[GNC] BotanyBayGardens nonprofit example, and why GnuCash does not suffice

[David Cousens]

Will,

I think it is a case just of not only doing the right thing but being seen to do the right thing. All is OK until
someone with an axe to grind sees the books when they are not yet in a completed state. It is your protection against
accusations of fraud or misappropriation of funds etc. Probably not a problem unless things go sour, but that is when
you need the protection and it happens frequently enough.

David Cousens


On Sat, 2020-07-25 at 13:02 -0500, will at theprescotts.com wrote:
> As I said earlier, I am not an accountant just a volunteer keeping the books for a couple of groups. Michael comments:
> "and NOT currency sitting around undeposited (of course don't do THAT)."
> 
> I do do that and wonder why it is a bad idea. I frequently get incoming cash, mostly from T-shirt sales. And I
> occasionally have to pay for minor expenses so I generally have some cash around. I fully account for the income and
> expenses out of this fund to the penny. If there is a major income or expense in cash, that is handled with a bank
> withdrawal or deposit with only the change going into the cash box. Generally I have about $1000 to $2000 mxn on hand
> ( = $50 to $100 usd). 
> 
> Should I change my habits.
> 
> Will
> 
> 
> On 2020 Jul 25, at 07-25 12:38:53, Michael or Penny Novack <stepbystepfarm at comcast.net> wrote:
> 
> I am going to jump in here because I strongly disagree with a lot of this. I have used gnucash quite successfully with
> non-profits. But they have different needs.
>  a) "Petty cash" is NOT "undeposited cash". And that's not what is usually meant by "undeposited cash. Thus NOT the
> little individual amounts collected at an event and NOT currency sitting around undeposited (of course don't do THAT).
> But no, many of us not in the position to drive to town every day to make bank deposits. CHECKS received are "cash" to
> the organization when received, not when you get around to depositing them. Petty cash unlikely to be of use unless
> the organization has an office, etc. A "petty cash" book (usually a subsidiary set of books) is so that every little
> transaction for paper, pencils, pens, etc. is recorded outside the main set of books. Gets there say once a month as a
> total "office supplies" while restoring the petty cash account.
> 
> b) Yes could have credit cards. One of my organizations did/does*. A BUSINESS sort of credit card, various people
> authorized having cards with all reported to a master account #. SOME of us in this category able to just lay out
> large amounts from personal funds to be reimbursed but others not. There's no fees/interest if the balance paid every
> month.
> 
> c) Mind, I never expected "finished product" reports out of gnucash. Export the raw report data and then copy that
> into a document for editing. Going to be adding annotations at the very least.
> 
> d) I'm not going into the pledge accounting problem, but CURRENT pledges are legally receivables. Pledges of future
> amounts not receivable until the time specified in the pledge. It is besides the point that organizations rarely try
> to enforce collection but with large amounts (and special circumstances)  it has been known to happen. Membership orgs
> may need to be able to produce "statements" for members (but membership "dues" are NOT legally receivables). This all
> gets tricky when the organization is legally "cash basis".
> 
> Michael D Novack
> 
> 
> 
> * We finally got  younger person for Treasurer instead of the Board every year passing a special measure to keep me on
> beyond the maximum term in the bylaws. In other words, the organization still does have them, but no longer my
> responsibility.
> 
> 
> 
> 
> On 7/24/2020 11:13 PM, doncram wrote:
> > Here is an example set of accounts set up as best possible for a real
> > nonprofit, "Botany Bay Gardens".  This might be enough guidance for a few
> > nonprofits.  But I explain why/how GnuCash usually fails for nonprofits,
> > how it usually cannot serve them well enough, so a Treasurer coming here
> > should probably decide to use Quickbooks (in its Pro version, or in a
> > version packaged for Nonprofits) instead.  Unfortunately the visiting
> > Treasurer's time is usually wasted, even more so if they proceed with
> > trying to implement GnuCash, because they can't tell in advance how it will
> > not work. I wish GnuCash would make a few changes, so nonprofits could be
> > served.
> > 
> > Recently Fiona and Joshua (and last year BigAl) asked questions about
> > how/whether GnuCash accounts could be set up to handle a nonprofit.  Here's
> > how: see the attached Chart of Accounts, Balance Sheet, and Income
> > Statement, for a real nonprofit, "Botany Bay Gardens" (not its real name),
> > and the following notes:
> > 
> > 1. Setting this up in GnuCash just now did not take me terribly long, but I
> > already knew well what are the accounts that are needed and how I want them
> > organized.  This is in the United States. I previously reviewed some
> > similar but bigger nonprofits reporting in their publicly available U.S.
> > Internal Revenue Service Form 990 financial statements filings.  And I
> > worked with the board and determined how their previous reporting system
> > did not work for them, as well as how it would not work well for their IRS
> > 990 reporting which they are soon required to start, because the nonprofit
> > is growing over the reporting requirement threshold.  Take some time and
> > design out your own chart of accounts in a spreadsheet, and revise as
> > necessary with others' input.
> > 
> > 2. You have to use account numbers (which are optional in GnuCash and in
> > Quickbooks, but if you use them, they set the order) to make your reports
> > presentable, with ordering that makes sense for your organization.
> > Otherwise the default alphabetical order is maddening.
> > 
> > 3. I prefer to set up one "Placeholder"-type account titled "Cash", which
> > in this case contains two items:  the organization's checking account and
> > its investment account with a local foundation (which charges fees but
> > handles investment of spare funds and assists in fundraising in various
> > ways).  These are both convertible easily to real cash.  I don't use a
> > "Petty Cash" account, because any cash collected in this nonprofit, say at
> > a fundraising event, should be promptly deposited into the checking
> > account.  You don't want to record each tiny separate addition to the petty
> > cash you have in hand (and indicating each as Fundraiser ticket sales
> > revenue or whatever);  you just want to record one big deposit of all of it
> > into the checking account (with just one entry recording the ticket sales
> > in total).
> > 
> > 4. Note the way "Cash" is defined is consistent with U.S. and all other
> > countries' accounting standards:  it is what is really liquid.  It would be
> > nice if GnuCash provided a Statement of Cash Flows, one of the 3 basic
> > accounting reports, but it does not.  The SCF would provide a
> > reconciliation of income (from the bottom line of Income Statement) to the
> > actual change of cash from beginning to end of period.  Showing how changes
> > in Accounts Receivable and Accounts Payable and Inventory and other current
> > assets and liabilities have used up or generated cash, and so on.  SCF
> > reporting is maybe not crucial for a nonprofit, but GnuCash's lack is a
> > factor in why Quickbooks is used instead for this nonprofit.
> > 
> > (Long, side comment or rant, please feel free to skip:  GnuCash does have a
> > feature labelled that way, but it is a report invented by computer
> > programmers with no concept of what cash flow reporting actually is.  It
> > has no resemblance to the very well-defined SCF as taught in accounting
> > classes for all business students and as used in real life for businesses
> > and nonprofits.  No offense at all is intended; I have the greatest respect
> > for the GnuCash programmers, current and past, who have achieved so much.
> > And I even admire how GnuCash's alternative is kind of clever, although in
> > an odd way not actually useful to anyone.  Note the omission renders
> > GnuCash less feasible for using in an intro accounting course, for
> > example.  (You can, with unnecessary work in a spreadsheet, compose a SCF
> > for your organization though.  There is a structured exercise often
> > provided in intro accounting textbooks, where students do that, working
> > from the Income Statement for the period plus beginning and end Balance
> > Sheets, plus additional information.  It is just a mathematical, easily
> > programmable thing, but it is very hard to get right when doing on your
> > own. Accounting rules in all countries, at least for publicly traded
> > companies, have required their financial statements to include the SCF,
> > during at least the last several decades.  In the U.S. since 1989 or so.
> > End rant.)
> > 
> > 5. The nonprofit actually does accounting mostly on a cash basis:  pledges
> > of future donations are not recognized and recorded as Accounts Receivable,
> > bills due but not yet paid are not recorded as Accounts Payable.  It is
> > simpler just to recognize those when you receive or send out payment.  And,
> > at the end of the year, some expenses actually paid on January 2nd, say,
> > but relating to a December 28th event, are recorded as having been paid on
> > December 31.  This is simpler than recognizing the expense on December 28
> > and setting up an Accounts Payable, and has the same effect in achieving
> > matching of revenues and expenses in the past year period.  (So the Chart
> > of Accounts should probably not have AR and AP, but I left them in, in this
> > example.)
> > 
> > 5. There is no Credit Card account as I don't see why a nonprofit would
> > have a credit card.  It should have a debit card or two usable by the
> > Treasurer and the President, say.  For a purchase, say, you just make one
> > entry, of the reduction of checking account balance by the debit, and which
> > expense category applies.
> > 
> > 6. There is no Paypal account in this nonprofit's reporting, although this
> > nonprofit does sell tickets and receive dues there, so in fact sometimes
> > there are significant balances there.  But before closing any period, the
> > accountant can just transfer the balance at Paypal to the checking
> > account.  Perhaps dating the transfer on December 31, say, even though it
> > actually is implemented on January 15.  Each Paypal transaction can be
> > recorded just once, on date Paypal received the funds, as an increase in
> > checking balance and recognition of ticket sales revenue.  Or maybe it
> > would be better to show a Paypal account, as part of Cash.
> > 
> > 7. This nonprofit is simple in having no direct employees, so no payroll
> > expenses and no accounts to handle Social Security contributions or to
> > handle required Workmen's Compensation expense, etc.  Instead the one
> > hourly paid gardener person (say they get $15 per hour) is actually set up
> > by a local temp agency as an employee of theirs.  The temp agency issues
> > paychecks and pays the necessary taxes, etc., for charge of something like
> > $18 per hour.  The gardener's expense, for the nonprofit, is in "Operations
> > Contract Services".  The nonprofit also has website and social media work
> > done by an independent contractor.  At the end of the year, the nonprofit
> > does issue 1099 statements for this contractor and for any companies whose
> > payments during the year were
> > 
> > 8. Where GnuCash really fails for this nonprofit, though, is that it does
> > not support Job Costing.  Job Costing is not apparent in an organization's
> > overall, total reporting.  It provides for internally useful reporting.
> > This nonprofit has multiple separate gardens which constitute different
> > programs, some of them individually funded by a separate grant, for which
> > tracking of expenses is required.  It has several fundraiser events each
> > year, and the organization needs reporting that shows how it does in each
> > one.  Job Costing, as can be done in Quickbooks, provides that.  For a
> > construction firm, say, it would allow tracking of each separate job (e.g.
> > each renovation or new house construction) so the revenues and the expenses
> > for each one is reported.  An Income Statement by Job is a standard report,
> > providing a column for each separately defined job and in total for the
> > organization.  And management can try to figure out which types of jobs are
> > more profitable, and why.  For a nonprofit, the Job Costing feature allows
> > you to show a restricted grant that is received as revenue in a given job,
> > and for you to document the usage of those monies by expenses charged to
> > that job.  This is essential.  By the way, you can also budget by job, and
> > have reports on Budget vs. Actuals by Job.
> > 
> > (Another rant, sorry:  When new users come to GnuCash and ask about job
> > costing, unfortunately they get a lot of misdirection, or at least that is
> > what I have seen a few times a few years ago.  They may be directed to
> > expand their Chart of Accounts to add a new separate revenue line for each
> > job, and a new line for each type of expense incurred in each job.
> > Consider a catering firm with 100 or 200 similar jobs each year.  The Chart
> > of Accounts would rapidly become unworkable, and even though the
> > information is separately recorded, standard reports don't work, either.
> > If Job Costing is supported, the Income Statement by Job report, run for a
> > specified period, would nicely show columns for just the jobs that were
> > active in that period, lined up nicely side-by-side.  Some advice I have
> > seen given out seems crazy.  And I think it would be fairly easy,
> > programming-wise, for GnuCash to allow definition of job codes.  In each
> > entry in a register or journal entry, the user would be allowed to select
> > which job is relevant, if any, in an available job code field.  End this
> > rant.)
> > 
> > I'll stop here.  The last numbered note above is why GnuCash can't be used
> > for the Botany Bay Gardens nonprofit, while an oldish copy of Quickbooks,
> > the Quickbooks Pro 2017 version, does suffice.  Like many, I personally
> > dislike most commercial accounting software (for how they drop features I
> > need, how they add junk i do not want, and how they try to charge more and
> > more, among other reasons) and I do like freeware in general and GnuCash in
> > particular, as far as it goes.  But I cannot be at all professional and
> > impose usage of software that does not provide the internal reporting that
> > this nonprofit organization needs, when Quickbooks can do it (at least in
> > the Pro version, at one-time expense of $300 or so, although the software
> > tries to make you upgrade after 3 years by cutting off some functionality).
> > 
> > I hope this helps someone.  Please do comment!
> > --Don
> > 
> > P.S. While writing this, I realize the Chart of Accounts that I share omits
> > a few things that the real nonprofit has, and that I discuss above:  for
> > example it does actually need and use a grant revenue account line to
> > record the grants received into its various jobs.  Feedback about these
> > PDFs as teaching examples would also be appreciated.
> > 
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> 
-- 
Dr David R Cousens
B.Sc, M.Prof. Acc., Ph.D., G.C.Ed