Handling a Mortgage

[MortonUMChurch]

Our church had to get a new mortgage to help pay for some major repairs this past year. Somewhat by accident I set this up in a fashion similar to the suggestions in
http://powerchurch.com/forum/viewtopic. ... age#p13514
except that it put into our Building Fund (where the money was used and payments made) and the mortgage outstanding balance was debited to our checking account instead of "Unrestricted Net Assets" (We used the money to pay for expenses in the Building Fund.)

This works our fine in the consolidated "Balance Sheet" and the "Income and Expense Statement" but causes problems with the "Accounting Fund Balances" report. First, principal payments show up in the "Direct Transactions" column which does not appear in reports that I must submit to our church and denomination. But a bigger issue is that the balances for the Building Fund are negative and I must add the current mortgage balance to the balances in this report to get the actual amount available in this fund.

Do you have any suggestions about how this should have been handled and how to correct this situation so that it isn't a continuing problem over the life of the loan?

James Brink, Treasurer.

[JohnDMeyers]

Can you show me the actual transactions you entered initially? I may have an error on the page which you referenced.

[MortonUMChurch]

The following uses simplified, fictitious numbers.

The original mortgage is listed as follows:
DB: BU-1110 Checking account 100,000
CR: BU-2615 Mortgage 100,000

A typical monthly payment is recorded as follows:
DB: BU-8072 Mortgage payment !,000
CR: BU-1110 Checking account 1,000
DB: BU-2615 Mortgage 400
CR: BU-3110 Unrestricted Net Assets 400

BU is our Building Fund. The 8072 account number is an expense
account, while 2615 is a long-term liability. In this example,
The total payment is $1000 of which $400 is a principle payment.
The nice part of the way payments are handled is that the total payment
is listed as an expense to the Building fund and the amount of the
mortgage is decreased by the principle payment as desired. However,
as said in the first question, the balance in the Building Fund is
too low by the current principle amount of the loan.

Debiting original mortgage to Unrestricted Net Assets, might
partially solve the problem but we had to spend the money so the
checking account was debited instead.

James Brink

[JohnDMeyers]

I think when you did this, you corrected my error.

The original mortgage is listed as follows:
DB: BU-1110 Checking account 100,000
CR: BU-2615 Mortgage 100,000

I showed the DB to the equity account, and I forgot to show that the deposit is coming into the checking account, so you were correct.

When you bought the building, presumably for $100,000, you can show it like this:
CR BU-1110 Checking $100,000 (or whatever purchase price)
DB BU-1810 Building Asset $100,000 (or whatever purchase price)

You now have a building "on the books" whose value is subtracted from by the liability "on the books". As the liability principle decreases, your net assets will increase.

At some point, you may want to transfer the value of the building asset to your General Fund.

Also, I went back to the post that you referenced, and made some changes, because the specific question that was asked back then was a special case, not a general case.