Earmarking funds for specific purposes

[Mike or Penny Novack]

On 11/27/2016 7:22 AM, Anita Graves wrote:
> Please tell me how I can account for earmarked funds, i.e., funds contributed in cash and deposited in the bank account, but tagged (earmarked) to be spent in the future for a future specific purpose.  I think these funds should be held in a ‘Liabilities’ account, a separate liabilities account for each specific purpose, but how do I account for them in the debit/credit scheme.  They cannot be a credit against the checking account, and they accumulate until such time as they are dispensed thru the checking account for the purpose for which they have been marked.
>
I am going to address this in terms of what is standard for non-profits 
(restricted donations are common), but if simply your own purposes, you 
have a lot more freedom. Please note that this is not about gnucash, per 
se (if you knew how to do this the old fashioned way pen and ink on 
accounting lined paper you would know how to do it in gnucash)

Formally, legally restricted funds. These are funds that are restricted 
by the wishes of the donor when the donation expressed in those terms 
(as opposed to something like "I'd like you to use this for BUT you can 
use it wherever if you need it"). Yes, those are dealt with as a 
liability. The money is in the bank account but there is a corresponding 
liability. One of the responsibilities of the Treasurer would be to keep 
track of whether the conditions of gift have been met and release the 
appropriate amount of restricted funds << I use a transaction debiting 
the liability and crediting a special income account with a name like 
"funds released from restriction" >>

There are other things that could be legal restrictions (a for profit 
might have a required "sinking fund" to retire a bond issue, etc. )

Informal restrictions I do not handle with liabilities. If you don't 
want a separate bank account, you can partition your account placing the 
special funds as children. You can still reconcile against the bank 
statement by including all the children (or if you have also made the 
"actual" checking account a child, against the parent total). The 
process of releasing funds is similar, you credit the special fund and 
debit general checking, etc. My organizations tend to have a LOT more of 
these "informally restricted" funds than formal ones. << say we agree 
among ourselves on the board to "pass the hat" to raise funds to pay the 
plane ticket of a guest speaker we want >>

I suggest that most of you who are doing personal restrictions (like 
"vacation fund", "Christmas fund", etc.) use the informal method because 
that is a closer match to the reality that this is purely voluntary, not 
legal. In other words, if you were being asked "what are all of your 
liabilities?" these shouldn't be in the total. If you are choosing to 
use the liabilities method, I'd suggest a top level partition of 
liabilities into two children, "outside liabilities" and "virtual 
liabilities"

Michael D Novack

Michael D Novack