What is the best approach to recording the receipt and disbursement of designated gifts in QuickBooks?
There are three ways we recommend tracking receipts and disbursements for designated gifts. Each of these alternatives will come to the same conclusion at year end on the Statement of Financial Position (aka, the "Balance Sheet"), showing the same beginning- and end-of-year balances.
1) The first approach is to post the receipts and disbursements of each designated fund throughout the year to a single equity account. The benefit of this is that you will always have a real-time balance of remaining funds. The total receipts and total disbursements can also be viewed on QuickBooks by creating a "Transactions by Account" report and view the total credits (receipts) and debits (disbursements) of the desired designated fund. An additional benefit is that no year-end closing entries need to be made, as everything is posted directly to the equity account.
2) The second approach makes use of two subaccounts for each designated fund, one for current year receipts and one for current year disbursements. The title account maintains the beginning of year balance throughout the year. This option allows total year-to-date receipts and disbursements to be viewed on the face of the Statement of Financial Position. The current fund balance can then be determined through the combination of the beginning balance (the title account) and the two sub accounts. At the end of the year both the receipt and disbursement accounts must be closed to the title account to update the balance for the beginning of the next year. We recommend that these closing entries be dated the first day of the new year. While both the title account and subaccounts are visible on a detailed Statement of Financial Position, QuickBooks also enables the subaccounts to be hidden. When hidden the report will display the combined year-to-date balance in a single line item on a Statement of Financial Position that can be more readable.
3) The third approach makes use of QuickBooks' class feature. A class is set up for each desired designated fund, and every transaction relating to the designated fund is posted under that class. Using this option, the balance shown on the Statement of Financial Position remains the same as the beginning balance all year. This is an obvious disadvantage as the real time balance on any single date equals the beginning balance on the Statement of Financial Position plus the net increase or decrease on a per class Statement of Activities. However, by using classes for designated funds a separate Statement of Activity (aka, the "Profit & Loss") can be presented for each fund. This also allows for a budget to be created and compared to the specific designated fund class. At the end of the year the net profit or loss from each class should be closed to its related designated fund equity account on the Statement of Financial Position.
Each approach for posting designated gifts gives an accurate record of designated fund receipts, disbursements and ending balance. It is also important to note that a church or Christian ministry may use a combination of these approaches.
For example, a church might use the first approach to record love offerings for speakers. This would allow them to record the in and out postings of the transaction directly to an equity account. The church can also use the second approach for its benevolence fund, allowing its leaders and members to easily view the total benevolence received and disbursed during the current year. The same church can also use classes as discussed in the third approach for tracking a faith promise missions fund. By creating a class for faith promise missions, it can create a budget for each missionary and create reports comparing actual and budgeted disbursements.
Remember it is important to consider which option works best for your ministry, as each approach has its benefits. While using a combination of the approaches can provide some benefit for different designated funds, it may not be worth the extra time and complexity it adds.
QuickBooks Classes for Church Ministries