Tales From Tech 2 - Issue: Still Not Quite 31 Yet

Tech 2 is back (finally) with the beginning of a three part issue on donor restrictions.

Before we begin our discussion of donor restrictions (Volumes 31a and 31b), I wanted to take a few moments of your time to define some of the terms I'll be using in these upcoming volumes to give you a better feel for what donor restrictions are all about.

Some of the following terms will be defined more thoroughly in the next two issues, but I didn't want anyone to get lost along the way, so I thought a preview of some of the terms and concepts might be helpful. This way, you won't be scratching your head all the way through Volumes 31a and 31b (unless you have cooties).

Anyway, thinking about whether I really like pickles on cheeseburgers got me wondering about the following: If too many cooks spoil the broth, what happens if you put the broth in a pot and the pot calls the kettle black? I couldn't decide, but I think if your cookware talks, you've got bigger problems than bad soup.

DONOR RESTRICTIONS

Well, I guess since the next two volumes deal exclusively with donor restrictions, defining donor restrictions might be a good place to start.

There are several types of donor restrictions, but two of the most common types are neckties that are tied too tightly and dress shoes that are too small.

Okay, I'm just being silly. There are really just two types, temporarily restricted and permanently restricted.

In simplest terms, a donor restriction occurs when a contributor tells you how to spend (or how not to spend) the money they are giving you.

I'm not going to make it any more complicated than that right now. There will be a lot more on all this in the next two volumes of Tales From Tech 2 and believe me, you'll get your fill.

(By the way, some people call these monies designated funds, but the correct accounting term is donor restrictions.)

UNRESTRICTED

Given our last definition, we could say that unrestricted would be how you feel when you get home and you change out of your church clothes or take your shoes off, but alas, I'm joking again.

When money is unrestricted, that basically means that the contributor didn't tell you what to do with it. They just gave the church some money, so feel free to go out and buy yourself something pretty.

Okay, I'm joking here (as if you didn't know). Don't be afraid, it's what I do.

TEMPORARILY RESTRICTED (ONE KIND OF DONOR RESTRICTION)

Temporarily restricted funds are monies that can be spent, but only for what the money was designated for.

For example, if a donor gives money for the purchase of a new piano, the money is restricted. It is temporarily restricted because the money can be used when the church buys a piano, but it can only be used for that purpose.

PERMANENTLY RESTRICTED (THE OTHER KIND OF DONOR RESTRICTION)

A permanent restriction is (hold on to your girdle, Ethel) permanent. That's why these funds are called permanently restricted and not temporarily restricted. If they weren't permanently restricted, they wouldn't be permanently restricted or even restricted permanently.

Hey, that makes sense, doesn't it?

Just in case that didn't make sense, let's try an example. Let's say that a donor gives the church a million dollars and says that the church has to place the money in an account and they can only use the interest earned. If the church can never use the million dollars, that's a permanent restriction.

PASS-THRU CONTRIBUTIONS

A pass-thru contribution is basically money that the church is taking up to give to another organization. The church isn't using the money. They are giving it to another entity for their use.

If the church took up a collection to give to a local soup kitchen, then that's a pass-thru because the money is "passed through" the church to the other organization (hence the name).

RELEASE AND RELEASED FROM RESTRICTIONS ACCOUNTS

When you use restricted money for what it was designated for, you are releasing it from the restriction. To show this in the books, an additional debit and credit is added to the entry.

These additional debit and credit lines affect accounts in the income account number range. One of these accounts is called the release account and the other is called the released from restrictions account. Each donor restriction will have its own unique release account. It is debited and the released from restrictions account is credited when you spend restricted money, but more on all this later.

PICKLE

A sentient entity created by the prolonged torture of cucumbers.

EQUITY

The easiest way to understand equity is to think of it as what you're worth and in the simplest terms, it's what you have versus what you owe and it can change as you make and spend money.

FUND BALANCE

See EQUITY.

NET ASSETS

See EQUITY.

CLOSE TO

This term is also a little hard to explain, so I'll illustrate its meaning by using it in the following sentence: Ethel went to the mall to buy some perfume and some close to. (Get it? Close to. Clothes, too. I crack me up sometimes.)

Anyway, when the church makes or spends money, that can change what the church is worth and, if you've been reading and not napping through this issue, you probably already know that what you're worth is called equity.

Prior to Version 9, you could only have one equity account in each accounting fund, so everything you made and spent within the fund updated this one account. In other words, all of the income and expense accounts automatically closed to (think updated) the one equity (or fund balance or net asset) account in the fund.

Version 9 lets you use the entire 3000 account number range for equity accounts because knowing what you're worth depends on more than just income over expense.

Having multiple equity accounts gives you a more accurate financial picture because it's much easier to see how much money is designated for specific purposes and how much is temporarily or permanently restricted, etc.

By the way, the balance of an equity account changes based on the income, expense and transfer amounts that are closing to it. Since you can have multiple equity accounts, there is now a setting under the Maintain Chart of Accounts screen that you can use to change the equity account that each income, expense and transfer account updates. Just go to the Details screen for the account and look for the "at the end of the year this account closes to" line.

Well, I guess that's it for today's issue.