A church is setting up QuickBooks for its accounting, but its personnel have little experience with fund accounting. What are the entries for the receipt and disbursement of designated gifts and the opening balances?
We recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles (GAAP) observe the following steps. Even those churches that do report using GAAP can employ these methods but must make some adjustments when preparing their financial statements.
What we will demonstrate relates to what most churches call "designated gifts" (CPAs call these Temporarily Restricted gifts). These are gifts that donors contribute with the intention that the church will spend the funds as they direct. Most churches do not receive "endowment gifts" in which donors prohibit the expenditure of the core gift (CPAs call these Permanently Restricted gifts). Only earnings on the subsequent investments made with these gifts may be spent and then only for the purpose stipulated by the donor.
We will illustrate assuming a church is using QuickBooks Desktop to record transactions in a designated fund called Missions. Some of these instructions may be slightly modified for churches that use QuickBooks Online.
Opening Balances entered into QuickBooks:
1. In the Chart of Accounts, establish a new account entitled Designated Funds. Categorize it as an Equity account. This account will be a title account to which no transactions are ever recorded. Enter no opening balance.
2. In the Chart of Accounts, establish a new account entitled Missions. Categorize it as an Equity account. In the Sub-Account window select Designated Funds. Enter the Missions fund opening balance. As a new QuickBooks "Company" is established with opening balances carried over from the church's existing accounting system, QuickBooks posts a balancing entry to an account called Opening Balance Equity. In most cases, once all opening balances are entered, a General Journal entry should be made to zero out this balance and reclassify it to a new equity account called General Fund Balance.
Now, the Designated Funds: Missions account should be reflected on the church's Balance Sheet which may be printed from the Reports Menu.
Next, two sample entries (the following entries assume the use of QuickBooks journal option):
1. Receipt of funds designated by a donor to missions:
$x,xxx Debit Cash account (typically, a deposit to the checking account)
$x,xxx Credit Designated Funds: Missions account
When using the "Deposit" feature of QuickBooks, the Deposit is recorded to the Designated Funds: Missions account.
2. Expenditure of funds from gifts previously designated by donors to missions:
$x,xxx Debit Designated Funds: Missions account
$x,xxx Credit Cash account (typically, a check written against the checking account)
When using the "Write Checks" feature of QuickBooks Desktop, the Check amount is recorded to the Designated Funds: Missions account
We believe that these entries represent the simplest approach to maintaining designated fund balance accounts. On any single date the Designated Fund: Missions account can be accessed for a real time balance of unexpended funds.
There are more complex approaches to managing Designated Funds. Those methods which may use either (1) separate Equity accounts for current year designated receipts and designated expenditures, or (2) the use of what QuickBooks calls “classes.” Both methods, however, require a more advanced understanding of year-end closing entries.