Overspend a Liability Account

[newsboy9]

I've got a liability account setup for missions. Not enough money comes in every month for our commitments so we pay the balance out of the general fund. If I were to pay the whole amount out of the liability account each month would this balance out or would it mess my books all up? I'd like to be able to show how much to missions out of the general fund each month. Any other suggestions on a good way to do this?

Thanks,

Luke

[JohnDMeyers]

To make sure I understand, I will try to restate you situation in my own words.

1) Your church "owes" an amount of money to missions each month.

2) People give toward missions, but sometimes less than the amount that the church "owes".

3) You want to meet the entire commitment by taking the remainder out of the General Fund.

Using a liability account is ok for this situation. You could also use an expense account, and set the "owed" amount as part of the monthly budget.

The problem with using the liability account is how to set the initial amount owed. If your commitment is $100.00 per month, you "owe" $1,200 per year. But there is no offsetting "reward" for owing that money.

In other words, when you borrow $1,200 from the bank, you get $1,200 to put in the checking. You then make regular payments to pay the amount back.

In your case, you are making a moral obligation each year, but you have no account in which to record the "reward".

The best thing would be to put a budget amount on the liability account. You wouldn't need an initial liability amount in that case. Use a unique sub-account for all the accounts.
Fund Accounting / Setup / Maintain Chart of Accounts
ADD
Detail Liability
01-2430-101 missions

Set up a Contribution Fund to receive missions gifts :
Fund 103
DB 01-1110-000 checking
CR 01-4340-101 missions income

When you write a check to missions:
CR 01-1110-000 checking
DB 01-2340-101 missions

You can use either the budget report, or the Income and Expense Statement to see how much money came from contributions and how much came from General tithes. Just include the sub-account 101 to 101.

[Jeff]

I take it when the money is received from the contributor, they are crediting a missions payable liability account. Showing they have money they have received to be used for missions.

If this is the case, when you make the payment to this missions organization, you would:

Credit bank for amount of support
debit liability for the amount contributed
debit expense for the amount from the general fund.

[newsboy9]

Sorry I didn't get back sooner, the power has been out due to snow and for some reason I didn't get an email that there was a response.

Yes you understood it correctly and using the sub accounts on the expense and liability accounts makes sense.

Thanks,

Luke

[CMUMC001]

We use an offsetting income account to recover the amount contributed to the liability account. For this example, when a check is written to the mission;
debit the checking account for the full amount
credit the mission expense account for the full amount
debit the mission liability account for the amount available
credit the "mission fund use" income account for the amount used from the liability account
The difference between the mission expense account - mission fund use income account is how much of the general fund had to be used to support the mission.
The total in the "mission fund use" income account and the mission liability account is the total that has been contributed for the mission activity.
At any time the general fund can be repaid using contributions in excess of the monthly requirement by debiting the mission liability account and crediting the mission fund use income account.
The mission expense account can NEVER be allowed to show less that what is shown in the "mission fund use" income account. That would mean more was taken out of the liability account than was used for the mission activity.
With accounts set up like this you; budget the expense rather than the income; track the total expense through the income & expense statement; verify the total contributions to the activity by adding the liability account on the balance sheet to the mission fund use income account on the income & expense statement.

[JohnDMeyers]

Maybe I misunderstood the original request. I thought the intent was to set some initial amount at the beginning of the year as our "missions commitment".

I suggested setting up a budget for that purpose instead of entering a liability transaction, because the transaction would have no DB account.

CMUMC001. I'm not sure I'm following this. You would end up with a negative expense and a negative liability.

debit the checking account for the full amount
credit the mission expense account for the full amount <--produces negative expense
debit the mission liability account for the amount available <-- produces negative liability
credit the "mission fund use" income account for the amount used from the liability account

[CMUMC001]

I am afraid I was working on this too late and did not check my work. I didn't identify the assumptions and made a mistake on the first two entries.
The assumption is people can contribute to the mission fund liability account.

EXAMPLE of contributions being less than the monthly budget requirement. Bank had $300 to start.
CONTRIBUTION - You find these on the balance sheet.
Bank Account (asset) DB $50 balance goes up (Balance $350)
Mission Fund (liability) CR $50 balance goes up (Balance $50)
---------------------------------------------------------------------------
Create the check for $100 per month budgeted on the expense account - This is more than contributed.
Bank Account (asset) CR $100 balance goes down (Balance $250)
Mission Expense (expense) DB $100 balance goes up (shows the full expense)
Mission Fund (liability) DB $50 balance goes down ($0 left in liability account)
Mission Fund Use (income) CR $50 balance goes up (how much came from donations)
The difference between the expense and the income accounts is the amount the general fund provided.($50)
The church now has only $250 instead of $300 for use by the general fund because contributions were short $50 to cover the budgeted expense.
Income & Expense balances are on the Income Statement.

EXAMPLE of contribution being more than the monthly budget requirement. Bank had $300 to start.
CONTRIBUTION
Bank Account (asset) DB $150 balance goes up (Balance $450)
Mission Fund (liability) CR $150 balance goes up (Balance $150)
---------------------------------------------------------------------------
Create the check for $100 per month budgeted on the expense account. This is less than contributed.
Bank Account (asset) CR $100 balance goes down ($350 left in the bank account)
Mission Expense (expense) DB $100 balance goes up (shows the full expense)
Mission Fund (liability) DB $100 balance goes down ($50 left in liability account)
Mission Fund Use (income) CR $100 balance goes up (how much came from donations)
The difference between the expense and the income accounts is the amount the general fund provided.($0)
The balance sheet will show $350 in the checking account but a liability (promise for future use)of $50 associated with the mission fund. The church still has $300 for use by the general fund because contributions were greater than the budgeted expense.
I believe this is now correct.
I apologize for the earlier errors.