Restricted Contributions - Closing Accounts

[RLM]

According to the POWERchurch Plus 11 book regarding a Restricted Contributions Equity Account: Both the income and the release accounts are set to close to each specific equity account.

My question is regarding the expense accounts, must they also close the same equity account?

I have five funds that use the same checking account 01-1110-000, 03-1110-000, 07-1110-000, 08-1110-000 & 09-1110-000. The all close to the same equity account (xx-3110-000) within their respective funds. Fund (01) GENERAL FUND and the (03) MISSIONS FUND share expense accounts between them.

I have $600 in donor restricted money that is to be divided up between four expense accounts (shared). The money was shown as income in Fund (03) MISSIONS FUND and the accounts within that fund were created as follows:

3225-101 King's Kids Missions
4225-101 King's Kids Missions Inc
4825-101 King's Kids Missions Rel
4999-000 Released From Restriction

Per instructions in the PC+ v11 book, I have set the 'income' & 'release' to close to the new equity account 03-3225-101. So far so good.

Now, when I attempted to add the first of the four expense accounts 01-6016-365 to Fund (03) I see a message that says *In Fund (03) the account 6016-365 "name of account" Closes to 03-3110-000. My question is this: do I now need to change each of those expense accounts to close to 03-3225-101?

I am o.k. with that until I have another donor restricted contribution that comes through from another group that uses the same expense account and have to create yet another equity account for that restricted contribution income & release account to close to.

Does this make sense?

[JohnDMeyers]

You don't need to restrict your expenses.

Donor restrictions are on the contributions that they give. They request that the contribution be "restricted" either temporarily or permanently.

Expenses are made normally. To the extent that they use "restricted" money, that "restricted" money is "released" (moved from the restricted line in equity to the non-restricted line in equity) to cover the expense.

I'm being wordy on purpose, so that anyone reading this can get their arms around the the restricted concept.

[RLM]

O.K., I think that I get that. So having the 'income' & 'release' account CLOSE TO a unique equity account is the 'restricted line' then? For those of us that do not have the luxury of having an accounting background, the CLOSE TO piece of it is a bit confusing....

[JohnDMeyers]

Sorry about the jargon. I have a background as a high school math teacher, not an accountant, so I try to use understandable language most of the time.

Here is a thread where the "closes to" was discussed a little:

http://powerchurch.com/forum/viewtopic. ... ted#p15315

To say it another way, the use of Temporary Restrictions or Permanent Restrictions gives a non-profit organization a way to honor a donor request and still give a tax-deduction to the donor for the gift.

The "line" that I was talking about is the "line" on your balance sheet report in the equity section, where the amount appears either as a restricted amount or a non-restricted amount.

For each restriction, you need three unique accounts. You have those set up correctly:
3225-101 King's Kids Missions
4225-101 King's Kids Missions Inc (closes to 3225-101)
4825-101 King's Kids Missions Rel (closes to (3225-101)

and there is one general release account:
4999-000 (closes to 3110-000)

When you receive a gift of $1000, it looks like this:
DB 1110-000 checking (nothing to do with the restriction)
CR 4225-101 (which increases a restricted equity account, when it closes to 3225-101 on the balance sheet)

When you release the $1000, you do two things:
CR 1110-000 (nothing to do with the restriction)
DB 6016-365 (nothing to do with the restriction)

DB 4825-101 (which decreases a restricted equity account, when it closes to 3225-101 on the balance sheet)
CR 4999-000 (which increases a non-restricted equity account, when it closes to 3110-000 on the balance sheet)

What the release does is decrease 3225-101 and increase 3110-000 "behind the scenes" and keeps track of the organizations restricted or non-restricted amounts.

[RLM]

Thank you John - your comments have been quite helpful. Thank you for adding meat to the bones, other users will benefit quite a bit from this thread I am sure. It is so nice to have some of these questions answered and be able to do it correctly the first time.

[JennyB]

I am one who has benefited from this thread!

I do have a question, however. I set up my restricted accounts through the Accounting Setup so I'm fairly confident that it was done correctly. However, when I received some of my restricted money it didn't change the balance in the corresponding equity account.

So, my entry upon receiving money was...
DB 01-1110-103 checking
CR 01-4210-101 benevolence


However this entry did not affect the balance in my benevolence equity account 01-3210-103. Did I set something up wrong? When it says it "closes to" that account is that done automatically?

[JennyB]

Hmm...

Ok, I found that if I look at the Trial Balance report then the balances are not correct in the equity accounts. However, on the Balance Sheet they are. So, I guess the accounts must be set up correctly. I was just looking at the wrong report.

[JohnDMeyers]

I believe if you run an Account Activity on 01-3210-103, you will see [system generated] amounts.

These are the amounts that are currently showing as income on your Income and Expense statements, that will "close to" equity after you close the last month in your fiscal year (usually December).

Depending on what reports you run, you may or may not see the equity amount.

----------------
A simple example is if you took in $100 for the year, with no expenses, and no starting balance, you would see this:

Income $100.00
Expense $0.00
Income over expenses $100.00

Balance Sheet $100.00
Equity [system generated] set to close to this account $100.00

After closing the last month of your fiscal year, you would see this:

Income $0.00
Expense $0.00
Income over Expenses $0.00

Balance Sheet $100.00
Equity Beginning Balance $100.00

You should be able to verify that you are set up correctly, if you look at the various reports.