Using restricted funds

[debbieg]

I've just entered my first transaction where i wanted to use money in a temporarily restricted account. I feel like there is still a piece that I am missing. Here is the scenario:

There is a temporaily restricted fund called "Agape fund" that members can contribute to.
there is also a regular budgeted expense account called "Agape". We will always use the designated (restricted) funds first. Here are the journal entries that were entered:

Account #/ Name DEBIT CREDIT
1120 Visa chking acct 39.93
6355 Agape 39.93
4805 Agape Fund 39.93
4999 Released from restriction 39.93

So this shows that is was released but where exactly does it go when it is released? wouldn't I want to show it as a credit to our Agape expense account?
Or do I have to do a release? Can i spend it directly from the restricted account? I thought I understood this until I tried to do a real transaction.
Thanks,
Debbie

[debbieg]

Sorry, that spacing didn't come out too well. the 6355 and 4805 accounts are Debits. The outer 2 are credits.
dlg

[JohnDMeyers]

The piece that is missing is when you take the money as a Contribution.

The Contribution Fund should do this:
DB 1120 Checking
CR 4205 Agape Fund

4805 should be labeled: Agape Fund Release

Here are all the transactions:

Take the money in:
DB 1120 Checking $39.93
CR 4205 Agape Fund $39.93 (closes to 3205, or some number like that)

Spend the money:
CR 1120 Checking $39.93
DB 6355 Agape $39.93

DB 4805 Agape Fund Release $39.93 (closes to 3205, or some number like that)
CR 4999 General Release $39.93 (closes to 3110)

Why? or what does the release do?

You should end up with this:

Income
Agape Fund $39.93 (restricted income 4205)

Agape Release Fund -$39.93 (release 4805)

General Release $39.93 (4999 closes to 3110)

Expense
Agape $39.93


Balance Sheet
[checking will have a positive $39.93 on the deposit and a negative $39.93 on the payment]


[note: the restricted net assets will have a positive $39.93 and then a negative $39.93 on the release]

[debbieg]

The restricted fund (Agape fund) already had money in it. a balance of $82.51 was carried forward from last year and set as the starting balance when I did the accounting setup.
does everything else still remain the same if I don't do the receiving contribution part?
Debbie

[debbieg]

Also, now that I'm looking at my COA, the equity fund for this is 3205. that's the account that show the starting balance of $82.51. Shouldn't that come into the equation somewhere?
I guess I don't really understand where the "release" accounts come into play. It seems like the money should come out of the restricted (equity) fund and go into the normal expense fund where it is then spent.

Debbie

[JohnDMeyers]

It's hard to diagram it using only text.

Let me first answer the "carry over" amount. It's okay to have a "carry over" in your restricted net assets. That will decrease as you release it. If you took in zero this year, and used up all the $82.51, then you will have this on your income and expense statement:

Income
Agape Release (4805) -$82.51
General Release $82.51

any other money that you take in will add to it as I "diagrammed" in the first post.

[JohnDMeyers]

Answering your restriction question.

Once you have your restriction correctly set up with your three unique accounts, and your contribution fund, everything is "normal" except:

when you pay for something using restricted money, you will need to click on the RELEASE RESTRICTION button, which will add the "DB 4805" and the "CR 4999" to the transaction.

The fact that 4805 and 4999 close-to different equity accounts keeps the "equity thing" correctly working.

4805 closes-to 3205
4999 closes-to 3110

You won't need to directly manipulate the equity amounts. Let PowerChurch do that "behind-the-scenes"

[debbieg]

Yes, I did the "release" button and that generated to 4805/4999 transactions that you saw.

then I added the 1120(chkng)/6355(expense) transaction which was the same as you said.

So, since I'm not doing the step where the money was received this month as income, do I need any other transactions?

perhaps i should run some reports and see what comes out.
debbie

[debbieg]

I ran the Balance sheet and it looks like the equity fund balance has been correctly updated. so i guess I've done all those pieces correctly.

[JohnDMeyers]

If you took money in using this transaction:

DB 1120 checking
CR 4805 Agape Release Fund (which you had called Agape Fund)

The only correction you would need to make is this:
DB 4805 Agape Release Fund $amount-of-any-deposits
CR 4205 Agape Fund $amount-of-any-deposits

[debbieg]

John,
bless you for taking the time to answer me on Easter morning.
I'm still not sure I've got it straight. The financial secretary hasn't loaded any contributions for this year yet so I'll have to see where that part fits in when we post the contributions.
have a great Easter!
Debbie

[Bill]

Windows XP Pro OS; PC+10.6+
I have a similar problem to Debbieg; however, I have another complication. We
transfer (as an expense item) monies each month to a "holding acct" for "A/C Replacement"
so that, when budget year changes, we don't lose the unused funds in that budget account
(kind of a backward way of "paying yourself"). So, we transfer via an expense acct (debit)
into an income acct (credit). And, this income acct closes to a fund balance acct set up
just for this A/C Replacement. We also have a 48XX acct set up (for later use when we need
to "release" the monies for spending). I think we also need a liability acct (2XXX credit) set
up so we can take money OUT when we do buy the A/C (we just did that this month ... hence
the hurry up problem). We need the liability acct so that we don't use the SAME expense acct
when we spend the money (essentially, we've already "spent" it by transferring to liability acct ...
if we had one set up). I need some advice????

[JohnDMeyers]

Remember, I am a high-school math teacher, not an accountant.

The purpose of the donor restriction is to be able to honor a donor request and still grant the donor a tax-deductible contribution.

If your church decides to use "unrestricted" money for any purpose, it technically is not restricted. In other words, someone didn't give money to your church and say, "please use this for the air conditioning".

I understand that you want to tuck the money aside. If you are keeping it in the same bank account, but just want to account for it differently, you could create a sub-account in your checking account, and just move the money into the sub-account for tucking it away, and move it back when you need it.

01-1110-000 checking (level 4)
01-1110-101 air-conditioning (level 6)

To tuck the money away:
CR 01-1110-000
DB 01-1110-101

and reverse the DB and CR to move it back.

or, you could create a separate fund with the same account number
03-1110-000 air conditioning checking

you could use a transfer account to move the money:

Create these two accounts:
01-9101-000 air conditioning transfer
03-9101-000 air conditioning transfer

To "tuck" the money away
CR 01-1110-000
DB 01-9101-000

DB 03-1110-000
CR 03-9101-000

To move the money back, simply reverse the DB's and CR's

[Bill]

John, I need to elaborate a little more ... this A/C money is a budgeted item (not a donor-restricted one). The church wants to "restrict" that money by moving, each month, into a restricted account. I understand your idea of creating another fund for this; however, we'd "like" to keep it within the same accounting fund so it shows on normal reports for Fund 01. So, I thought using the normal "restricted" account would be a decent way of accomplishing what Finance wants. What we've done to date is debit the bugeted expense item (6XXX) and credit the income account (4XXX). That HAS moved the money ... okay so far. Now, we have just spent some of the money (new A/C) and when financial secretary paid the bill, she wrote the check and debited the same 6XXX acct so that it shows up twiceas an expense. I "guess" one could reverse the entry in the Income acct. (debit 4XXX and credit the checking acct). That would remove the money and not have it show up twice in the income/expense report. What do you think?
By the way, I've been reading lots of your answers in this forum and I'm very glad that YOU answered my query!

[JohnDMeyers]

Thanks for the kind words. I have used PowerChurch long enough to have figured out most things. Glad I can help.

The time to restrict the money is when it comes into the church. A restriction involves crediting an income account, and once you take the money into some other income account, to involve another income account makes it look like two incomes.

So, you take the money in as unrestricted, but then want to set-it-aside (which are calling "restricting" it).

When you debit the expense and credit the income account, you are creating a double income. Then, when you spend the money, you are creating a double expense. That's not going to work. It "cancels out" in some form of the meaning, but it really creates havoc on your financial statements.

You don't like the idea I suggested of creating a checking sub-account? That will keep the money in the same fund and in the same bank account.

You could go to the bank and create a special savings account, and make an asset account for that.

You don't really have a restriction situation, in the financial-sense. That it why it's hard to make that work.

You have a budgeted expense. That means that you take in the money unrestricted and expense it on your air-conditioning line item. To tuck the money away has to involve a move to another asset account, either in the same fund (a sub-account checking, or a separate savings account), or using the transfer accounts to another fund.

(I'm writing while I'm stalling for time, trying to think of an answer).

If you really wanted to restrict the money, you would need three air-conditioning accounts:
01-3210-000 air conditioning equity (temporarily restricted)
01-4210-000 air conditioning income (closes to 3210)
01-4810-000 air conditioning release (closes to 3210)

You could move the unrestricted income to restricted income in one move:
DB 01-4110-000 unrestricted income $air-conditioning
CR 01-4210-000 air conditioning restricted income $air-conditioning

Now the income is restricted.

The only time you involve the expense account is when you spend the money. You don't do any internal maneuvers with the expense account.

To spend the money and release the restriction
CR checking $air-conditioning
DB expense $air-conditioning

RELEASE RESTRICTION:
DB 01-4810-000 $air-conditioning
CR 01-4900-000 $air-conditioning

That will work except you will be mis-representing the actual amount of your yearly tithes on your income-and-expense statement by the amount that you internally restrict for air-conditioning carry over (which I guess is what you want to do).