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Posting designated gift contributions to equity accounts

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Question: 

Why is it best to credit donor designated contributions to Designated Fund Equity accounts rather than Income accounts, as you propose in your recent post? ("Debits and Credits for Designated Gifts")

Answer: 

In most cases, the Income accounts in QuickBooks relate to the receipt of General Fund contributions. At the end of each fiscal year, those Income accounts close into the balance sheet General Fund account. The same process is followed regarding General Fund expenses.

The effect of posting designated gifts and disbursements to Income and Expense accounts which are closed into the General fund balance combines them with all other financial transactions thus zeroing out any remaining unexpended designated gift amounts.

Some ministries have avoided this by keeping a second set of records, which is unnecessary in our opinion. A charitable organization will naturally want to maintain its Designated Fund balances which will carry over from one year to the next when portions of the Designated Gifts have yet to be disbursed.

We recommend posting only undesignated gifts to Income accounts because they are used to support General Fund activity. The church's yearly budget determines the spending of the General Fund. In cases when a gift is designated by a donor, the donor determines the spending of the gift, pending approval of the church.

Despite the above simple approach, some ministries still wish to produce a Profit and Loss Statement for specific categories of Designated Fund activity. If a church is using QuickBooks, it can set up multiple Income Statements where each transaction can be associated with a specific Class. This enables a separate Profit and Loss Report to be available for the General Fund and for the desired Designated Fund activity. The total of all Classes ultimately gets closed into a single equity account on the balance sheet which itself must be separated for General Fund and Designated Fund components once the year-end is reached.

For more information on Classes see "QuickBooks Classes for Church Ministries".


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