USA Endowment - asset or interest?

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Hello,

I just started an accounting job at a church and am trying to clean up the books. A few years ago, the church took donations to give an endowment to a community fund. It's listed as an asset on the balance sheet. My question is should the whole endowment be an asset or the interest thats accrued? Thank you in advance.
 

BIG E

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What's listed as an asset - the Cash received? If yes, it should be.
What you should be concerned with is how does the Credit entry appear?
If the money was marked for a specific purpose, then it should show up as a liability until it's been paid out.
 
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Let me clarify. It's not our endowment. It was donated to a community foundation in which we can only collect the interest from it.
What's listed as an asset - the Cash received? If yes, it should be.
What you should be concerned with is how does the Credit entry appear?
If the money was marked for a specific purpose, then it should show up as a liability until it's been paid out.
 

BIG E

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When your organization received the funds, there should have been a segregation of the endowment payment vs
the interest income, something similar but not the same as recording an installment debt and segregating the
debt value vs the interest expense portion.
So the entry should be
Dr. Cash (church's interest portion)
Dr. Cash (endowment payment)
Cr. Endowment Payable
Cr. Interest Income
 
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Hi @Laleda62

Would be curious to know a little more about the endowment assets. Is the church the beneficiary of the endowment funds it placed with the community fund? In other words - would the church get the money back at some point in the future?

If so, I believe this would qualify for reciprocal accounting treatment.

The books would reflect an asset equal to the cash transferred into the endowment account/fund (Dr. Endowment, Cr. Cash). The endowment fund would be classified long-term in nature (vs. short-term).

The endowment funds would still be considered an asset because the church has future economic benefit in those assets.

If the funds came out of general operating or unrestricted funds, a restriction likely should be created within the net assets account.
(Dr. Unrestricted Net Assets, Cr. Permanently Restricted Net assets).

As mentioned above, when the church receives income from the community fund, it would recognize income equal to the payment received. (Dr. Cash, Cr. Interest Income).

Hope that helps!
 
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Hi @Laleda62

Would be curious to know a little more about the endowment assets. Is the church the beneficiary of the endowment funds it placed with the community fund? In other words - would the church get the money back at some point in the future?

If so, I believe this would qualify for reciprocal accounting treatment.

The books would reflect an asset equal to the cash transferred into the endowment account/fund (Dr. Endowment, Cr. Cash). The endowment fund would be classified long-term in nature (vs. short-term).

The endowment funds would still be considered an asset because the church has future economic benefit in those assets.

If the funds came out of general operating or unrestricted funds, a restriction likely should be created within the net assets account.
(Dr. Unrestricted Net Assets, Cr. Permanently Restricted Net assets).

As mentioned above, when the church receives income from the community fund, it would recognize income equal to the payment received. (Dr. Cash, Cr. Interest Income).

Hope that helps!
The church can only receive the interest from the endowment. We can never collect from the total. They send us monthly statements with the interest which is what we can withdraw from. Ex: 30,000 was donated, $1000 interest, therefore we will only be able to collect 1000. However, on the books it says the asset is 31,000. My question is should the whole 31,000 stay on the books or should the 30,000 donation be separate and only the 1000 should be on the books as an asset?
 
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Thanks for the additional context! There may be some additional nuances that may qualify for reciprocal accounting, but without getting further into the nitty gritty - in my opinion, it seems that this “donation” is acting more as an investment given you are receiving income from it.

The $30,000 would be separate from the $1,000 of interest for sure, but I would make the argument the $30,000 should stay on the books as an asset. Again, permanently restricted from the organization.

The $1,000 in interest would only be an asset if you are accruing for the interest as a receivable (Dr. Interest Income Receivable, Cr. Interest Income), but I would not include it together with the $30,000.
 

DrStrangeLove

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The church can only receive the interest from the endowment. We can never collect from the total. They send us monthly statements with the interest which is what we can withdraw from. Ex: 30,000 was donated, $1000 interest, therefore we will only be able to collect 1000. However, on the books it says the asset is 31,000. My question is should the whole 31,000 stay on the books or should the 30,000 donation be separate and only the 1000 should be on the books as an asset?
What you're describing sounds like it could be a split-interest agreement. If the endowment eventually terminates, who gets the principal? If the church never gets the principal even after the endowment terminates, I don't think the church can recognize the principal as an asset. Is the church guaranteed a certain payment each year, even if the principal declines? Or does the church only get interest if there's interest to be had? If it's the latter, you can't recognize the principal. If it's the former, and the endowment is expected to last long enough that you'll eventually take all of the principal, then you could recognize it.

The interest payment is clearly an asset to the church, a receivable DR/ contribution revenue CR when the cash is available for the church to withdraw, I think. And the interest receivable has to be separate from the principal (if you recognize it), since the interest is unrestricted cash once the church budgets/appropriates the cash (UPMIFA says the interest is restricted cash until then) and the principal is restricted.
 
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What you're describing sounds like it could be a split-interest agreement. If the endowment eventually terminates, who gets the principal? If the church never gets the principal even after the endowment terminates, I don't think the church can recognize the principal as an asset. Is the church guaranteed a certain payment each year, even if the principal declines? Or does the church only get interest if there's interest to be had? If it's the latter, you can't recognize the principal. If it's the former, and the endowment is expected to last long enough that you'll eventually take all of the principal, then you could recognize it.

The interest payment is clearly an asset to the church, a receivable DR/ contribution revenue CR when the cash is available for the church to withdraw, I think. And the interest receivable has to be separate from the principal (if you recognize it), since the interest is unrestricted cash once the church budgets/appropriates the cash (UPMIFA says the interest is restricted cash until then) and the principal is restricted.
If the endowment terminates the community foundation would receive the principal. If the principal shouldn't be recognized, then should I do what's suggested above to get it off the books?
"debt value vs the interest expense portion.
So the entry should be
Dr. Cash (church's interest portion)
Dr. Cash (endowment payment)
Cr. Endowment Payable
Cr. Interest Income"

Then moving forward only the interest would be recorded as an asset. I'm just trying to understand this so I can explain it to the board at the next meeting. I've had to make a lot of changes because of the state the books were left in and they're concerned.
 

DrStrangeLove

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If the community fund gets the principal once the endowment terminated, your church can't recognize it. It's an economic resource you will never get. At most you can recognize the present value of the expected future payments from the endowment that the church will receive.

From what you've described, it sounds like the cash came in from the church members (Cash DR/Contribution Revenue with Donor Restrictions CR), and then the church purchased the endowment (Endowment DR/Cash DR plus a reclass from Net Assets with Donor Restrictions to Net Assets without Donor Restrictions).

I'm not sure what the Endowment DR side should have been. I think it should have been Interest Receivable DR for the present value of future payments, (something) DR and Cash CR. It's the (something) I'm not sure about. If the church made a straight, simple lump-sum cash donation to the community fund, what account would you use? I think that might be the right account for (something).

As for getting the endowment off your books, I think the entry BIG E described would do it, though I'd have to see the original entry to be sure.
 

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