How tagging transactions with funds help with reporting.

As mentioned in part one of this four-part series, tagging transactions with “the dad fund’ (DF for short) or ‘the mom fund’ (MF for short) can help with financial reporting. How does this play out using the previous numbers from the for-profit scenario and can we report those numbers with more accuracy? Let’s use the same table with the expenses and checking; but also include those designations (MF or DF) for each transaction – noted in bold.

Checking: Expenses (5001 Trips): Expenses (5002 Movies)
Bal (01/01/2013) – $1,500.00 Bal (01/01/2013) – $0.00 Bal (01/01/2013) – $0.00
Trip to Lodge – $350.00(DF) Trip to Lodge – $350.00(DF) Movies – $20.00 (MF)
Movies – $20.00 (MF) Trip to Coast – $425.00(MF) Movies – $45.00 (DF)
Trip to Coast – $425.00(MF)
Movies – $45.00 (DF)
Equations:
$1,500 – trips – movies = $660 $0.00 + $350 + $425 = $775 $0.00 + $20 + $45 = $65
Ending Balance – $660 Total Spent = $775 Total Spent = $65

As stated in part one, the DF has $750.00 and the MF has $750.00 which would total $1,500.00 for the entire family’s checkbook.

Summary: After these transactions, $350.00 (DF) Trip to Lodge, $20.00 (MF) Movies, $425.00 (MF) Trip to Coast, and $45.00 (DF) Movies:

  1. The Dad Fund (DF) would have $355.00 ($750.00 – $350.00 – $45.00 = $355.00).
  2. The Mom Fund (MF) would have $305.00 ($750.00 – $425.00 – $20.00 = $305.00).
  3. Combined balance in the family’s checkbook of $660.00 ($1,500.00 – all expenses = $660.00)

Using the above table with the expenses and also fund designation (MF or DF), can we answer the questions that were posted from part one, easily? Yes. Let’s get to it.

  1. How do you know what dad spent on his recent fishing trip?
    1. Answer: looking at the trip expense, find the one marked with a “DF”– it is $350.00.
  2. How much did mom spend when she went to CA to visit her aunt?
    1. Answer: looking at the trip expense, find the one marked with a “MF” – it is $425.00.
  3. How much did each spend on the movies?
    1. Answer: looking at the movie expense, mom (MF) spent $20.00 while dad (DF) spent $45.00.
  4. How much did the entire family spend on movies?
    1. Answer: looking at the total for the movie expense line it is $65.00 (no need to separate it because it asks for the whole family – not just dad or mom).
  5. How much did dad and mom spend separately (a)? And also together (b)?
    1. Answer: (a) looking at each DF expense for dad it would be $350.00 + $45.00 = $395.00 and looking at each MF expense for mom it would be $425.00 + $20.00 = $445.00. (b)What they spent together is a grand total of $840.00 which leaves $660.00 in the checkbook ($1500.00 – $840.00 = $660.00).

This example is a very simple one, but imagine hundreds of transactions in a church with various funds for ministries. Trying to figure out what expenses, revenues, and the balances of assets and liabilities on a report would be a daunting task if all the treasurer had was an ambiguous description in a checkbook register — and no fund designation as shown here.

How accounting funds and the chart of accounts work together to ensure compliance with government regulations.

What we did above is essentially fund accounting (using the MF or DF designation). Fund accounting was created for churches so they can properly account for money in their various ministries and decrease burdensome paperwork. When funds (DF and MF) are used in conjunction with a chart of accounts (COA) and double entry accounting for each ministry, there are several advantages like the ones listed below.

  1. It eliminates the need for separate COA for each ministry, which removes duplication across the COAs.
  2. It eliminates a separate section for every ministry within the COA structure, keeping the COA small and manageable.
  3. It helps in creating independent financial statements for each ministry which tells the organization how financially sound the ministry is.
  4. It can create a combined financial statement including all funds on one statement and show overall how the organization is financially.

Any church accounting system that doesn’t record both the fund and the individual accounts on the COA, more than likely, fails the necessary requirements for fund accounting for churches according to GAAP, FASB, and other accounting requirements. This creates headaches for the end users when the church council has questions similar to the ones below, and in the worst case scenario can force the church to forfeit their tax-exempt status during an audit.

  1. How much does the General Fund have in it? Or the Youth Fund?
  2. After liabilities, what is the Youth Fund’s ending balance?
  3. During the month of March, what did the General Fund pay for? How much did the Youth Fund bring in and pay for?
  4. According to the budget for the Youth Fund, are we on target or are we over our budget? How about the General Fund?

-From Icon Systems