC user. I can't seem to wrap my brain around why the restricted fund expense accounts close to Unrestricted Net Assets and not the restricted funds' equity accounts. I'll make the change and see if my balances correct themselves, but I sure would like to understand it. Does the same hold true for the restricted income accounts and release restricted accounts as well?

One way to think of it is that the Income is restricted in order to honor a donor request, and to give a tax-deduction for the contribution. (the idea of restriction is because of the IRS and how it affects the income tax requirements of the donor).

Someone gives $1000 and requests that it be used toward a $20,000 building project, for example.

The $1000 is what it "restricted". When your church cuts a check for $1000 toward sheetrock for the building, there is no tax implication on that purchase. They could have bought $1000 worth of paint, or carpet, or whatever. The church isn't required to pay (income) tax so their purchases are irrelevant with regard to restriction.

So, you keep track of the restriction on the income, not on the resulting expense.

Normally the income for the restriction and its release account both close to the same 3000's account.

Example:
4210 Youth Income (puts money into the restriction)
4810 Youth Release (takes money out of the restriction)
3210 Youth Equity (the restricted balance of the Youth Departments money)

4210 and 4810 both close to 3210.

Money comes in:
DB bank
CR 4210

Money goes out:
CR bank
DB 4810
CR 4999 Released from restriction (this account closes to the unrestricted equity
DB expense (closes to the unrestricted equity)

This last transaction shows that money was released from the restriction, moves it into unrestricted where it is then taken out by the expense. Setup this way, the expense has to close to the unrestricted equity because if it closed to the 3210 it would double any money taken out. So instead of say $50 coming out, it would show that $100 came out.

Thank you, Zaina, your answer is enormously helpful. On to the next question!

Following up on this, Zaina, do I understand it right that the Fund Income and Fund Release both close to the Fund Equity Account, and the Fund Expense and the Permanently Release both close to the Operating Fund Unrestricted Net Assets account?

05-4210 Youth Income
05-4820 Youth Release

both close to 05-3210 Youth Equity

05-4999 Released from restriction
05-5510 Youth Expense

both close to 01-3110 Unrestricted Equity

Or should the 5510 Youth Expense not be in the Fund at all? Set up this way won't we get a Funds are out of balance or a You're using more than one Fund warning message?

Eduardo wrote: 05-4999 Released from restriction
05-5510 Youth Expense

both close to 01-3110 Unrestricted Equity

Or should the 5510 Youth Expense not be in the Fund at all? Set up this way won't we get a Funds are out of balance or a You're using more than one Fund warning message?

If the accounts are in the 05 fund as shown above, then there should be an 05-3110 that the 4999 and 5510 close to. You won't be able to close to the 01 fund. So the unrestricted equity account needs to also be in the 05 fund. This keeps the 05 in balance.

Okay, that seems to work! Thank you very much.