(no subject)

[Mike or Penny Novack]

On 6/2/2017 12:45 PM, Mick Hartzell wrote:
> Eneko,
>
> Remember this:
> In accounting Debits must equal Credits.
> .........
>
> Assets = Debt + Equity.
>
> Mick
  It will perhaps be better if we do not oversimplify, using assumptions 
that might be wrong.

A debt is a liability, but a liability is not necessarily a debt. Not in 
the way we ordinarily think about debts.

To give an example. Suppose the entity is a church (a non-profit) and it 
has been decided that a new church bus is needed. A campaign is begun to 
raise the necessary funds. Donations are solicited FOR THIS PURPOSE. One 
proper way to be accounting for these donations as they come in is to 
establish a liability account "restricted to bus" under the liability 
account "donor restricted funds". As donations (for the bus) come in, 
debit bank account and credit this "liability".

Temporarily, at least, that money IS in the bank account and available 
for cash flow, with the fact that it ULTIMATELY isn't "there" reflected 
in that liability.  When the bus is purchased, that is a debit to "bus 
basis" and a credit to cash AND the treasurer enters a transaction to 
debit "restricted to bus" and credit "donations -- bus fund". 
Essentially NOW those donations have been :earned" by the organization.

I said "one proper way" because there are alternatives. Which 
alternative best might depend on the legal strength of the restriction, 
the FORMALITY of the restriction.

Michael D Novack