A recent question came up on how certain designated funds should be reported on our balance sheet – we have funds like benevolence, scholarship, etc. – a previous treasurer changed these accounts from liability to equity and now we have another individual saying that these accounts must be liabilities; any recommendations on which way is correct?
Unless the ministry is undergoing a certified audit or otherwise committed to strictly following Generally Accepted Accounting Principles (GAAP), I believe the classification is irrelevant. The key point is that the unspent balances will be carried over from one fiscal year to the next.
For us accountants:
Technically, the accounts are equity accounts in not-for-profit organizations following FASB 116, which stipulates this treatment in order to comply with GAAP.