USA Restricted funds entry/expensing


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Hello all,

I am a non-accountant working as a bookkeeper for a non-profit. For a couple of months now I have been befuddled by how to handle this simple situation:

A non-profit receives $10,000 for a project. Of this $1,000 is to be restricted to on-going site maintenance and $9,000 is to be used for the actual project.

Given:
  1. our simple accounting needs,
  2. we must generate reports for the donor that differentiate between normal operations/project
  3. the bookkeeper is not an accountant

an accountant friend recommended that we hold these restricted funds in a sub-account (100102) of our banking account (1001). So if his solution is not optimal, don't critique the poor fellow for trying to make my life easier. :)

Anyhow, I can get the funds into 100102 (restricted to site maintenance) without issue. The issue I am having is that when the funds move into 100102, I also need these funds to register as an project expense against the original $10,000. Since the cash flow from 1001 to 100102 is virtual, no expense is created. So the balance sheet doesn't show a problem, but it leaves no expense for the project.

When I attempt to introduce our project expense account (6-9100) into a transaction, I need to put an offsetting credit SOMEWHERE. But where? (Head-against-wall).
 
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DTA93433

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I think your difficulty lies in the recording of the books of your donor contribution. If funds received are restricted; the funds need to be segregated on the Statement of Activities between restricted vs. unrestricted funds. I put together a little sample company (see attachment of Sample 123 Co.). Hopefully this should clear up any confusion. Let me know if you have any questions.
 

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DTA93433

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You're welcome! Note that the financial statements (Statement of Activities and Statement of Functional Expenses) are created on p. 2. (The Balance Sheet I did not include because it would only show both Cash balances at $0.) In my example, there is no change in "net assets" for the year, because the funds received and program costs incurred offset one another. Let me know if you have any questions.
 

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