Negative Equity Account

[Maranatha.Trsr]

Using PC+ V 11.5
I have a negative Equity account -- Is this an unacceptable accounting practice?
Here is how I got to this point:
We're in the middle of a construction project and have a temp restricted Building account 01-3210-101.
Balance of $6,000.
Invoice of $7,000.
Available cash $11,000 Account 01-2421-000 Construction Loan 1
I paid as:
01-1110-000 CR $7,000
01-6311-218 DB $7,000
Released restricted Funds
01-4810-101 DB $7,000
01-4999-000 CR $7,000
Resulting in negative Equity Account Balance
01-3210-101 -$1,000

When I received the $11,000 Cash, I entered as
01-1110-000 DB $11,000
01-2421-000 CR $11,000

Should I have done a transaction taking the $11,000 Construction Loan and Temp. Restricting the $ to the Building Account?

If so what would the correct entries be?
01-4210-101 CR $11,000 is what I'd use if the $ was a gift -- but I used the Liability account since it is a loan.

[Matt]

I think I can answer this but need to know the answers to the following questions first:

1). What asset account was the balance of $6,000 in--the 01-1110-000 account?

2). What fund will be used to make the payments on the construction loan--the restricted building account fund or the General fund?

[Maranatha.Trsr]

answers and comments inserted below in blue

I think I can answer this but need to know the answers to the following questions first:

1). What asset account was the balance of $6,000 in--the 01-1110-000 account? yes

2). What fund will be used to make the payments on the construction loan--the restricted building account fund or the General fund?

No Payments. The loan is to be paid off within 6 months after receiving Certificate of Occupancy. At that time I'll set up a Mortgage in COA probably account # 01-2631-000 along with a corresponding expense account for the Interest portion of the payments. and will pay off the Construction Loans. The moneys received from the mortgage will be used to pay off the Construction Loans including Interest (payable at payoff).
Regarding the Funds. I have two Funds 01 -- General & 03 -- Building Fund. 03 was created simply to track the expenses of the project. All Cash on hand is kept in the General Fund. When I pay invoices, I transfer from General (releasing Building Temp. restricted $) to Building and receive into Building Fund.

credit to JohnDMeyers (in green below)

What we have done is create Fund 03 for building expenses, and transfer money to it from Fund 01. The release comes when you make this transfer. All money in Fund 03 is deemed restricted for building, so you don't have to do any releases in Fund 03.

So, in your example where you need to spend $1,000 from Fund 03:

-----
Transfer money from Fund 01 to Fund 03 and release the restriction:
CR 01-1110-000 checking $1,000
DB 01-9120-000 Building Fund transfer $1,000

DB 01-4810-000 Building release $1,000
CR 01-4999-000 General release $1,000
-----
Receive the money into Fund 03:
DB 03-1110-000 checking $1,000
CR 03-9120-000 Building Fund transfer $1,000

Spend the money in Fund 03 (no further release necessary):
CR 03-1110-000 checking $1,000
DB 03-6310-000 Steel contract $1,000

Note: 01-9120-000 and 03-9120-000 close-to unrestricted net assets (01-3110-000 and 03-3110-000, respectively)
Note: 03-6310-000 and all accounts in Fund 03 will also close-to unrestricted net assets
At some point, I'll need to close out the Temp. Restricted building accounts 01-3210-101 Equity, 01-4210-101 Income, 01-4810-101 Release. However, there are ongoing donations & pledges coming in to this account (01-4210-101) at least through 2015.
I'm not sure if I should keep releasing the Temp. Restricted as I've been resulting in a negative equity account balance.
Until we receive the Mortgage funds. Then I'd create the entry to make the balance of the equity account 0.
Or I could only release the amount of Temp. Restricted Funds that are available 01-4810-101 and pay the rest of the invoices out of unrestricted Net Assets (which currently holds the $11,000 Construction Loan)

I'm grateful for your assistance.
Harold

[Matt]

Thank you for the detailed reply. This really helps. The challenge with the situation that you describe is that you are using both unrestricted and restricted funds to pay for the building expenses. Thus, if an invoice comes in, and it is for more than the funds available in the restriction, then the remainder should be paid out of net unrestricted assets unless you are planning for additional restricted contributions to come in to cover the deficit. Accordingly, when the $7,000 invoice was paid only $6,000 should have been released, as that was all the restricted funds that were available. This would have prevented the negative equity balance of $1,000 from occurring.

[Maranatha.Trsr]

Thanks Matt,
Your responses have been helpful.
Harold