Release from Restrictions & Changes in Equity report

[Eden Whitehead]

I want to make sure I have handled this transaction correctly. In AP, I wrote a check (manual check) to pay an expense incurred against a restricted account. I clicked "Release Restricted Funds", posted to FA, and posted in FA. The Changes in Equity report shows the amount of the check in both the Release from Restrictions column and the Expenses column (which makes sense to me). It is the "Ending Balance" that confuses me since it shows 2x the amount of the expense. In other words, the Ending Balance appears to add both the Release from Restrictions and the Expense. Is that correct? Or have I made a mistake in handling the transaction?

(If this is correct, I am afraid the report will confuse the members of the Finance Committee and I want to be able to explain to them what is going on. If I've messed up, obviously I want to fix it! )

[Jeff]

Is the expense account setup to close to the restricted equity account? When using release accounts, expense accounts should be setup to close to the unrestricted equity account.

[Eden Whitehead]

Yes. The "Account Close To" report shows the income, release from restriction, and expense account for this item all closing to the same equity account.

[Jeff]

When using release accounts, expense accounts should close to the unrestricted equity. Take a look at the following transactions.

Money comes in
01-4510 Building Fund Income (cr) (increases income also increases building fund restricted equity)
01-1110 General Checking (db) (increases general checking account)

Move money to different checking account
01-1110 General Checking (cr) (decreases General Checking)
01-1120 Building Checking (dr) (increases Building checking account) (No change in equity balances with this transaction)

Spend restricted money for building fund
01-1120 Building Checking (cr) (decreases building fund checking)
01-5710 Expense Account (dr) (increase expense also decrease unrestricted equity)
01-4910 Building Release account (dr) (decreases the building fund equity account)
01-4999 Release from Restriction (cr) (increases the unrestricted equity account)

The release transaction decreases the restricted equity and increases the unrestricted equity. It does this with a debit to the restirction's release account and a credit to a generic Release from restriction account. The Release from Restriction account is set to close to the unrestricted equity account)

The expense account also closes to the unrestricted equity account, which then reduces the unrestricted equity account.

The 01-5710 and the 01-4999 lines offset each other, one decreases the unrestricted equity, while the other increases it.

This seems complicated, but PC+ will manage most of this for you. All you have to do when using donor restricted money is click the release button, pick the restriction, and enter the amount. PC+ will add the release lines to the transactions for you.

[Eden Whitehead]

Aha! So I "fixed" something that wasn't broke!

The first time I ran the "Account Close To" report I saw some things that looked wrong (to me; I thought I had set it up wrong) and changed restricted expense accounts to close to the same equity account that the related income and release accounts close to.

SO, unless I am over-generalizing (and tell me if I am), the only accounts that close to a restricted equity account are the related income and release accounts. Everything else (including interest earned in a restricted bank account?) closes to the unrestricted equity account. Is that correct?

(BTW, I re-"fixed" the expense account close to's, ran the Changes in Equity report, and now have Ending Balances that match the amount of the checks written. I presume that is the way it's supposed to work -- when someone doesn't go in and mess things up? )

[Jeff]

SO, unless I am over-generalizing (and tell me if I am), the only accounts that close to a restricted equity account are the related income and release accounts. Everything else (including interest earned in a restricted bank account?) closes to the unrestricted equity account. Is that correct?

That is exactly correct, the only accounts that should close to the restricted equity are it's income and release accounts.

[Jeff]

Have you read the "accounting for contributions" document on your PC+ install CD? A copy of it can also be found online at: http://www.powerchurch.com/support/answ ... icle_id=58

It goes into more detail about how the release accounts work.

[Jeff]

The first time I ran the "Account Close To" report I saw some things that looked wrong (to me; I thought I had set it up wrong) and changed restricted expense accounts to close to the same equity account that the related income and release accounts close to

In accounting terms, all expenses are from unrestricted equity. The release account "reclassifies" the restricted amounts to unrestricted before they are spent.

[Eden Whitehead]

Have you read the "accounting for contributions" document on your PC+ install CD? A copy of it can also be found online at: http://www.powerchurch.com/support/answ ... icle_id=58

Yes, I printed it off a couple of months ago, have read it several times, and *thought* I understood it! Obviously I needed a little extra explanation. Thank you for your patience and your immeasurable help!