Restricted Funds.... One More Time

[JoeJansen]

Hey all,

I am having problems getting entries to work properly using temp. restricted funds. I have PC+ 9 on Win 2000.

I have 2 funds. 01 is my general funds (unrestricted) and 02 is my restricted funds.

In fund 02, I have, for example, a Human Care fund. This consists of an equity account, an income account, a release account, and an expense account. income, expense, and release all close to the equity account. The problem is, when I enter an expense, it decreases equity by 2X the amount, because the expense and release are both debiting to the equity. The credits go to the bank account and the release closing account.

In "Fund Accounting for Contributions" where they are giving the example of the crib purchase, an expense account "appears", but the text never details where it closes to or how it is set up.

How do I set up the 4 accounts so that it all properly occurs? I am entering the transaction as a 4 line,

02-1120 Bank Account Credit
02-exp Expense Account Debit

Then hit the Use Restricted Funds button, which adds

02-rel Release Account Debit
02-4999 Release Closing Credit


I can see that the expense and release are both debiting the equity, resulting in the 2X decrease, but how *SHOULD* it be?

Thanks!

--Joe Jansen

[Matt]

Joe,

Only the income and release accounts should be closing to the corresponding restricted equity account. The expense account should be set up to close into your Unrestricted Net Assets Account. If you go into Maintain Chart of Accounts for the expense Account and change the close to account to the Unrestricted Net Assets account this will correct the duplication problem you are seeing.

Matt

[Jeff]

Joe,

This took me a while to figure out too. But this finally made sense to me this way. You have to realize that the release transaction releases the money from its restriction and reclassifies the money from a restricted amount to an unrestricted amount. Then only unrestricted amounts can be spent. The release transaction is the part that does this. It does so by debiting an account that closes to the restricted equity which in turn reduces the restricted equity. The other part of the transaction credits the released from restrictions account which increases the unrestricted equity account. When you enter your normal expense of what you are actually doing the money to pay it is now unrestricted, this is why all expenses should close to the unrestricted account.

Here are a couple other reasons why this works well this way. Say you are receiving donations for some specific purpose that is going to cost 3,000 and you receive 2,976 in donations. The board says the $24 difference can come out of the general budget. Your release transaction would be for the 2,976 while the expense would be for the 3,000 that was spent.

Same situation but this time you receive 3,079 in donations for the 3,000 expense. Your release transaction would be 3,079 and your expense would be for 3,000. One CPA I talked to said you could go ahead and release the entire 3,079 because you have fullfilled the restrictions the donor placed on the money. The additional 79 would now be unrestricted money that could be used for other purposes. You might want to get your own second opinion about money in this matter especially if the difference is significant.

Without the release part of the transaction you would have a very hard time getting the expense to match to the penny to what you actually received.

I hope this makes more sense it took me a while to fully get the concept of using these release account to track donor restrictions.

[JoeJansen]

Thanks Matt and Jeff, I think the light bulb just came on, so to speak.

(Note that in this context, when I say "transaction", I am referring to a balanced, 2 lline entry. Most are actually done as a 4-line entry, which would be 2 transactions, as I describe it here)

The release transaction removes the restriction so that it can be spent.
(debit the release account, which closes to the equity account, and credit 02-4999, released from restriction account)

The transaction between the expense acct and the bank account then spends the newly un-restricted money.

So by changing the "closes to" on all my expense accounts, so that they close to the unrestricted assets acct, they will then be spending the unrestricted asset.

By following this, then, my unrestricted asset amount should always be $0, correct? Would it be balanced by a credit from the release?

Does this mean that the expense accounts should close to 02-4999, which is the account that gets credited by the release transaction? Or close to wherever 02-4999 closes to so that it stays balanced?

Thanks again!

--Joe

[Jeff]

Accounts can only close to Equity accounts, they can't close to assets or another income account.

By following this, then, my unrestricted asset amount should always be $0, correct? Would it be balanced by a credit from the release?

In your 02 designated fund, you are right, you should keep a 0 balance in your unrestricted equity. Because as soon as the money is released it is being spent. The unrestricted goes up by the release and immediatly down with the expense.