Earmarking funds for specific purposes

Aaron Laws dartme18 at gmail.com
Mon Nov 28 14:34:16 EST 2016


On Sun, Nov 27, 2016 at 11:33 AM, Mike or Penny Novack <mpnovack at mtdata.com>
wrote:
>
> 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" >>
>

Thanks for this information! I'm hoping to get a better understanding of
this. Is this an accurate example of what you're describing:

When restricted funds (for new windows, say) are received:

Transaction 1:
Funds (asset)                      <amount>
           donations (revenue)                    <amount>

Transaction 2:
restricted donations (expense) <amount>
           window (liability)                                    <amount>

You didn't mention this "restricted donations" expense account, but you did
mention a "special income account ... funds released from restriction"; do
you use this special income account here, or do you have a corresponding
expense account like I have shown, or something else? And when restricted
funds are spent (released/unencumbered):

Transaction 1:
windows (expense)           <amount>
                Funds (asset)                     <amount>

Transaction 2:
window (liability)                                <amount>
                 funds released (revenue)                   <amount>

What is your impression of eliding these transactions like so:

Receiving restricted funds (for new windows):

Transaction 1:
Funds (asset)                 <amount>
             window (liability)                    <amount>

Spending restricted funds (relieving the encumbrance):
Transaction 2:
window (liability)             <amount>
             Funds (asset)                        <amount>

I'm guessing this is unacceptable because this makes the Profit & Loss
statement misleading?

Thank you again for sharing your expertise.


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