Debt Reduction Liability Account

[lakesidechurch]

Our church is currently running a "Debt Reduction" campaign for the mortgage. So members are contributing to reduce the mortgage principal owed.

I am thinking I created a problem the way I set things up.

I setup a Debt Reduction Accounting Fund. Then I setup a contribution fund that debits the bank account and credits a "debt reduction" liability account.

But I can't figure out how to manage the entry when I want to pay the extra with the mortgage payment.

I need to

Credit the Bank account
Debit the Mortgage Principal Liability

and then somehow move the funds out of the "debt reduction" liability account.

Any help would be appreciated.

Mindy

[JohnDMeyers]

Your initial mortgage / purchase of the building should look like this (assuming 100% of the purchase was mortgage):
DB 01-1810-000 Building Asset $50,000
CR 01-2180-000 mortgage liability $50,000

You should have a building asset in your General Fund that increases in value as you make your "normal" mortgage payment.

When you make a "normal" mortgage payment, you should do this:
CR 01-1110-000 checking $ 1000.00
DB 01-2180-000 mortgage liability - $principle amount $700.00
DB 01-5810-000 Interest - $mortgage interest amount $300.00

What you have set up will work. I would suggest that you create 03-1810-000 Extra Building, and another liability account 03-2182-000 Owed to General Fund. When you make the mortgage payment, you are changing the liability from owing it to the bank, to owing it to yourself (owning to your General Fund).

You have a contribution setup like this in Fund 03:
DB 03-1110-000 checking
CR 03-2180-000 debt reduction liability (to pay to the bank)

When you make an extra mortgage payment from Fund 03 (assuming it is ALL principle)
CR 03-1110-000 checking $200.00
DB 03-1810-000 Extra building asset $200.00

DB 03-2180-000 debt reduction $200.00 (no longer "owed" to the bank)
CR 03-2182-000 Owed to General Fund $200.00 (now it is owed to yourself)

Eventually, you will want to move the Fund 03 asset to your general fund:
CR 03-1810-000 extra building asset
DB 03-2182-000 Owed to General Fund (no longer owed to the General Fund)

DB 01-2180-000 mortgage liability (this is where you show the reduction in the original mortgage)
CR 01-9110-000 transfer from extra building fund

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A simpler way to do all this would be to set up a Temporary Restriction in the General Fund. If you are interested in that, I can run through the setup.

[lakesidechurch]

Wow, that is a lot to process.

Would it make a difference if the "Mortgage Principal" liability account is setup and paid out of the "Debt Reduction" fund? Fund 2?

That is where it is located now. So it is in the same fund as the "Debt Reduction" liability account.

I appreciate your time. I will definitely read over your post a few times.

Mindy

[JohnDMeyers]

Mindy:

Glad to do it. Believe me, we have set up a lot of situations like this at our church, so it doesn't take long to do a memory dump.

It would be easier to manage the whole Mortgage from one fund, including the extra contributions.

Your initial mortgage / purchase of the building should look like this (assuming 100% of the purchase was mortgage):
DB 02-1810-000 Building Asset $50,000
CR 02-2180-000 mortgage liability $50,000

When you make a "normal" mortgage payment, you should do this:
CR 02-1110-000 checking $ 1000.00
DB 02-2180-000 mortgage liability - $principle amount $700.00
DB 02-5810-000 Interest - $mortgage interest amount $300.00

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I would change your contribtuion liability to a temporarily restricted income

Maintain Restrictions:
02-3210-000 mortgage restriction
02-4210-000 extra mortgage contribution
02-4810-000 mortgage contribution release

when it asks for an expense account, give it the mortgage liability account number
02-2180-000 mortgage liability

Contribution fund 210 (or whatever number)

You will also have to create 02-4999-000 General Release (closes to 02-3110-000)
----------------------

Now, your contributions will be shown as a restriction (which is correct accounting)

When you make an extra mortgage payment from Fund 02 (assuming it is ALL principle)
CR 02-1110-000 checking $200.00
DB 02-1810-000 Extra building asset $200.00

HIT THE RELEASE RESTRICTION BUTTON and this appears automatically:
DB 02-4810-000 mortgage contribution release $200.00
CR 02-4999-000 General Release $200.00

and you're done.