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What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

 
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Established Community Backer ***

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

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Established Community Backer ***

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

You would not use a JE for this, if you intend to track it for that name (grantor). And since the grant goes to Bank, you also avoid JE for Banking.

 

The grant is not both Income and expense. That is the plan for the activities, not the entry.

 

Grant submission and/or award can be entered as the Plan, using Estimate.

 

Grant Funds provided to you are income, unless you need to return it. The status of Restricted does not make it Liability by definition.

 

So, restricted Income would be processed by making a Service item and listing this on a Sales Receipt for the Grantor as Customer and this is deposited to Banking. Or, once you are going to apply for the grant, you also enter the Estimate. Then, if they notify you of the award, such as $30,000, once a year for three years = Invoice each year for $10,000 each time.

 

You typically use Class tracking for Programs and Purposes. That also would be used for Restricted Funds. Examples:

Your programs and purposes are always restricted, so you don't also need Class to include "restricted" and you simply use, for example: Class = Food Bank or Class = Animal Rescue. That would be instead of Class = Admin or Overhead.

 

As far as "restricted Savings" the destination of the funds is Whatever Bank you sent that to in real life. The funds held in Checking or Savings can always be a Mix of types. Example:

 

You decide to put Restricted Funds into savings except amounts you intend to spend in the next 2-3 months. So you show the deposit went to two different accounts, as you see in my Attachment, bottom right corner would be where you put Amount diverted to Checking.

 

For what you called Expense, you have none, until you start the Spending. That is when you Job Track (assign Grantor in the Customer Field) and Class track. Example:

 

You got that Food Bank Grant, you have the Income, you put enough in the bank to pay for the Freezer you are buying that was the reason you applied for and were given that grant. Now you enter the expense as a new fixed asset, you assign grantor and class.

 

Then you run P&L by customer to see the income is reduced by expense to a Net = remaining grant funds yet to be spent. And that might overlap a fiscal year end, of course.

 

You also need to Rebalance Equity. Every time something Restricted comes in or out, you rebalance Equity, typically. That's because what typically is named Retained Earnings, in your file, is renamed to Unrestricted Net assets or Fund Balance. Under typical fiscal year end, for the first date of the new fiscal year, income and expense is "closed" to Unrestricted Net Assets. That means during the course of the year, you need to offset to and from that account.

 

Got the grant funds, which needs to Increase restricted Equity, so:

Debit Unrestricted Net Assets Equity (it goes down) and Credit Restricted  Equity (it goes up)

Now, buy that $5,000 Freezer. That means you also:

Debit Restricted Equity (it goes down) and Credit Fund balance or Unrestricted Net Assets (it goes up) because you Used the funds as promised, releasing that restriction.

 

Hope that helps.

Established Community Backer ***

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

The QuickBooks Online Plus version has an option to turn-on "Projects", which is a better method of tracking income and expenses for grant funded projects.

Established Community Backer ***

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

"Not sure where the JE reference came from"

@acovey01

Mentioned Journal Entry in the Title; it's right there.

 

When you get Restricted Income, that is still Income. Restriction status does not turn income into liability.

 

"This is how accounting is done  for legal trust account assets and liabilities."

 

That is done using various product/service items on customer transactions, such as Retainer Liability item used on a Sales receipt for the client name, and deposited to the Trust Bank. The retainer or liability item is used again on the Trust Bank Check, then processed as a payment against the law firm invoice for advanced costs and fee income.

 

That is not the same as NFP Restrictions on income. Restricted Liability would be, for instance, an Award of a reimbursement grant, where they paid it up front and you must send back the left-over, or a Construction Grant that is restricted until construction begins and if the project does not move forward, you return the funds = that would be Liability, not income, unless the project moves forward. If you are already building then the Grant is restricted Income.

 

"While classes can be used as suggested"

 

Because you want to see in the P&L reporting the Income over the related Expense.

 

"the QuickBooks Online Plus version has an option to turn-on "Projects","

 

and Desktop also has this, as Customer and Job.

 

"which is a better method"

 

Not "better" but Additional. Like these examples

 

You have a Food Bank and an Animal Rescue, so these are two Classes = programs and purposes, along with Class = Admin.

 

You have customer names as Grantors and Donors. Their giving is Class tracked, on transactions for their names.

 

Then, you spend, for instance, $5,000 on Animal Feed. The Breakdown of that check is as follows:

 

Expense account is Animal Supplies, Class = Animal Rescue (not Food Bank) and Customer/project = County Grant and $1,500 (they amount they provided)

Expense account is Animal Supplies, Class = Animal Rescue, and Customer/Project is First Security Bank $500 (the amount they gifted from a Fundraiser)

And the final line is Animal Supplies, Class = Animal Rescue, and No Customer/Project assigned, because this $3,000 portion is from Operating Funds

= you just bought $5,000 of Feed and allocated it two different ways: by Class and by Name.

 

Then, you can run P&L by Class, to see your Food Bank operation relative to the Animal Rescue and the Admin operations.

 

You run P&L by Customer/Project, to see who provided what source of revenue that was spent.

 

And you can run P&L by Customer/Project, filter on one Class, to see who Gave for the Animal Rescue, by Names as Columns. Or, P&L by Class, for the County, to see how much they gave (and you spent) that  was for program = animal rescue, and how much was for Food Bank.

 

You use one, the other or both.

 

Class = programs, purposes, financial departments and divisions.

 

Customer/Project would be for Grantors and donors.

 

And you can use Projects internally, such as a Water System has a Weed Remediation Project, with a County grant that requires Matching funds, and a city grant that is just $50 flat. So there will be three funding sources: County, City and Operations. Customer name = Weed Remediation, and all tracking by subcustomer for each three way Split. We would not use Class at all, because this entire financial data file is one Program or Purposes = Water.

 

Or, there is an Interlocal operational agreement, and the Water System runs two Districts = Class tracking, because that is like Departments or Divisions.

Not applicable

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

That did not answer the question. We want to show it as income for budgeting purposes but its restricted until its needed, thus the expense to reverse the transaction. The funds are placed in a restricted savings so I'm confused on how to properly enter this transaction.

 

Income: Grant income

Expense: Transfer to Savings (actually a negative income account that will be reversed when the funds are transferred back to the checking account).

 

Deposit: Savings account

Need to know what the other account that goes with this one would be...

 

This is for a non-profit/religious organization

Not applicable

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

I had it listed as deferred revenue which to me makes the most sense but the pastor (supposedly the Finance Committee) wants to show it as income under the Grants section then put it in as a negative income since it has been put in the restricted savings. Once its needed, the negative income account will be reversed and the income account that it is being used for will be credited.

 

Transaction that I'm trying to figure out:

Transfers (to) from Savings  debit $x.xx

Grant Income  credit $x.xx

 

Savings deposit: $x.xx

What do I credit in this case (would normally be the income or deferred account)

 

When its used:

(1) transfer between savings/checking

 

(2) Transfer (to) from savings: credit $x.xx

Tuition account: credit $x.xx

(Yes, I know that won't work that way because its out of balance)...

 

I can't see the way that they want to do it is the correct or even logical way because that is how I was TOLD to do it and he can't seem to understand that the transaction is out of balance otherwise.

Established Community Backer ***

Re: Let's review this in Parts

"I had it listed as deferred revenue which to me makes the most sense"

It isn't Deferred (liability) if you got it and have the right to use it and don't need to return it. A reimbursement grant would be Liability. A Grant that has been given is Income.

 

"but the pastor (supposedly the Finance Committee) wants to show it as income under the Grants section"

Exactly; check with the terms of the grant. Ask your own CPA, not the Pastor.

 

"then put it in as a negative income since it has been put in the restricted savings."

That part is Entirely wrong. You put it to any bank or hold the cash in the safe. That is Destination, not Reason. The Reason (income or liability) doesn't change based on where you put the money. You don't have Negative Income. You still have the Money.

 

"Once its needed, the negative income account will be reversed"

That's a mistake, as well. Income is not Reversed, nor is negative income created by getting the money to start with.

 

The Money given is Gross income. Then, money gets used, and that doesn't even need to be the exact same dollar; you are not tracking serial numbers, for goodness sake. Spending, for instance, as Gross Expense, not reducing Income but reducing Net. That's why each activity is tracked in Gross for what it is. The P&L shows Income minus Expense = Net, for example.

 

"and the income account that it is being used for will be credited."

That process is only used when there is Liability, for a grant that has to be returned and is not considered income until used (reimbursement grant). You get $1,000 as Liability. You spend $800 as promised, so you "release" $800 from Liability to Income, the same as any customer prepayment process, to show it matches the Spending event. That's how you get to Net: Gross Income minus Gross Expense. And you still have $200 in Liability, in this example.

 

You don't move the money in and out of Income, just because it moves in and out of banking or is spent. The banking is Source/Destination and the movement is a Why or Reason. That is not Income, if you first got it as Gross Income, already. There is no More Income nor Reduction of Income.

 

"Transaction that I'm trying to figure out:

Transfers (to) from Savings  debit $x.xx

Grant Income  credit $x.xx"

 

That Debit to Savings would be the Deposit from the Grantor, and you would use Sales Receipt or invoice. That Service item is linked to Liability or to income, to match the Grant Qualification.

 

"Savings deposit: $x.xx"

No; the sales receipt or donation slip already did it. You cannot have Three Parts to this. The Debit to Savings is the same as a Deposit entry. I give you a Grant, so you put a Grant Income service item on a sales receipt, and Deposit that to Savings. Done.

 

"What do I credit in this case (would normally be the income or deferred account)"

 

If the Terms of my grant funding to you is "Reimbursement Grant as Liability," then the item on my sales receipt links to Liability. Later, you want to show now that you spent it, you are entitled to Keep that much of it. You Earned it, in other words. Now you Charge me for a Grant Revenue service item (linked to Income), on my Invoice. You use that same earlier "Reimbursement Grant" from my initial sales receipt, putting it on a credit memo for the date of the invoice, and Apply it to the invoice. That reflects that the Liability Balance has gone down, not because you refunded me, but because you earned the right to Keep that much, as Grant Income. The Invoice is paid by the Prepayment, not by me needing to send More money as new money.

 

"When its used:"

 

You enter the Expense, such as Check for Office supplies or to rent a Wheelchair Van. Put the customer name here = Track that it applies to the party that gave you the grant. This is Not Billable, if the grant already is income. This is Billable, for a reimbursement grant, so that you can create my invoice, add these billable direct charges, and that is how you show you earned the right to keep my money, as I explained in Clearing the invoice by using the credit memo.

 

"(1) transfer between savings/checking"

 

Moving money you already have, has Nothing to do with Grants, income, customers, expense. You already have the money; this is the Source/Destination and you are moving it around; there is no new Reason or Why. Example: Move $1 from your left pocket to your right. That is not New Income nor Expense or even Relieving a liability. You just Moved some money around, perhaps to put it in a Bank account that needs it or to Save it long term or buy a CD with it.

 

"(2) Transfer (to) from savings: credit $x.xx"

 

Stop trying to think in Debit-Credit. You have a Banking tool called Transfer. Transfer from One to the Other, when you move money around.

 

"Tuition account: credit $x.xx"

 

Tuition is your Income, and you use sales functions for this. And the Tuition is not Paid by your own movement of your own Funds.

 

Example: I prepaid you, you are holding that as Liability. Then, later, you charge me for Tuition. You credit my Prepayment. Banking is not involved; you already have my money. Wanting to move it between checking and savings is not my payment because the money is already in your Bank. It's there because of my prepayment. The Reason or Why you already had the money is My Prepayment, not your Moving it around.

 

Unless you have a Trust Bank requirement, then what you described is: A bunch of parents can Prepay in Jan and March, held by you as liability and then deposited to Savings, to park it there. Then, you start Charging tuition invoices for school in April, and everyone that prepaid, you use the prepayment liability service on a credit memo and apply to the invoice, to show we don't need to send New Money.

 

Meanwhile, now that it is April and school is back in session, you decide that Checking needs half of the funds currently in Savings. This part has Nothing to do with parents, customers, income or expense or liability. It's You, making funds available for Checking, because it is harder for you to pay your bills from Savings.

 

"(Yes, I know that won't work that way because its out of balance)..."

Because it is Wrong. That isn't what is happening.

 

"I can't see the way that they want to do it is the correct or even logical way because that is how I was TOLD to do it and he can't seem to understand that the transaction is out of balance otherwise."

 

It's not an issue of Out of Balance. It's flat out Wrong Accounting.

 

I make presentations to boards of directors often. None of this concept is what you are tracking in the financials. Everyone has a misunderstanding. You have a different concept than the pastor, and you are Both Wrong.

 

I recommend that you find a CPA to help you understand your accounting needs, Then, get help using QB to accomplish those needs. There is a good book written using QB Desktop, that still has the concepts you need: Running QB for Not For Profits, by Kathy Ivens. Also, I took a Church Accounting session from an online provider, that you might like something similar. Just search the web.

 

You all need to be better informed.

Established Community Backer ***

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

Not applicable

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

If you receive a promised donation  would it be

 

Grant Receivable (debit) and Contribution Income (credit)

 

then get the cash :

 

Cash (debit) and Grants Receivable (credit)

 

then what would be the JE for using that grant in the case of a food bank that uses donations to cover the costs of food distributed to agencies? the agency "buys" food and gets an invoice but sometimes that amount is covered by a grant...I know the money is in the bank but I need to move  from the grant to the a/r to show the grant has been reduced?

 

sales (debit) receivable(credit)

Receivable(debit) Grant Expense(credit)

Not applicable

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

expense yet still record it as deposited into a restricted savings account?

If you receive a promised donation  would it be

 

Grant Receivable (debit) and Contribution Income (credit)

 

then get the cash :

 

Cash (debit) and Grants Receivable (credit)

 

then what would be the JE for using that grant in the case of a food bank that uses donations to cover the costs of food distributed to agencies? the agency "buys" food and gets an invoice but sometimes that amount is covered by a grant...I know the money is in the bank but I need to move  from the grant to the a/r to show the grant has been reduced?

 

sales (debit) receivable(credit)

Receivable(debit) Grant Expense(credit)

 

How is the bank account being credited to reduce the grant money that was used and is now part of the bank account?

Not applicable

Re: What is the proper journal entry for a grant received to record it as income and an expense yet still record it as deposited into a restricted savings account?

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