Entries for carry-forward balances: FY 2005 to FY 2006

[fstuart]

We have a sum of money that was not expended in FY 2005. The money is still in our bank checking account. I have some expenses in FY 2006 that I want to pay with FY 2005 left-over money.

I have created an unrestricted income account labeled "Carry Forward Prev. Year" and the accounting number is 10-4030-001.

I do not think that crediting the bank account is the correct way, because
money isn't leaving the bank account. I am simply encumbering part of the FY 2005 residual money.

Currently, our main checking account at the bank has the following
PowerChurch account number: 10-1110-000. Again, the "Carry Forward"
account is 10-4030-001.

How would I input the transactions to increase this "carry forward" account, yet not affect the 10-1110-000 checking account?
Thank you so much.

[Matt]

What equity account currently contains the balance of the FY 2005 unspent funds? You would want to input an entry that debits this account and then credits the equity account "Carry Forward Prev Year". You do not need the income account 10-4030-001 since this income was received in a prior year.

[fstuart]

What equity account currently contains the balance of the FY 2005 unspent funds? You would want to input an entry that debits this account and then credits the equity account "Carry Forward Prev Year". You do not need the income account 10-4030-001 since this income was received in a prior year.

Since the money is in the main checking account at the bank, the money is currently sitting in "Unrestricted Net Assets" 10-3110.

So, I would debit the "Unrestricted Net Assets" and credit a new EQUITY account called "Carry Forward Prev. Year"?

And, I guess I would assign a budget to that new equity account that would offset the expenses being paid from prior year funds? That is, if we have $34,000 of expenses I want to spend from the "Carry Forward" equity account, I would put a budget of $34,000 in the "Carry Forward" account?

[Matt]

Yes, you would need to create a new equity account before inputting the accounting adjustment. You would need to set this new equity account up as a temporarily restricted account. You would also need to set up a corresponding temporarily restricted release account using Maintain List of Donor Restrictions. Then whenever expenses are paid using this money you would need to record two accounting entries: the normal one to debit expense and credit cash and a second one to release the restriction. Powerchurch will record the release entry automatically for you by clicking the "Release Resricted Funds" button at the time you input the invoice or manual check. To see how much of the money has been spent you would run the "Changes in Equity" report. You don't want to input a budget on the equity account because the equity account balance represents the equity (i.e. unspent amount) you have left.

[fstuart]

Matt:

Why would I create a temp restricted account? The money isn't restricted. We can use the carry forward as necessary.

FS

[Matt]

The money is restricted in the sense that you want to keep it segregated from your FY 06 Funds. Yes, you could set it up as an unrestricted equity account but you will still need to set up a restricted release account using Maintain Donor Restrictions in order for expenditures of the funds to decrease the right equity account.

[fstuart]

I assume, then, that any surplus from one year is carried forward into the next year via a restricted account?

AND, it could be that we have surpluses every year, and so that restricted account grows and grows.

Am I thinking of this correctly?