Fixed Assets as Memo Accounts  0102-02   ZZall

                                                                              - - - Rejoice in the Lord always ... again I say Rejoice !!! - - -


                      TO:  Interested Ministries                                                                                          FROM: Jim Bramer, Retired Auditor-CPA 
                                                                                                                                                               FILE: 0102-02/all

                       RE Fixed Assets as Memo Accounts                                                                 Originated   June 2001                          


           Below is a hypothetical Online Email (EML) thread between one of the following MFTeam members PAT (Ministry Chief Executive), LEE: (Ministry Volunteer Treasurer), or FRAN: (Ministry Computer Bookkeeper) and  Jim@bcidot.org  Click here and go to List of threads (THRDs) at www.bcidot.org


        FR: FRAN

    My discussion topic today, Jim, has to do with getting Fixed Assets (Or Leasehold Improvements) on our books.  I believe you often reference to them as Land, Building and Equipment (LB&E).  You will remember that we are a Ministry with less than $500,000 annual income, and we have less than $100,000 of LB&E assets.  But we did not make any management decisions from LB&E information, so we do not have them on our books.  I think someone has referenced them as Non Liquid resources.

FR: Jim@bcidot.org  

    Thank you, Fran --- you just touched on a significant Ministry Finance TRUISM -- let me state it as follows:  Ministry finance decision makers must readily know how much money there is in the Banks (plus other liquid resources, if any) for Operations and how it is Obligatory. Please read  Two Sides of the Same Coin  for more perspective as it should be helpful as you know how much of such money is ---

        1> Due to others (Liabilities) 
        2> Restricted by donors 
        3> SetASide by the Board, and 
        4> Board discretionary

     See the Photo example below of such vital TRUISM data:                         

Assets:

Cash in Banks

$ 15,000

Due to us

$ 2,500

    Total

$ 17,500

Liabilities:

Due to Vendors

$ 1,500

Held for Others

$ 250

$ 1,750

Fund Balances:

Donor Restrictions

$ 4,350

Board SetASides

$ 5,000

Board Discretionary

$ 6,400

$ 15,750

    Total

$ 17,500

         Fr: Fran

    Right - this type of financial information is essential to our day-to-day operations, but it is short of reflecting our total assets.  
    Especially, as to what is needed for full year end accountability -- either in our complete annual finance report or what is needed by our CPA-Audit firm. Again, I am talking about Fixed Assets, or LB&E Assets.

Fr: Jim

        All Ministries need to have full accountability of Fixed Assets and related Note Payable/Mortgage, if any.  The Web Links shown below speak in more detail to what I am sharing here.  Some like to show the LB&E on their books as an assets (and unpaid Mortgage when applicable) and the resultant LB&E Equity (or net worth)  within the above Fund Balance area.  But, again, it seems to unnecessarily "muddy the waters" to do this when it is not essential financial information for needed day-to-day operations - use information in the Fund Balance area only for such day-to-day purposes.
   
     With the above TRUISM in mind, I suggest that a  Ministry your size show Fixed Assets in what I call a "Memo Accounting" format. Per suggestion in 0127-02 below, we suggest  that Ministries with Fixed Assets of $100,000 or more have a separate LB&E Set of QBooks.  Please note where the "Fixed Asset" Memo Accounts are in the Sample below:

Assets:

Cash in Banks

$ 15,000

Due to us

$ 2,500

   Total

$ 17,500

Fixed Asset:

See Excel for Details

$ 11,350

Accum Depreciation

$ (2,890)

1st of Yr Unpaid Debt

$ (3,500)

Fixed Asset Equity

$ (4,960)

Total

None

Liabilities:

Due to Vendors

$ 1,500

Held for Others

$ 250

$ 1,750

Funds:

Donor Restrictions

$ 4,350

Board SetASides

$ 5,000

Board Discretionary

$ 6,400

$ 15,750

Total

$ 17,500

FR: Fran    

    Wow ... the Fixed Asset information is there, but it does not impact the TRUISM essentials that you mentioned above, as I still know who belongs to my $17,500 Operating Assets.  Pretty neat!
    How often do I update these "Fixed Asset Memo Accounts"?   

Fr: Jim

    At the end of your fiscal year only.
    B
ut it can be done either concurrent  with your Fixed Asset transactions (see 0111-02 below) or some time like each quarter. First you discover what Fixed Assets that  Operations has purchased via your General or Special Funds -- let's say, $1,500 from General and  $4,000 from a Special Fund Raising project.  You increase the debit balance in "See Excel for Details" account by $5,500 and you increase the credit balance in your "Fixed Asset Equity'" account by $5,500.  
    Contact me at  Jim@bcidot.org  about the possibility of 'hiding' these Memo accounts during the year and only viewing/using them at year end.    
    You would place this info into the spreadsheet (Excel) and compute the annual depreciation that your CPA needs -- let say it is $1,490.  You reduce the credit balance  "Fixed Asset Equity", because of this Depreciation Expense, by $1,490 and you increase the credit balance in the "Accum Depreciation" account by $1,490. The General Fund has made the Debt Service payments of "Principal and Interest" during the year, so at least annually (let's say $876 was paid on principal) you record $876 as a reduction in the Credit Balance of "1st of Yr Unpaid Debt" account and increase the "Fixed Asset Equity" credit balance account by the $876.
    As you can see, this is all done without affecting your essential
TRUISM reporting needs identified above.

FR: Fran   (1)  

       As a non-church Ministry we need to annually file form IRS 990 and a like kind of state return.  How do I care for all of this Fixed Asset stuff in an efficient manner?

Fr: Jim

    First let me display again this Memo area content, Fran.

Equipment -- See Excel for List of Details

$ 11,350

Accum Depreciation

$ (2,890)

1st of Yr Unpaid Debt

$ (3,500)

Fixed Asset Equity

$ (4,960)

Total

None

      I recommend, since this is another potentially complicated aspects of "Not for Profit" accounting, that we attempt to simplify this effort for small Ministries that are not in a Building program.  This can be done annually by doing something like the following:

    1>  That normal debt service and fixed asset procurements flow through the General and or Special Funds accounting process-- see $1,500 and $4,000 ($5,500) samples above- and report them as allocated functional Misc expenses.  See Part II, line 43 on the 2002 Form 990.
   2>  Capitalize the above $5,500 by adding to the above Equipment ($11,350) and the Fixed Asset Equity ($4,960)
   3>  Since this is needed for GAAP purposes, compute the annual depreciation --- let's suppose the amount is $2,500 -- and decrease the Fixed Asset Equity and increase the Accum Depreciation accounts accordingly.  
   4>  Recognize the $1,500 reduction in Unpaid Debt during the year by decreasing it with the offset to Fixed Asset Equity.
   5>  The new amount of Fixed Asset Equity now is:   $9,460 ($4,960 plus $5,500 plus $1,500 less $2,500)
   6>  Then you simply have the $4,500 increase in the Fixed Asset Equity ($9,460 less $4,960) appear in the Form 990 reconciliation process as follows:  "Amount of Fixed Asset Equity change = $4,500."   This appears on Part 1, line 20, on the 2002 Form 990.

After these entries, the Memo accounts would reflect the following:

Equipment -- See Excel for List of Details

$ 16,850

Accum Depreciation

$ (5,390)

1st of Yr Unpaid Debt

$ (2,000)

Fixed Asset Equity

$ (9,460)

Total

None

FR: Fran          

               Thank you, Jim.


 Frequently Used Terms used herein include:

            FAssets = Fixed Assets
               GAAP = Generally Accepted Accounting Principles
                LB&E = Land Building and Equipment
                Memo Accounting = Emphasis is "Periodic Information" only
                PHOTO = Point in Time financial report -- Balance Sheet
                QBs = QuickBooks
                THRICE = Three legged accounting; make certain entries three times
                TRUISM = Ministry Finance accounting principle


  WEB SITE LINKS:

0031    Ministry Accounting Essentials
0041    Fund Accounting and Ministries
0127    Current and Dormant Reporting
0125    Ministry Depreciation Issues
0067    Expenditures vs Expenses
0060    Accounting Issues at a Ministry
0033    Fixed Asset Accounting
0018    Fixed Asset - LB&E Issues
0004    GAAP; Generally Accepted Acct Principles
0086    Reports - Photo and Video
0084    Reports, Ministry Finance
0111    Three Legged Entries
0068    Samples of Financials via QB


   The bulk of this publication originated in June 2001 and was  .   UPTD:  October 24, 2010  

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