Accounting for restricted fund spending

[lhotovec]

When we use restricted funds for a budget item, using the process shown in the choir robe example, how does the report show this activity? Does the spending and offsetting income reflect in the activity, but the bottom line show just what was spent from general funds?

When there is restricted funds that are given for an item not in the budget, how is that set up so that it isn't reflected in the reports as part of the budget?

[JohnDMeyers]

If you receive $1,000 toward donor restriction, such as choir robes, the reports will show:

Income and Expense:
$1,000 restricted income

Balance Sheet:
$1,000 restricted Equity

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If you spend $100 toward the choir robes, and you release $100 from restriction, the reports will show:

Income and Expense:
$1,000 restricted income
$100 [unrestricted] expense

Balance Sheet:
$900 restricted Equity

------

Bottom line:

The income will always show the maximum that has come in for a restriction until you close the end-of-year.

The equity will always show the amount remaining in the restriction.

There is no correlation between restrictions and budget.

[lhotovec]

I understand your choir robe example. However, if you spend $1200 dollars, with $1000 being restricted income that was released, will a report tracking how we are doing with our budget show the net $200 being out of our budgeted expenses or the entire $1200, making it look like we went $1000 over budget it that area?

If restricted money is given for an area we had no budget plans, for example purchasing furniture, how do we set it up so in a budget vs spending report so that it is clear the spending, as well as the giving, were not part of the regular budget.

[JohnDMeyers]

I can show you how to track it separately in the budget system, but PowerChurch only has one budget.

In other words, if you show it in a separate budget line item, it will still be in the overall budget total.

Here's how I would setup your expense to track the expense for the part that came from the restriction and the part that came from the general tithes:

EXPENSE
..CHOIR ROBES [Group account]
...Choir Robes from tithes [detail account]
...Choir Robes from restriction [detail account]

Set the budget on Choir robes from tithes at $200
Set the budget on Choir robes from restriction at $1000

Make sure the expense accounts close-to 01-3110-000 unrestricted net assets.

If you have a budget on your restricted income account for Choir Robes for $1000, the amounts will "cancel out" in the overall budget.

[M_artin]

We have just begun using PCP's Accounting module...

And have released a temporarily restricted amount for the first time to cut a cheque.
Now, on the balance sheet that account which showed the received amount before holds a negative number. Is that correct? Should it not have gone to 0 (since we spent the exact amount received)?
The 4999 account (released from restrictions) shows the amount. Will this be so until we close the year or a month (which we haven't done yet either)?
Thanks!

[JohnDMeyers]

Are you sure you mean the "balance sheet"? I think you mean Income and Expense report.

The Income and Expense report will show a negative amount in the release income account (usually in the 4800 range).

The 4999 account will show a positive value equal to the sum of all the negative amounts in the 4800 accounts. In your case, I think you only have one release account in the 4800 range, so 4999 should be the positive amount that is equal in value.

If you have a negative amount on your Balance Sheet it means that your close-to equity accounts are setup incorrectly. Let me know if you a negative amount in the 3000 range, and I can help solve that.

[M_artin]

...
If you have a negative amount on your Balance Sheet it means that your close-to equity accounts are setup incorrectly. Let me know if you a negative amount in the 3000 range, and I can help solve that.

Yes, unfortunately it is in the 3000 range, and, yes, there is a negative amount on the balance sheet.
What next?

[JohnDMeyers]

You have one or more income and/or expense accounts closing-to the wrong equity accounts.

It should be an easy fix, once you locate the offending accounts.

Go to Fund Accounting / Reports / Account Close To Reports

Find your restricted equity (the one that is negative).

The only accounts that should be under that equity are the restricted income and the restricted release for that account. (also, make sure that both of these accounts are located there and not under 3110).

If you find any extra accounts there (probably you have an expense account that shouldn't be there), go to:
Fund Accounting / Setup / Maintain Chart of accounts and set that account to close-to the correct equity account, and your balance sheet will automatically change.

If you don't find the two accounts that should be there, look under 3110 and change them to close-to this equity account.

[special note to clarify: It is ok to have transfer accounts that close-to this equity if you are transferring restricted income between funds]

[M_artin]

...
The only accounts that should be under that equity are the restricted income and the restricted release for that account. (also, make sure that both of these accounts are located there and not under 3110).
...

Looked into that and things look ok. The Fund Balance accounts (3...) have only two accounts listed as closing to. One is the corresponding income account and the other the corresponding release account. Also checked and none of the temp restricted accounts is listed under the 3110.

I have a suspicion though, and forgive me if it is a stupid question: Could it be that these accounts only cancel out once you close the month?
Thanks!

[JohnDMeyers]

No, they're supposed to be in balance in real time.

Run an Account Activity report on the equity account.

You will see a number of [system generated] amounts. These are "markers" that are placed in the account prior to closing the end-of-year.

See if you can tell from this report where the offending numbers are coming from.

Oh, by the way. Another possibility is that you released more than you had restricted. That would be user error. If you did that, you should be able to detect it in your Account Activity report on the equity account.

[M_artin]

Did that... Here is the situation:
No [system genrated] amounts in the "Fund Balance" account (3...) but a negative balance from the debit transaction. The Income account (4...) has the original credit posted and still shows the positive amount. The Release account als has a negative balance.
We must have screwed up. So I go back, looking at the transaction when we made that payment and it shows the amount as a
DB to the Fund Balance (3...) account, AGAIN as a
DB to the Release account, and also as a
CR to the "Released from restriction" account (4999).
Seems to me like one DB to many?
Thanks.

[JohnDMeyers]

You should not have to directly transact the equity account.

This is the release transaction:
DB 01-4810-000 restricted income release [closes-to 01-3210-000]
CR 01-4999-000 general release [closes-to 01-3110-000]

Notice the closes-to is where the [system generated] takes place.

Simply REVERSE your original transaction, and do one similar to what I show above.

After you do the above transaction, run another Account Activity report, and you should see [system generated].

[M_artin]

So, if I get this right I should then "pay the bill" with a DB out of unrestricted assets, not the asset account for that particular restriction?
Because the restricted amount would be closed to the 3110 account. Correct?

[JohnDMeyers]

You would pay the bill out of checking, and record it as an expense. The expense account closes to unrestricted net assets.

Here's the whole scenario:

$1000 comes in for robes:
DB 01-1110-000 checking $1000
CR 01-4210-101 robe restriction income $1000

You pay $200 for robes (and release $200 from the restriction)
CR 01-1110-000 checking $200
DB 01-5140-000 robe expense [closes to 01-3110-000]

DB 01-4810-101 robe restriction release $200 [closes to 01-3210-101] $200
CR 01-4999-000 general release $200 [closes to 01-3110-000] $200

---------------
After all that, your Income and Expense report shows:
01-4210-101 robe restriction income $1000
01-4810-101 robe restriction release -$200
01-4999-000 general release $200

Balance Sheet shows:
01-3210-101 robe restriction equity $800

[NeilZ]

Just a quick note ...

These two lines of John's:

DB 01-4810-101 robe restriction release $200 [closes to 01-3210-101] $200
CR 01-4999-000 general release $200 [closes to 01-3110-000] $200

will appear in the transaction window when you click on the Use Restricted Funds button on the Accounts Payable write checks screen. You do NOT have to enter these yourself.