February 09, 2011

Bookkeeping for Expenses--Part Budget, Part Donation

Question:

A church bookkeeper uses Quickbooks. He asks: "How do I set up my Chart of Accounts in such a way that I can easily account for giving and spending?"

He offers the following example. The youth have a budget account for expenses of $500. The actual expenses for the youth was $1,500, but the youth raised $1,000 through donations. "So," he says, "in essence the youth ministry was on budget."

What do you recommend?

Answer:

I recommend that churches use Designated Fund accounts to record designated gifts and their matching disbursements. This provides good accounting for these gifts, plus it avoids posting income and expenses in the General Fund for which budget accounts have been established. Co-mingling these Funds can mess up budgeting and lose track of designated contributions. Here's the entries I'd recommend in the above example:

First --
$1,000 Debit to Cash/Checking to record the deposit of donations designated to the youth.
$1,000 Credit to Designated Funds: Youth (two new Equity accounts to set up with Youth as a sub-account of the Designated Funds account).

By the way, the account Designated Funds may also have other sub-accounts to account for other designated gifts categories and their subsequent disbursement (e.g., Benevolent Funds).

Second --
$1,000 Debit to Designated Funds: Youth to record the disbursement of funds for youth which were made out of designated gifts.
$500 Debit to the Youth expense account in the General Fund related to the church budget.
$1,500 Credit to Cash/Checking.

1 comment:

  1. Question:

    My question refers to your Feb 9 post about using equity accounts to keep track of designated giving/expenditures. It is appealing to me because it makes it easy to show that designated giving was indeed spent appropriately and also allows for carrying over unspent gifts from year to year.

    When you do this in QB, do you still keep track of the designated giving with income and expense accounts as well? Currently we categorize general contributions under "undesignated giving" and we have several income sub-accounts under "designated giving" to keep track of designated gifts (missions, music, etc.). Would that stay the same with your system?

    Answer:

    You will need to post designated giving receipts and disbursements to the equity accounts only. In order to provide a summary of activity for a selected period of time, QuickBooks provides Activity reports that I've found very helpful.

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