Church Restricted Funds

[GaboroneBaptist]

I am needing to set up some church restricted funds. For example, we are required by Botswana law to pay out severance funds upon the employee leaving the church's employment or at the end of 5 years, which ever comes first. So we thought about creating a category of CHURCH RESTRICTED FUNDS that we could hold funds in reserve to pay the severance. We also want to reserve funds for expenses that are only paid once per year. For example, we have an alarm monitoring and response service. They are paid once per year for the whole year. But again, we want to set aside funds every month so that when the invoice comes due that we will have the funds. I went through the donor restricted funds set-up and that might work. But it requires an income account. The only "income" will be from a manual monthly journal entry. Donors don't give to this, so I was not sure if the set-up would work. I would like to set up one restricted account for severance and one for annual payments. So the expense account will vary depending on which employee is leaving or which annual payment bill we are paying. Any help on how we can set this up would be greatly appreciated.

[NeilZ]

I am needing to set up some church restricted funds. For example, we are required by Botswana law to pay out severance funds upon the employee leaving the church's employment or at the end of 5 years, which ever comes first. So we thought about creating a category of CHURCH RESTRICTED FUNDS that we could hold funds in reserve to pay the severance. We also want to reserve funds for expenses that are only paid once per year. For example, we have an alarm monitoring and response service. They are paid once per year for the whole year. But again, we want to set aside funds every month so that when the invoice comes due that we will have the funds. I went through the donor restricted funds set-up and that might work. But it requires an income account. The only "income" will be from a manual monthly journal entry. Donors don't give to this, so I was not sure if the set-up would work. I would like to set up one restricted account for severance and one for annual payments. So the expense account will vary depending on which employee is leaving or which annual payment bill we are paying. Any help on how we can set this up would be greatly appreciated.

Not sure why you just can't budget the funds for the alarm monitor at the beginning of the year, but I see where the church would need to set aside the funds.

I would use a LIABILITY account for all of these, however, you will have to remember that while the checking account will show funds available, the Cash Management Report will see the money set aside in the liability account so it really ISN'T available.
Here are the reasons to use a liability account:

• 1. These are funds that the congregation is either obligated to pay (leaving employment or at the 5 year mark), or when the invoice comes in once a year. These liabilities continue through to the next fiscal year or years, they are not 'zeroed' out at the start of thr fiscal year.
  
  2. Then all you need to do is use a Manual Check each month to move the funds from the expense account, to the liability account. The entries would look the same as a regular check, except for the CREDIT account you'd use the Liablity Account instead of the checking. The DEBIT would be your normal expense account covering the area concerned. You will need to enter a 'check' number', but something like LIAB TNFR would work.

When the invoice comes in, or when the employee reaches their 5th anniversary or leaves, you'd write a regular check, and the DEBIT would be coming from the LIABILITY account, and the CREDIT would be the checking.

Does this help ??

[GaboroneBaptist]

Yes that helps! Our church struggles to set funds aside for these type of payments. So even if we budget for it, there is a greater likelihood that the funds would be inadvertently spent mid-year. But creating the liability accounts is a great way that will make us more aware that we are setting aside the funds for when we actually need them.

But I am thinking that instead of doing the manual check to create the monthly expense & liability, that I would just do a journal entry. My concern is that when I go to reconcile the bank statement, there would be all these outstanding monthly checks that don't really exist. But a journal entry would allow me to do the same thing but not create an issue for balancing the check book.

[NeilZ]

Yes that helps! Our church struggles to set funds aside for these type of payments. So even if we budget for it, there is a greater likelihood that the funds would be inadvertently spent mid-year. But creating the liability accounts is a great way that will make us more aware that we are setting aside the funds for when we actually need them.

But I am thinking that instead of doing the manual check to create the monthly expense & liability, that I would just do a journal entry. My concern is that when I go to reconcile the bank statement, there would be all these outstanding monthly checks that don't really exist. But a journal entry would allow me to do the same thing but not create an issue for balancing the check book.

Either way works, as you'll have an audit trail one way or another.