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?
I recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles 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 I 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 the gift money may be spent and then only for the purpose stipulated by the donor.
I will illustrate assuming a church is using QuickBooks to record transactions in a designated fund called Missions.
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: Mission account should be reflected on the church's Balance Sheet which may be printed from the Reports Menu.
Next, two sample entries.
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
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)