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Katbookkeeping
Katbookkeeping
December 12, 2023
Question

Zero out current liabilities

  • December 12, 2023
  • 1 reply
  • 0 views

Hi, I'm a treasurer for a small non-profit. Our organization funds different projects and uses fund accounting which I'm new to. We have a current liabilities account, "approved grants," which reflects what we've agreed to fund. Then throughout the year we debit this account and credit our "Current year grants" expense account. The problem arrises that those two amounts don't always equal each other. For example, Board approves $100 for event, but receipts come in at $90. At the end of the year, we would like to zero this amount out. Currently we have a large balance sitting there needing to be zeroed out. I've very comfortable doing journal entries, but which account should I use? I'm assuming retained earnings? Thank you!

1 reply

Rainflurry
Rainflurry
December 13, 2023

@Katbookkeeping 

 

What is the debit entry when you credit the approved grants liability account?  Is it the fund's equity account?  If so, then IMO any balance left in the approved grants liability account should be closed to income, not retained earnings.  The journal entry is a debit to the approved grants liability account and a credit to income.  Any amount sitting in a liability account has not been recorded as income yet since both a liability and income have normal credit balances.        

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