USA Restricted Funds - Equity Account vs. Revenue and Expense Accounts

[RTP NSBE]

I am trying to keep track of restricted funds in Quickbooks Online

I saw a YouTube video where someone recommended one method of creating an equity account. This made sense to me because I can immediately look at the account and see how much money is left. So I made a "Scholarship Fund" equity account. However, let's say, for example, I write a scholarship check and make the account for that check "Scholarship Fund," now it doesn't show up on the statement of activity because it's not counted as an expense anymore (or maybe I am missing something). Is there a solution where I can keep track of the total left in an equity fund, yet, checks written and received show up on the statement of activity report? Or if not, could someone give me a simple explanation or point me to a resource that gives a way to keep track of the amount of restricted funds there are, as well as show the expenses/revenue on the statement of activity? Or if you think I should be doing this in a totally different way that I have not mentioned, please let me know.

btw: I'm not an accountant, I'm an unpaid board member of a small nonprofit organization trying to keep track of the money.

Thanks

 

[DrStrangeLove]

Just so I'm clear, this is a private not-for-profit organization, right? Why wouldn't the payment show up in the Statement of Activity? It would have to; cash is going out the door.

You could keep a set of net assets funds (not equity--that's a for-profit thing) separated by the various kinds of restrictions (like one called "Scholarship Fund" for funds restricted only for the purpose of use for scholarships, but not restricted for time, for example). I think of private NFPs as one big pile of unrestricted cash, and a bunch of little piles of restricted funds subject to different combinations of restrictions. Cash moves from restricted piles to the unrestricted pile.

When you write the check for the scholarship, the funds come out of the unrestricted funds (Scholarship Expense DR/Cash CR). Then you move over the money from the fund restricted for scholarship purposes for satisfaction of the restriction (Reclass from Net Assets with Restrictions DR/Reclass from Net Assets without Restrictions CR) to replace the unrestricted money used for the payment. The outgoing payment will show up in the Net Assets Without Restriction column on the Statement of Activities because all expenses come out of that column. The reclass entry will make the net effect land on the scholarship-dedicated funds through one of the Net Assets Released from Restriction lines.

 

[RTP NSBE]

Just so I'm clear, this is a private not-for-profit organization, right? Why wouldn't the payment show up in the Statement of Activity? It would have to; cash is going out the door.

You could keep a set of net assets funds (not equity--that's a for-profit thing) separated by the various kinds of restrictions (like one called "Scholarship Fund" for funds restricted only for the purpose of use for scholarships, but not restricted for time, for example). I think of private NFPs as one big pile of unrestricted cash, and a bunch of little piles of restricted funds subject to different combinations of restrictions. Cash moves from restricted piles to the unrestricted pile.

When you write the check for the scholarship, the funds come out of the unrestricted funds (Scholarship Expense DR/Cash CR). Then you move over the money from the fund restricted for scholarship purposes for satisfaction of the restriction (Reclass from Net Assets with Restrictions DR/Reclass from Net Assets without Restrictions CR) to replace the unrestricted money used for the payment. The outgoing payment will show up in the Net Assets Without Restriction column on the Statement of Activities because all expenses come out of that column. The reclass entry will make the net effect land on the scholarship-dedicated funds through one of the Net Assets Released from Restriction lines.

We are a 501c3. Ok thanks. I'm sure I'm doing something wrong. Let me see if I can follow what you are saying in Quickbooks and try it out.

 

[jgilmore]

Don't use equity account for this. create a customer called "scholarship fund." when you get donations earmarked for the fund, book it to the customer. when you pay out expenses related to the fund, book against the same customer. you can run a PL (statement of activity) by customer, to show revenue at the top, expenses at the bottom, net is what you have left over.

I have 14 years in specific non-profit accounting experience. I'm happy to help.

 

[RTP NSBE]

Don't use equity account for this. create a customer called "scholarship fund." when you get donations earmarked for the fund, book it to the customer. when you pay out expenses related to the fund, book against the same customer. you can run a PL (statement of activity) by customer, to show revenue at the top, expenses at the bottom, net is what you have left over.

I have 14 years in specific non-profit accounting experience. I'm happy to help.

Ok thanks. This is one of the many methods I saw online. I also saw the method of creating subaccounts of the bank account, which I tried, but then I wasn't sure how to account for credit card purchases which don't take money directly out of the bank account.

Your solution sounds simple enough for me to implement. I will try it.

Thanks

 

[RTP NSBE]

Don't use equity account for this. create a customer called "scholarship fund." when you get donations earmarked for the fund, book it to the customer. when you pay out expenses related to the fund, book against the same customer. you can run a PL (statement of activity) by customer, to show revenue at the top, expenses at the bottom, net is what you have left over.

I have 14 years in specific non-profit accounting experience. I'm happy to help.

Question, since these restricted funds are represented as customers, what account/category should I mark the transactions as in Quickbooks Online?

Should I use a "Restricted Fund Expense" and "Restricted Fund Revenue" account?

Thanks

 

[jgilmore]

You probably have a grant revenue account. that is what I would use. if the money comes from government call it public grants. if its from an individual, call it private grant. using the customer field denotes that its restricted without saying it.
Think of the customers field as a project or program you run. QBO wont let you re-name it but that's how I'm proposing you use it.

 

[RTP NSBE]

You probably have a grant revenue account. that is what I would use. if the money comes from government call it public grants. if its from an individual, call it private grant. using the customer field denotes that its restricted without saying it.
Think of the customers field as a project or program you run. QBO wont let you re-name it but that's how I'm proposing you use it.

Ok, I see "Donors" instead of customers, although I might be missing something.

One thing I don't understand about using Donors to represent restricted fund accounts... When there is a donation, it comes from an actual donor. Say "John Deere," so that's who we fill in as the Donor. If I were to put the name of the restricted fund account that it's going into instead, how do I keep track of the donors?

Thanks

 

[RTP NSBE]

Just so I'm clear, this is a private not-for-profit organization, right? Why wouldn't the payment show up in the Statement of Activity? It would have to; cash is going out the door.

You could keep a set of net assets funds (not equity--that's a for-profit thing) separated by the various kinds of restrictions (like one called "Scholarship Fund" for funds restricted only for the purpose of use for scholarships, but not restricted for time, for example). I think of private NFPs as one big pile of unrestricted cash, and a bunch of little piles of restricted funds subject to different combinations of restrictions. Cash moves from restricted piles to the unrestricted pile.

When you write the check for the scholarship, the funds come out of the unrestricted funds (Scholarship Expense DR/Cash CR). Then you move over the money from the fund restricted for scholarship purposes for satisfaction of the restriction (Reclass from Net Assets with Restrictions DR/Reclass from Net Assets without Restrictions CR) to replace the unrestricted money used for the payment. The outgoing payment will show up in the Net Assets Without Restriction column on the Statement of Activities because all expenses come out of that column. The reclass entry will make the net effect land on the scholarship-dedicated funds through one of the Net Assets Released from Restriction lines.

DrStrangeLove,

This sounds like a great way to handle restricted accounts, however, I don't think I know enough about QuickBooks or accounting to do this in Quickbooks.

 

[RTP NSBE]

One more thing I didn't mention, say there is a "computers for students" fund. multiple corporations may give to that one fund.

 

[jgilmore]

Hello,
Sorry for the delay. I just started a new job.

Does your company use a donor database? That would be the best place to record donations by donor.