Last Year's Benevolence

[Pam]

We accepted monies from our congregation to help someone in need that was a member of our church in late November of last year.

The funds were posted to the contributions module with the offset to the Benevolence expense account with the intention of paying it back out, creating a wash on the line item.

We didn't pay it out until this year, so now the entry appears to be an expense, when actually it was not an expense to us at all.

I'm not sure how to move this entry off, since the expense account zeroed out with the new year.

Can you suggest the best way for me to handle this?

Thanks so much!

[JohnDMeyers]

Let me understand.

Last November you entered the Contribution with a DB to checking and a CR to an expense account?

If so, you actually entered a negative expense, which would increase your fund balance (sorry, I mean unrestricted net assets), at the end of the year.

[Pam]

Yes, I guess that's right. Again, I expected it to be paid out before the end of the year, so did not consider the process that would take place if it were not handled by the end of the year.

Do I need to debit unrestricted net assets and credit the benevolence account?

Thank you for your help!

[JohnDMeyers]

Yes, with a caveat. My account always gives me a stern look every time I try to directly modify an equity account. Therefore, I suggest you check the look on your account's face before you take my advice.

Also, if you make this entry, I would rather see you do this:
DB unrestricted equity
CR restricted income

instead of:
DB unrestricted equity
CR expense

But you would first have to create the Temporary restricted accounts.

[Pam]

I will document EVERYTHING, so maybe my accountant will forgive me for doing this! Actually, we are talking about a very small dollar amount, so I think this will be ok.

I would like to have the expense account at a zero balance. How would I accomplish this, since it sounds like I now need 4 entries to get everything back on track? The expense account has a negative balance since I paid out the benevolence this year, so I will need a credit to that account. What would be my offset, if you do not recommend me using this account as the offsetting entry for the equity account?

I now have a restricted account set up and understand what happened because I had not done this to begin with.

Thanks so much!

[JohnDMeyers]

If your expense account is negative, you will need to debit it (increase it) to bring it to zero.

You have a negative balance in your expense account because you are showing your beginning income balance there.

When you cut the check to pay out the amount, you will do this:
Benevolence Expense DB
Checking Account CR

and it should be zero!

[Pam]

I'm not sure I understand.

Remember that I took the contributions in last year. The expense account zeroed out when I copied over the budget. So last year's credit to the expense account was gone.

I paid out the benevolence this year, which created the negative balance on the expense account.

I have already made the credit to the checking account, I guess I should not have debited the Benevolence expense account. (I did not think about the balance being zero when I paid it out). I think my only option is to credit the Benevolence account and debit the asset account.

Would that be right?

Thank you for your expertise and your patience!

[JohnDMeyers]

You'll have to explain to me which two accounts you used when you paid out of the benevolence fund this year.

Which did you credit? Which did you debit?

[Pam]

I credited the bank account and debited the Benevolence Expense account (assuming that the credit from last year was still in the expense account).

[JohnDMeyers]

If you debited the expense account, you should have a positive amount. Debiting an expense account gives it a positive value.

Did you make the entry that I suggested, where you credit the expense account, and debit the equity account. That would give the expense account a negative balance.

If the check was for less than the total negative amount, I could see where you will still have a negative expense account balance.

[Pam]

I am so sorry! You are so right! There is a debit balance.
I have not yet made any entries. I wanted to understand what I was doing first!

[JohnDMeyers]

Let me give you an example with numbers:

I am assuming the benevolence expense account is zero to begin with.

Let's say there was $100.00 in the account last November and at the beginning of the year, there was zero. (the amount got rolled into unrestricted net income).

I would suggest the following:

To correct the beginning balance:
CR Benevolence expense $100.00
DB unrestricted net equity $100.00

To cut the check:
CR Checking $100.00
DB Benevolence Expense $100.00

The end result will be that $100.00 comes out of checking from last year's balance.

The benevolence expense account ends up at zero.

The unrestricted net equity is corrected to an amount $100.00 lower, which is assumed to be (which is where my accountant frowns) in the checking account.

[Pam]

Mr. Meyers,

You have been so helpful, explaining everything to me. I did not understand that the expense accounts with balances move to the unrestricted net asset account when the new budget is created.

I have learned something through all of this!

Thank you so much for your time and experience, and for seeing me through this, especially at this hour!

I will make the entries tomorrow and then review ALL of the accounts from the previous year.

This is my last entry of inputting everything to the new revised budget for this year, and I was stumped on this one!

Have a great evening!