B R A D ' s ON L I N E R M E M O- - -
TO: Interested Onliners FROM: Brad Pendable - CPA
RE: Building Fund Accounting ORIGINATED: January 2003
A little background first .... as explained in depth when you Click Here, a part of the my Job Description at the Church where I serve says something like the following:
Ministries often need help from someone who is familiar with the nuances of Ministry Finances. So, as a specialized Missionary under our direction and fully financially supported by this Church, I am retained to, not only serve on our staff as our Chief Finance Officer (CEO), but to also be available for such purposes and provide assistance along these lines for other Churches and Missionary Organizations.
Of course, I am available for Online Seminars, but, what I probably enjoy the most is being an associate member of the Ministry Finance Team - MFTeam (or Board Finance Committee) of the applicable Ministry. So, as you can see, I deal with various MFTeamates, or colleagues, and there continues to be questions as to my views of how they could do their Building/Construction Accounting. I have, therefore, decided to document them in this QUESTION AND ANSWER format.
To remind you ... much of my perspective flows from working with Jim Bramer down through the years. Plus, he has allowed me to link to various documents on his web site that tie into what I am sharing below. By the way, he just placed 5024 out on his web site that also covers some of the topics I will cover below. I believe he also plans to put some data along these lines into his periodic JIMs JRNL. I suggest you Click Here and view this alphabetical list of such JIMs JRNL topics. Please Click Here for a sample Actual to Budget Bldg project financial reports.QUESTION #1
Brad, why are Building Funds at a Church (or any other Christian Ministry for that matter) not the ordinary restricted or specialized funds within this context?
ANSWER #1
As Jim points out within very helpful 0041 foundational "Fund Accounting" document, monies come into a Ministry that must be used for unique operational purposes at the Ministry and it MUST use appropriate accounting techniques and principles. Then there re the General Purpose monies that are to be used for the general operations of the Ministry, plus there are also Special Purpose monies that either come in from donors or they are General Fund assessments by the Board for special approved operational areas of the Ministry.
QUESTION #2
OK, but where does a Building Project fall into this "Fund Accounting" equation? My understanding is that such monies would include:
1> Pledges, or special designated donations/offerings;
2> Budget monies transferred from the General Fund as explained within 5019;
3> Plus, of course, necessary Loan proceeds.
4> And, of course, expenditures would obviously be for new property or facility that ultimately needs to be capitalized as fixed assets.Or these transactions are not the ordinary Ministry operational matters.
ANSWER #2
How true. Let me share my view of the accounting and reporting objectives that must result from this needed "Fund Accounting" process:
1> Show current status of how much is available for this unique Building Project
2> NOT have a separate Building Project checking account, or we continue to pool our money so we can earning the maximum amount of Interest Income.
3> Increase our Ministry assets (Building Project or Construction in Process)
4> Increase liabilities (book payables when incurred; show the amount of Building Project loan proceeds.)
5> Not confuse the vital accounting and reporting of your normal Church operations.QUESTION #3
Sounds to me like all of this could get very 'messy". Can you give us some examples?
ANSWER #3
OK. Let's begin with a very simple Trial Balance that I display in two sections below --- you will notice that I have significantly abbreviated the Chart of Accounts in the first section below.
1st Section:
Type of
Name or ID
Debit
Credit
Asset Pooled Bank/Savings $ 13,298.00
Equity Missions Special Purpose Fund (SPFund) Bal $ 2,115.00
Equity Other SPFund Balances $ 4,201.00
Equity Board Discretionary SPFund Balances $ 2,955.00
Liability (a) Bldg Project Clearing $ 4,313.00
Income General Fund, or GPFund Donation Income $ 85,554.00
Income GPF Other Income $ 4,579.00
Expenses GPFund Sal/Benefits $ 51,847.00
Expenses Facility Debt Service-Interest Exp $ 5,400.00
Expenses Paid on Principal $ 3,325.00
Expenses Prop/Facility Expenses $ 4,150.00
Expenses Ministry Expenses $ 17,142.00
Cross Funds Cross Funds-to/from GPFund and SPFunds $ 8,555.00
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Total $ 103,717.00
$ 103,717.00
(a) See more comments below In the 2nd Section of my Trial Balance below, I have clearly identified the portion that pertains to just the Church's "Land, Building and Equipment - LB&E" matters. I agree with what you will note in 0127 when Jim prefers to have the LB&E info in a second set of books, or via another option in what he calls "Memo Accounts" in 0102 . But, I believe it can be in the same set of books as long as you carefully distinguish it. Usually a distinct set of Chart of Account numbers helps; especially when you make "three legged" entries mentioned within 0111 . If you are a user of Quickbooks, ask me about the "integrity proof" process.
The important thing is that all info about the LB&E can be readily known and internally proofed. Please note that the report below includes such data as:1> Amount invested in LB&E before the current project
2> Amount on hand ($4,313.00) for the current project;
3> Reflection during the year of fixed assets or liabilities paid by the General or Special funds of the Church;
4> More complete Bldg Project info, or how such money came in and was spent. Note this info may cover more than one fiscal year as Bldg Projects are seldom fiscal year oriented.2nd Section:
Type of Account
Name or ID of Account
Debit
Credit
asset
Before Project - Land Building & Equipment
$ 950,000.00
(LB&E) See Excel doc for details
asset (as offset)
Accumulated Depreciation through end of
$ 50,000.00
previous year... see Excel doc for details
asset
New Property
(a)
$ 25,845.00
asset
Bldg Project or Construction in Progress
(z)
$ 78,739.00
asset
Bldg Project Clearing
(z) (w) (y)
$ 4,313.00
liability
Old Mortgage Payable
(b)
$ 3,325.00
$ 150,000.00
liability
Loan Payable - loan proceeds
(z)
$ 32,500.00
equity
LB&E Equity
$ 750,000.00
equity (extend)
Donation receipts B4 2001-2002 FYE
(z)
$ 5,445.00
equity (extend)
Donation receipts 2001-2002 FYE
(z)
$ 45,107.00
equity (extend)
Cross Fund-Prov by GPFund 2001-02 FYE
(b) (y)
$ 3,325.00
equity (extend)
Cross Fund-Prov by SPFund 2001-02 FYE
(a) (y)
$ 25,845.00
Sub-Total
$1,062,222.00
$1,062,222.00
(a)
To record the property acquisitions as provided via a SPFund
(b)
To record the principal paid as part of the GPFund budget
(w)
This account balance MUST always agree with "Bldg Project Clearing
SPFund" account
(z)
Throughout the year all such activity flows through the "Bldg Project Clearing SPFund
SPFund account. Then such tranx are duplicated here and placed in their respective accounts
(y)
Corporately such accounts zero out.
What is not shown herein is any Equipment purchased during the
year from either GPFund or SPFund and the annual depreciation
accounting required by GAAP
QUESTION #4
I think I follow most of this as these two Section contents seems to meet most of my accounting and reporting requirements. There seems to be merit in what Jim recommends in 0127 regarding a completely separate set of books since you are actually keeping a self balancing portion within one overall double entry set of books as set forth above by the self balancing two Sections. But why is there a need to have two offsetting "Bldg Project Clearing" accounts?
ANSWER #4
Viewing the balance in the "Bldg Project Clearing" account serves the basic internal only "Fund Accounting" purpose of always knowing how much of the Common Bank/Savings account is available for the Bldg Project ...... which , of course, includes non operational borrowed money and fixed asset transactions.
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UPDATED LAST: October 18, 2008
Fresno, California
Please contact CPA Brad Pendable by Email at Brad@rpfin.org| OUR PURPOSE | WHY "NEST OF BEES" | WHO WE ASSIST | ASSISTANCE EMPHASIS | ASSISTANCE SPECIFICS | INFO ABOUT BRAD