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BoosterMom
February 11, 2023
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Using Liabilities accounts for Internally-Committed Funds

  • February 11, 2023
  • 2 replies
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I manage a non-profit's finances & am new to QB Online.  I am looking for ways to track funds that are committed (albeit not legally) but not yet spent. Two examples:

1) we received a donation that is earmarked but not yet completely spent; I need a place to record leftover earmarked funds. 

2) funds that have been committed internally to a philanthropic purpose. I want them to show up in reports as committed but not yet spent.

 

I created an 'Other Current Liabilities' account for each, but wasn't sure about 'Starting Date & Opening Balances' (I picked a date and used $0). I misspelled part of the Account Name & it will not allow me to edit the Account Name.  Then I started looking at the Register.

 

I'm assuming that I make a Journal Entry in the register.  Payee would be ourselves, I guess?  Is a new liability an Increase or Decrease?

 

When the funds are eventually spent from the asset account, do I make another JE to simply reverse the liability, or do some kind of transfer?

Best answer by Rainflurry

@BoosterMom 

 

A liability doesn't need to be legally binding but donations that aren't legally binding (unrestricted funds) must be recorded as income for your NP.  Since it is recorded as income, you can't also record it as a liability because both are credits in double-entry accounting.  If these were legally binding liabilities (restricted funds), then you could record them as a liability (actually equity is more appropriate), because the donations are not considered income until the restrictions are removed.

 

To move the funds to bank sub-accounts, first, create the sub-accounts in your chart of accounts.  Under 'Save account under', select the bank account where the funds are on deposit.  Then, transfer (New > Transfer) the amounts to their appropriate sub-account.  That will keep all of the funds in the same bank account on your balance sheet but they can be displayed as separate sub-accounts so you don't have to keep track of them in your head.  Hope that helps. 

2 replies

M
MadelynC
February 11, 2023

I've got some information to get these funds recorded accurately in QuickBooks, @BoosterMom.


The Starting date & opening balance when setting up an account is the amount of your actual bank account for whatever day you choose to start tracking transactions. You can read this article to learn more: Enter and manage opening balances in QuickBooks Online.


If you aren’t sure about the amounts or still need to check them, you can leave the Starting date & opening balance blank temporarily. The program allows you to skip it and modify the name in the register. Let me show you the steps:

 

  1. Select the Gear icon or Accounting menu.
  2. Choose Chart of accounts.
  3. Locate the misspelled account.
  4. In the View register dropdown, click Edit.
  5. Correct the name and press Save after.


Since making journal entries requires depth understanding of debit and credits, it would be best to contact your accountant. They can provide information about managing liabilities and ensure your funds are tracked accurately in QuickBooks.


If you don’t have an accountant yet, you can visit our ProAdvisor website to find one. Our ProAdvisors can guide you further from technical and accounting perspectives. Just simply enter your city or ZIP code.


Here’s an illuminating guide to learn more about how debits and credits work behind transactions and what to expect when entering them: How accounts are affected by debits and credits.


You can mention me anytime if you have any other concerns or questions about managing non-profit finances. I’ll get back to you as soon as I can. Have a good one and take care always!

Rainflurry
Rainflurry
February 12, 2023

@BoosterMom 

 

You can't record these as liabilities if they aren't legally restricted funds.  When you receive funds that are not legally restricted funds, they should be recorded as income, not a liability.  You can, however, earmark them by creating separate sub-accounts under your bank account to show how they are allocated and then deposit/transfer them into their respective sub-account in QB. 

B
BoosterMomAuthor
February 12, 2023

Thanks @Rainflurry

 

OK, so liabilities must be legally-binding?  These are funds we have decided internally to give away as grants, but it will be 6 months until we can pay them out, so definitely not legally binding.  I just hate having them 'only in my head'. 

 

I think you are suggesting that I create sub-accounts in QB under my (Checking/Asset) account; that's an approach I had not considered!  Once I create the sub-account in QB, how would I 'move' the funds to the sub-account - a JE to both?

Rainflurry
RainflurryAnswer
February 12, 2023

@BoosterMom 

 

A liability doesn't need to be legally binding but donations that aren't legally binding (unrestricted funds) must be recorded as income for your NP.  Since it is recorded as income, you can't also record it as a liability because both are credits in double-entry accounting.  If these were legally binding liabilities (restricted funds), then you could record them as a liability (actually equity is more appropriate), because the donations are not considered income until the restrictions are removed.

 

To move the funds to bank sub-accounts, first, create the sub-accounts in your chart of accounts.  Under 'Save account under', select the bank account where the funds are on deposit.  Then, transfer (New > Transfer) the amounts to their appropriate sub-account.  That will keep all of the funds in the same bank account on your balance sheet but they can be displayed as separate sub-accounts so you don't have to keep track of them in your head.  Hope that helps. 

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