How to deal with grants?


F

Fred Marshall

I'm working for the first time on a non-profit corp. We have quite a few
grants. Some grants provide the money up front. Other grants provide the
money on a reimbursement basis.

In the case where the money comes up front I see that the accountant has
suggested that we create an Equity account and show the amounts received
there.

I see in one case where an up-front grant went into a bank account for that
purpose only and there is an expense Category and Classes that are for
expense types against that grant only. This seems to work OK in that a
Quick Report on the expenses shows how the money was spent.

So, we have Bank Accounts *and* Equity Accounts for various grants and I'm
not at all sure how to deal with the grants that use reimbursements.

There are a number of obectives:

I'd like to have a good set of books that provide meaningful Balance Sheet
and Income Statements that aren't "warped" by the grants - which might be
viewed as "separate transactions and accounts" alomost.

I want to be able to account for the expenses that will go against the grant
funds and provide reports that will show this.

I want to be able to assign expenses to grants in a way that is appropriate
for each grant's constraints.

I'd like to be able to enter transactions once - rather than to have an
elaborate method of multiple entries for what is actually a single
transaction. (For example, I'd rather not ficticiously put money in a
non-existent Quckbooks bank account and transfer funds into a real bank
account (where the money really is deposited) and then write a check from
that real bank account to pay for an expense that goes against the grant.
That would be similar to some "savings" accounts that one can set up in
either Quicken or Quickbooks.

Thanks,

Fred
 
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G

giganews

Grant accounting can be very complex; especially if there are government
funds involved.

In general; a prepaid grant (e.g. one where you have received funds prior to
spending them) would be a liability not an equity account. The organization
would be required to repay the grant if the funds were not spent in
accordance with the grant document. ( as the bookkeeper you really need to
see the original grant documents in order to "correctly" account for the
expenditures)
 
F

Fred Marshall

Well, "complex" is why I'm involved in helping set this up properly.
And, asking a few questions is aways a good idea.

OK - I can accept the idea of a prepaid grant being shown as a liability and
the cash thus received in a bank account to balance. For that matter Equity
is rather like that too isn't it - another liability? I mean special equity
handled like but not the same as shareholder's equity.

When the money is spent, it comes out of the bank account - against what
sort of expense categories do you suggest? Specific ones set up for the
grant or more general ones?

Then, after the money is spent how to eliminate the liability or equity? By
sending in a report that reduces the liability and reduces some other asset
at the same time? Which asset?

I can surely imagine depleting the liability as the funds are
(appropriately) spent. But this would seem to prevent accounting for the
types of expenses - which is something we want to do. How might that be
done?
And, doing it this simple way would also deplete the liability before the
report or claim is generated at the end. It's that report that would cause
the liability to finally go away on an accrual basis.

Thanks,

Fred
 
J

Jessica Schein

Fred,

I do bookkeeping/accounting for non-profits for a living, and all I can tell
you is that you have to get a trained person to keep your books. It is
obvious that you don't know accounting concepts--and this is not a criticism
of you, that isn't your job. Over the years I have done a lot of work
cleaning up the messes left by people who don't understand the
concepts--often people who claim to be bookkeepers.

So, don't try to learn it via the internet, read a good book, take a class,
but most importantly, get someone with experience to do your bookkeeping.
It will save you much grief later on.

Jessica
NYC
----- Original Message -----
From: "Fred Marshall" <[email protected]_the_x.acm.org>
Newsgroups: alt.comp.software.financial.quickbooks
Sent: Monday, September 27, 2004 2:53 AM
Subject: Re: How to deal with grants?
 
T

Tom Healy

<< I can accept the idea of a prepaid grant being shown as a liability and
the cash thus received in a bank account to balance. For that matter Equity
is rather like that too isn't it - another liability? I mean special equity
handled like but not the same as shareholder's equity.

When the money is spent, it comes out of the bank account - against what
sort of expense categories do you suggest? Specific ones set up for the
grant or more general ones?
When you receive the grant, you record:

Cash XXX.XX
Unearned grant (a liability) XXX.XX (Class "Grant A")

When you spend for a grant, record:

Expense XX.XX (Class "Grant A")
Cash XX.XX
Unearned grant XX.XX (Class "Grant A")
Grant earned (an income account) XX.XX (Class "Grant A")

You see, each expenditure requires an entry both to cash and expense (the
normal double-entry system for a for-profit business), but also the same
amounts to transfer the unearned grant to earned. Use classes routinely (one
for each grant; and additional ones for other portions of the organization's
budget). That way you can run an income statement by class to see how each
grant is doing. Make use of budgets to compare projected spending for the grant
with actual.

Tom
--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: (e-mail address removed), since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772
 
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F

Fred Marshall

Jessica,

My methods of research and learning work pretty well for me thanks.

I'm not an accountant but you might think of me as the CFO. If I didn't
understand accounting concepts well enought I wouldn't have been able to ask
the questions I posed - if somewhat awkwardly in jargon. Actually I think
it's a pretty simple question - I just need a shove in the right direction
and wanted to check out what methods others find useful.

We have a CPA but don't get much of his time - and I found the use of an
Equity account for a Grant Liability interesting and figured I should
investigate that notion a bit. We have a bookkeeper who just follows
orders. So, I'm working as a bridge between the two.

I'm sure you've found messes. Fortunately I don't think we have a mess yet
and I'm bent on not having one. Thus my questions. I want to be able to
say: "here's what I think we should do" before checking it out with the CPA.
There's nobody else who's going to do that.

Fred
 
F

Fred Marshall

Tom,

OK - that's very understandable. Thank you.

I do have a couple of questions about terminology and objectives.
Cash XXX.XX
Unearned grant (a liability) XXX.XX (Class "Grant A")
Here you're using a Class attached to an Unearned Grant account. So, may I
presume that you've set up a single Unearned Grants account for all grants?
Why didn't you set up a Subaccount for each grant instead of using a Class?
To avoid Chart of Accounts bloat?
When you spend for a grant, record:

Expense XX.XX (Class "Grant A")
Cash XX.XX
Unearned grant XX.XX (Class "Grant A")
Grant earned (an income account) XX.XX (Class "Grant A")
Here it appears that the expense goes against a general expense category
(like Construction Material) is that right?
Is it any better or worse do you believe to set up a Grant A Expenses
Account with its own Subaccounts for Labor, Material, etc.???
I can imagine that this latter approach would fill up the chart of accounts
with a bunch of historical and unused accounts over time.

To be honest, I'm a bit leery of Classes because I've not used them much.
They seem handy yet a bit out of context with the rest of the accounting
process. So, a little boost on why Classes are a good thing would help me.
For example, Quickbooks suggests not using Classes for more than one thing
using geography and personnel as an example. Well, I can imagine that one
would not want to mix them up..... but isn't the Class a single label per
transaction anyway? Yes, I can imagine wanting to label a transaction both
ways .... so the classes you plan to use must be disjoint.

Thanks,

Fred
 
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F

Fred Marshall

Tom,

And, from this I imagine that a *reimbursable* grant would be done like
this?

When you receive the grant commitment, you record:

Grant Receivable (Class "Grant A") XXX.XX (an asset)
Unearned Grant XXX.XX (Class "Grant A") (a liability)

When you spend for the grant, record:

Expense XX.XX (Class "Grant A")
Cash XX.XX
Unearned grant XX.XX (Class "Grant A")
Grant Receivable (an income account) XX.XX (Class "Grant A")

***Or, if you want to be a little more complete:

When you receive the grant commitment, you record:

Grant Commitment (Class "Grant A") XXX.XX (an asset)
Unearned Grant XXX.XX (Class "Grant A") (a liability)

When you spend for the grant, record:

Expense XX.XX (Class "Grant A")
Cash XX.XX
Unbilled grant XX.XX (Class "Grant A") (an asset)
Grant Commitment (an income account) XX.XX (Class "Grant A") (an
asset)

When you invoice the grantor according to reductions in Grant Commitment,
record:

Accounts Receivable xx.xx (Class "Grant A") (an asset)
Unbilled grant xx.xx (Class "Grant A") (an asset)

When you receive the grant funds:

Cash xx.xx (Class "Grant A")
Accounts Receivable (Class "Grant A")

--------------------

Does this make sense?

Thanks,

Fred
 

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