how to account for redemption of investment

[cbrown]

Neil - we are redeeming two mutual fund investment accounts to pay for a bathroom renovation project. One is a temporarily restricted account that is restricted to building improvements and one is an unrestricted account. How do I account for the redemptions in PowerChurch? Thanks

[NeilZ]

Neil - we are redeeming two mutual fund investment accounts to pay for a bathroom renovation project. One is a temporarily restricted account that is restricted to building improvements and one is an unrestricted account. How do I account for the redemptions in PowerChurch? Thanks

What we do is basically debit checking and credit your investment account for the redemption. If you had an unrealized gain/lost account associated with the investment, you should credit that first, and the main account for the remainder. You can do this for the regular investment account.

Now is the investment account actually listed as a restricted account?? Normally investment accounts are setup in the 1300 series in the COA. As an investment/mutual fund they are usually restricted to only two or three redemptions a year.

If this was actually created using the List of Donor Restrictions then it was treated as income more than an investment. How did you handle gains/losses ?? This should have been handled as an asset, and thus not close to any fund balance/net assets/equity account.

When we had such a fund, we kept it under the standard investment, and used level 4 accounts as 'headers' to identify any restrictions, thus maintaining the restriction while keeping the mutual funds as assets.

[cbrown]

Actually, one is listed as both an asset(1340) and as a donor restricted account (3236-115). That means it is listed on the balance sheet twice. It has an unrealized gain/loss account(1391), an income account (4236-115) and release account (4836-115). The other one is an unrestricted asset, so there is no problem with that. Not sure what to do with the first one...........

[NeilZ]

Actually, one is listed as both an asset(1340) and as a donor restricted account (3236-115). That means it is listed on the balance sheet twice. It has an unrealized gain/loss account(1391), an income account (4236-115) and release account (4836-115). The other one is an unrestricted asset, so there is no problem with that. Not sure what to do with the first one...........

As an asset, it should not have an income account, or release account.

Are there any transactions that include the income or release account? Does the fund balance account show any balances?

UPDATE: I took another look at how I have our investments setup:

We have one permanently restricted investment. Its a stock portfolio that we only receive the 'dividends' (if any). We have it setup as a normal stock portfolio asset under the 1300 series (with an unrealized gain/loss account), but have the checkbox that says "This Account Uses Restricted Money" checked. The amount in that portfolio, plus the gains/losses also appear in the permanently restricted fund balance account.

Thus when the Balance Sheet is run against our Endowment fund, the funds show as assets, then under liabilities/fund balance side, thus balances out.

[cbrown]

OK, so before I make any changes I need a clarification. I have asset 1340 and the same money in Fund Balance 3236-115. I'm sure this is set up incorrectly. I have an income account 4236-115 setup to close to 3236-115. The Release Account is 4836-115.
There is an Unrealized Gain/Loss account that doesn't close to anything, it's just asset account showing gains/losses. If I redeem the asset by biting the bank account and crediting the asset account, the asset account zeroes out and the money moves to the bank account. Perfect. However, the dollar amount is still showing in the Fund Balance account. How do I zero that out without impacting the checking account? That's what I meant in my previous post when I said I have the money in the system twice. Clearly this was set up wrong originally.

[cbrown]

I hate autocorrect. I didn't mean"biting the bank" . I meant debiting the bank.

[cbrown]

First, let me apologize for monopolizing this topic. I am NOT an accountant, but I think I just had a revelation. Let me see if I understand this. The investment Assets are like bank accounts in PC; big buckets of cash. The Fund Balance accounts are where the details show up, in other words, how the cash is parsed. So of course, they are listed twice. I still think the accounts previously mentioned are set up incorrectly and I need to know the correct way to deal with the Fund Balance account. Thanks.

[NeilZ]

First, let me apologize for monopolizing this topic. I am NOT an accountant, but I think I just had a revelation. Let me see if I understand this. The investment Assets are like bank accounts in PC; big buckets of cash. The Fund Balance accounts are where the details show up, in other words, how the cash is parsed. So of course, they are listed twice. I still think the accounts previously mentioned are set up incorrectly and I need to know the correct way to deal with the Fund Balance account. Thanks.

FWIW .. I'm not an accountant either, which is why I always suggest to talk to someone knowledgeable about non-profit (fund) accounting. I do a lot of these through testing, and seeing what works, and then verify it by some additional research.

Anyway ... as I often say, do a backup ... then see enter the transaction to move the funds, then click the button for release restricted funds. If you can find the restriction listed there, do a release, and then post it to see what happens.

Hopefully, it will show that the release cleared the fund balance account, and the unrestricted net assets & bank account were both increased by the amount in that investment.

Let me know how it works out.

[cbrown]

I’m not working on the live version, I’m working in my sandbox at home. I have already zeroed out the asset account, and if I do what you’re suggesting with the fund balance account won’t that double the amount that’s going into the “bank”?

[NeilZ]

I’m not working on the live version, I’m working in my sandbox at home. I have already zeroed out the asset account, and if I do what you’re suggesting with the fund balance account won’t that double the amount that’s going into the “bank”?

While I'm going to say it shouldn't, since if you look on the I&E report there are two entries, one showing a positive number, and another entry showing a negative of the same number. Since you zeroed out the asset account, just enter a transaction and click on the release restricted funds button, and just enter a transaction with the release.

This should show zero on the restricted fund balance with no unrestricted net asset increase.

[cbrown]

That worked. Done. Thank you!

[cbrown]

We redeemed the asset account that I mentioned earlier that was unrestricted. That increased our bank account by the amount of the redemption, following your suggestion. I need that amount to show up in a Fund Balance account to expense against as we perform the renovations. I can't just move it, as both lines would involve a credit, correct? I can't call it a contribution. This seems so easy, but I'm having a senior moment, apparently. Thanks.

[NeilZ]

We redeemed the asset account that I mentioned earlier that was unrestricted. That increased our bank account by the amount of the redemption, following your suggestion. I need that amount to show up in a Fund Balance account to expense against as we perform the renovations. I can't just move it, as both lines would involve a credit, correct? I can't call it a contribution. This seems so easy, but I'm having a senior moment, apparently. Thanks.

I'm fairly sure that the unrestricted asset was already accounted for in the unrestricted fund balance account (usually xx-3110-000) before you moved it to the OTHER asset account (IE: checking), all you need to do is write a check, and pay for it using the checking account.

[cbrown]

Ok, thx.