Earmarking funds for specific purposes

[Stuart Brown]

FYI

I just set up a chart of accounts for a non profit that had temporary 
restricted funds and worked out using it with  2 years of transactions. 
There are free resources describing the principles and common use cases 
for restricted/unrestricted, which I found with simple searches.

Basically, the way I decided to do it based on this particular non 
profits way of working is using split transactions.

Expense example:

1.1 dt restricted net asset, cr income release restricted

1.2 dt expense, cr checking

The purpose of 1.1 is in essence transferring the restricted fund to 
unrestricted, where it shows as income, which is matched by the expense 
from unrestricted in 1.2. This results in a balance sheet that has a net 
0 to unrestricted, but you are also able to track your expenses ( 
important for showing what you spent on your programs ).

Cash coming in if restricted by the donor credits the restricted fund 
directly. However, they were also running programs that received income, 
which was later split between unrestricted and restricted, so in that 
case, where that split was not happening until the program was over and 
all expenses paid, the income was going into unrestricted and then there 
was a transfer to restricted at the end of a part of the net on the 
program.

If you are doing a non profit you also need to track admin vs program 
expenses and income, I did this by creating two placeholder accounts 
each in income and expenses, and then having the transactional accounts 
under those.

As mentioned below, this is driven by what is needed for later reporting.

I had never used gnu cash before, and I was impressed that I was able to 
do everything I needed to do with minimal fuss.



On 11/27/2016 11:33 AM, Mike or Penny Novack wrote:
> 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
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