Setting Up and Tracking Donor Restrictions

The Donor Restrictions functionality was added in Version 9 of PowerChurch Plus and allows you to track the available balance of restricted funds from one year to the next. Without this, you would have to use any number of workarounds, including setting up sub-accounts of the checking account, transferring income amounts to asset accounts at year end, or some even worse ideas. Many have tried and successfully set up and used the Donor Restrictions tracking over the years, while many others have had their minds blown trying to understand all the moving parts and follow the flow of money through the entire process. This article, we hope, will demystify the Donor Restrictions features and help convince those of you who have given up on it to give it another try.

The way the system is designed to work, it simply needs to be set up correctly in the beginning, then you hardly ever need to think about it again. You will not be transferring funds around, making adjustments, adding new accounts or anything else after the initial two or three minute setup process. When writing a check to spend restricted money, click the Release From Restriction button, and PowerChurch Plus will take care of the rest.

About the accounts

There are three accounts involved in each Donor Restriction. The initial income account, which is hit when you take in restricted money from Contributions or other sources. There is a release account, which is used when spending restricted money. You don't need to worry about this one once you have set it up. The last account is an equity account (also known as Net Assets or Fund Balance). This is the account that should always show the available balance of the Donor Restriction. You will see it on the Balance Sheet.

Different types of restrictions

In most cases, when dealing with Donor Restrictions, you are dealing with Temporarily Restricted funds. This means that you are allowed to spend the money only for what the donor specifies. They can also be Permanently Restricted, but that money can never be spent and is more frequently an endowment in a long term investment account.

In the following example, the church has gotten estimates for having the interior of the building professionally repainted, but will not be able to fit it into the budget this year. Members begin donating money specifically for this purpose.

Setting up a new Donor Restriction

To set up a new restriction, go to Accounting > Fund Accounting > Maintain List of Donor Restrictions. In Version 11, this is in the Setup sub-menu of the Fund Accounting menu. Click the Add button.

This screen asks for a descriptive name for the Donor Restriction, and which Accounting Fund you will be adding the accounts to. Once finished entering this information, click Next.

This step deals with the equity account. By default, the restricted equity accounts are in the 3200 range. You'll notice a checkbox option that reads "Use existing account". If you have already gone through the trouble to set up the accounts, then you can use this Add New Donor Restriction process to link all the existing information together. If you don't already have the account set up, you can provide the information in the fields at the bottom of the screen. Refer to the list of existing accounts to decide which account number you would like to use and what report level to assign. Click Next when finished.

The same principle applies here on the income account. By default, the Temporarily Restricted income accounts fall into the 4200 number range. You can add a new account or pick an existing account, and refer to the list of existing accounts to choose the account settings. Click Next when finished.

By default, the release accounts for these Temporarily Restricted accounts fall into the 4800 number range. You can add a new account or pick an existing account. Click Next when finished.

It is optional to add an expense account. For this example, there will be multiple expense accounts for supplies and labor for the painters, so we won't bother adding a new expense account this time.

Since most or all of the money coming in for this Donor Restriction will be from Contributions, we will want to add a new Contribution Fund. You can choose an existing Contribution Fund if you already have it set up, or add a new one like we did above. It is important to note that all money coming in to whatever fund you select here will be treated as restricted. This is an optional step and if you do not wish to connect the restriction to a Contribution Fund, you can simply click Next without entering anything.

That's it! Click Finish and everything will be added.

Contributions income

When money comes in from Contributions for repainting the building, you would enter it just like all the other contributions for that date. When they are posted into Fund Accounting, PowerChurch Plus will automatically handle making the money restricted. There are lots of moving parts behind the scenes to make this happen, but to use it, you don't have to worry about any of that!

Spending restricted money

Now, the only other thing to worry about is when spending restricted money. In the example below, we are working in the Accounts Payable > Maintain Open Invoices screen to generate a check to the painters to get started working. This transaction looks like any other transaction would; credit the checking account and debit the expense.

At the bottom left of the screen is a "Release Restricted Funds" button. Click that and the following screen opens up.

If you have multiple Donor Restrictions set up, each will show in this list. Select the one that you wish to release money from and click Next.

The amount of the invoice is automatically entered in the amount field. If, in this example, we had only $400 left in the restricted equity balance, but need to write a $500 check, then we would actually release $400. Click Finish.

PowerChurch Plus will automatically add two additional lines to the transaction that take care of moving the money out of the restricted equity account and make it available to be expensed. That happens behind the scenes, though. We won't worry about that here. Click Save.

When the transaction is posted, the Balance Sheet will show an accurate balance in the restricted equity account. This amount will carry forward from year to year until you release and spend it.

More information

There is a ton of detail available on our web site about all the inner workings of the Donor Restrictions tracking. For inquiring minds that just need to have all the gory details, please refer to the following article in the Knowledge Base on our web site: Accounting For Contributions