Three Legged Accounting    0111-02  ZZall

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


                            TO: Interested Ministries                                                                                       FROM: Jim Bramer, Retired Auditor-CPA 
                                                                                                                                 Psalm 150:6         FILE: 0111-02   

                            RE: Three Legged Accounting                                                                             Originated:   February 1996                                               


            Below is a hypothetical Online Email thread (THRD) between any 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 TO;   Jim@bcidot.org  

        I need some help, Jim. You will remember that we are a Church and we make monthly mortgage payments, plus we occasionally buy some equipment and the like that should be booked as assets on our books. My dilemma is that such payments MUST come from the Church's General Fund as budgeted Expenses. Occasionally we may get designated money for a fixed asset purchase, but normally such needs are met from the General Fund.
        Please Go Here  for more on this topic and the use of the general term
Expenditure as apposed to Expenses.
        How do I get the transaction to show as a
General Fund Expense and also either reduce the mortgage or add to the fixed assets?

FR: JIM

    Yea, this comes up a lot , Fran ......let's start with your specific dollar examples.

FR: FRAN

            OK ..... at the first of the year our books showed we owed $35,446.77 on our mortgage and we make $1,200.00 monthly payments of Interest and Principal. For the first monthly payment of the year the amount of principal was $766.88.  Also, via our General Fund, we budgeted and paid $2,330.88 for a new computer and software.
            Oh yea, I almost forgot......one of our Sunday School classes raised money and they bought a piano for $3,566.12.

FR: JIM

    Please Go Here  and  Here  get a perspective of issues that apply here. OK, let's review below what we want to accomplish:

THREE LEGGED  ENTRY  OBJECTIVES:

General Purpose Fund (GPF)  ---- Show the total payment as a budgeted GPFund "Expenditure"

Special Purpose Fund (SPF)  ---- Show the total payment as a reduction of said SPFund.

Land, Building and Equipment (LB&E)   -----   When the LB&E Fund is part of this set of books (1), you need to increase the applicable Fixed Asset for asset acquisitions, or if you are Servicing Debt via installments payments from this source you need to reduce the applicable debt by the amount of the Principal.

             Using the dollar information above, the Journal Entries for the "Legs" are as follows:

"Leg" Number 1:

        Debit            Credit

Charge GPF Expenditure (a)

2330.88

Reduce the Bank Acct

2330.88

Charge GPF Expenditure

1200.00

Reduce the Bank Acct

1200.00

Charge the SPFund

3566.12

Reduce the Bank Acct

3566.12

"Leg" Numbers 2 & 3:

Charge the LB&E Asset

2330.88

Increase the LB&E Equity (2)

2330.88

                                      Reduce the Mortgage (3)

766.88

                                      Increase the LB&E Equity (2)

766.88

Charge the LB&E Asset

3566.12

                                       Increase the LB&E Equity (2)

3566.12

        (a)  Often called "Debt Servicing"  Expenditure

        (1) Please link Here,  as we often recommend a separate set of books for LB&E that is updated at least annually. This means that the entry for the above Legs Two and Three would be handled differently.
        (2) Usually separate named LB&E Equity accounts that clearly shows why the equity increases ..... in this case, either "Provided by the GPFund" or "Provided by a SPFund."
        (3) After posting this entry, the updated mortgage debt as shown by your books and the amortization table is $34,679.88.
     

FR: FRAN

        Sure enough ...... what you have said above will work out just fine. Since we use QuickBooks (QBs), I will even set up memorized entries to help me make the "Leg Two and Three entries"  as a single split transaction.
        Thanks, Jim !


      This publication originated in February 1996 and was       UPTD:March 09, 2012

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