ACCOUNTING practice question

[Beth Leonard]

On Sun, May 20, 2007 at 03:32:15PM -0600, Arthur Dyck wrote:
> > In this way the $100 asset is still in your physical bank account,
> > but you keep track of it as being restricted for use by the Jazz
> > band.  Depending on your needs, you may wish to make a hierarchy
> > like this:
> > 
> > Assets
> >   -> Current assets
> >   -> -> Bank Account Placeholder (contains no transactions)
> >   -> -> -> Unrestricted funds (most transactions go here)
> >   -> -> -> Jazz restricted funds
> >   -> -> -> Other restricted funds
[...]
> That would work.  But how do you handle the expenditure side when you
> might be handling more than one source of income purchasing more than
> one type of materials?

Any income that has restricted uses gets deposited into the correct
bank sub-account.   That sub-account reflects the total funds available
for spending on that subject, just like a checkbook.  When you spend
funds that could come from a restricted account, the expenses get
withdrawn from the sub-account and expensed to the expense account.

For example, let's say you have a donor, Mr. Big Spender who donates
$200 to the band, $100 in unrestricted funds and $100 for the jazz
band only.  Then you buy $80 in Jazz band sheet music and $40 in pizza
for the orchestra.

You do an inital split transaction to record the donation
(by donor if desired.)

Unrestricted funds:		$100
Jazz restricted funds:		$100
Income:Mr. Big Spender:			$200

In your accounts window, it will show a balance of $200 as the
total of the Bank Account placeholder account, and $100 in each
of the sub-accounts.  Then you buy the music by writing a check
for $80 from the checking account.

Jazz restricted funds:			$80
Expenses:Music:Jazz Music:	$80

Your accounts window will now show $20 as the balance in
the Jazz funds account, and $120 in the total column for
the placeholder top level bank account.

Next you buy pizza for non-jazz muscians:

Unrestricted funds:			$40
Expenses:Food:			$40

Your accounts window still shows $20 left to spend exclusively
on the Jazz band and $60 left in the unrestricted funds account,
and $80 in the bank account total.  If now the Boys Choir comes to
you and says, "We want a pizza party too, but we're hungrier so
we want to eat $75 in pizza" you can look at your books and say
"Sorry guys, can't do that.  We only have $60 left to spend on
things other than the Jazz band."

You know from looking at the bank statement that the $75 check
won't bounce, but you also know that you'll be cheating your
jazz muscians if you go below zero in any of the other accounts.

--Beth 
Beth Leonard
http://www.LeonardFamilyVideos.com