Non-profit / charity / fund accounting, example help, please

[Michael Hendry]

> On 30 Nov 2014, at 02:30, Mike or Penny Novack <stepbystepfarm at mtdata.com> wrote:
> 
> Dale Alspach wrote:
> 
>> The only case I am aware of where funds given are a liability occurs when
>> you receive funds that are actually to be spent by someone else or on
>> behalf of someone else.  
> I thought what was being discussed was "restricted funds"
> 
> Let's use a concrete example that would fit one of the organizations for which I keep the books. An aging board member, upon retiring for the board, made a large donation dedicated to a future part project (the organization had not yet reached this stage). Now in fact he did NOT formally restrict these funds so I didn't have to do it by the liability method. But let's suppose he had.
> 
> Donation $5000 for the inoculation, testing, and roguing out the non resistant trees.
> 
> At this point the organization is still at the stage of breeding and planting trees. None of them are yet old enough to be infected with the blight (inoculation) to find out which ones are carrying partial resistance. So this donation, while money in our bank account, isn't really "ours" yet, not money we can use. So there would also be set up a liability for the same amount called "donor restricted funds".
> 
> Years go by and we reach this next phase. We hire an intern to help inoculate and evaluate tree. OK, that's an expense that qualifies according to the terms of the restricted donation. So in addition to the normal transaction paying the intern, that same amount may be transferred from
> "donor restricted funds" to "funds released from restriction"  (from liability to income).
> For another example, we might have received a grant, $5000 for deer fencing around our orchards. So far I haven't had to deal with grants where the money was received in advance, but if I did would have to carry a liability for the amount until the grant was "earned" (in this case, spent on deer fencing)
> 
> I would be very surprised if Habitat for Humanity does not receive grants or other donor restricted donations.
> 
> 
> Michael


I have a somewhat similar situation involving my wife and myself and our personal accounts.

UK Inheritance Tax has a seven-year rule, which makes any gift in the seven years before a donor’s death liable to Inheritance Tax. There are exceptions, one of which is a £10,000 gift to a child on his or her marriage.

When I started Inheritance Tax planning some years ago, none of our four children was married, and we planned to give the full £10,000 to each.

I set up an account to keep track of this (and to remind me of the commitment) called Liabilities:Marriage Gift Reserve, which started with a £40,000 balance.

Both of our sons are now married, and when I signed the cheques I posted the transactions to the Current Bank Account and Liabilities:Marriage Gift Reserve respectively.

The balance of £20,000 will continue to appear on our Balance Sheets until the condition of payment is satisfied - which I think is analogous to the restricted funds problem described by the OP.

We have a similar situation regarding the Charities Account of our local Rotary Club (for which I am not the treasurer!). Some of our charitable collections are ear-marked for Water Projects overseas, but aren’t spent until the work is actually done. We have recently found ourselves in the awkward position of overcommitting funds to other projects because the apparent balance in the Charities Account is so high.

Michael

PS I am not an accountant, and the way I do things may be sub-optimal. I do believe, however, that there is clarity in the way these matters are handled, and that the unfortunates that have to deal with my affairs after I’ve gone will be able to work it out.

To Wm., the OP, I hope that you’ll realise that this list is for the discussion of Users’ issues with the use of the GnuCash book-keeping system, and not for advice on Accountancy. Michael Novack sometimes comes on a bit strong when emphasising this, but a professional giving advice in his own field of expertise has a duty to be in full possession of the facts when doing so - not a likely situation in an online forum like this.